The city's Board of Estimates approved yesterday a politically sensitive, yet financially imperative, strategy to stabilize escalating health care costs by increasing the prices managers and retired employees pay for medical insurance.
Nearly 12,000 retired city workers and 2,000 nonunion employees -- including elected and appointed officials and high-level managers, including Mayor Martin O'Malley -- will be affected by changes to what officials call "very generous" medical and prescription drug plans. The packages will take effect Jan. 1.
"It's an unsustainable situation," O'Malley said. "We are a city that is spending three times as much on prescription drugs ... than we are on recreation and parks for our children."
The city's expenses for health care and prescription drugs for retirees have risen 74 percent since 1998, from a combined total of $64.2 million to $111.9 million for the fiscal year that ends June 30. For active employees, those costs increased 47 percent, from $56.8 million in 1998 to $83.4 million this fiscal year. Health care costs are expected to rise 13 percent next year.
O'Malley warned city employees in a speech this month that they would have to make sacrifices to help his administration control rising health care expenses.
Union officials have continually said that top-level managers should make those sacrifices first. Yesterday's decision might neutralize that argument. O'Malley's labor negotiators enter collective bargaining this month and will ask union officials -- who represent nearly 11,000 workers -- to accept the package.
"We're going first," said Finance Director Peggy J. Watson. "This is the model for what we put on the table with the unions."
City officials said employees enjoy the best benefits package in the state. In 2003, city employees will contribute an average of $17 a month for individual health benefits and an average of $46 a month for family coverage, a city report says.
"It's not fair, and it is not just that one of the poorest jurisdictions in the state would subsidize the most generous health care benefits," O'Malley said. The mayor added that the city's benefits package needed to be more in line with what many private sector employers provide.
Watson said city employees have the rest of the year to digest the changes to the city's health care plans and that no-cost options with health maintenance organizations will still be available.
Glenard S. Middleton Sr., president of the American Federation of State, County and Municipal Employees Union Local 44, said he was pleased to see that managers were enduring the same health care contribution increases that were being proposed to city workers.
"I take my hat off to the mayor for doing this," Middleton said. "I believe it is one step in the right direction. But a lot more needs to be done."
He said retirees may struggle to absorb the increased costs, a concern shared by City Council President Sheila Dixon. "This is going to hurt retirees most because many are on fixed incomes," said Dixon.
For active city employees, monthly premiums for CareFirst BlueCross BlueShield PPN will increase to 20 percent from the current range of 4.6 percent to 12.2 percent.
Employees will begin paying 20 percent for in-network hospital room and board up to $1,000 for individuals and $3,000 for families. They are now covered at 100 percent.
Office, emergency room and specialist office visits are all fully covered. They will require co-payments of $20, $25 and $25, respectively. In-vitro fertilization benefits, now unlimited, will be capped at $12,000.
Most prescription drug co-payments for retirees and active employees will double but will offer cheaper alternatives using mail-order prescriptions. Retirees not covered by Medicare pay 21 percent to 41 percent of premiums for the range of BlueCross BlueShield and HMO plans. Those covered by Medicare pay 12 percent to 35 percent. For those who remain in BlueCross plans, premiums will increase to 50 percent. HMO plans will cost less.
The city estimates the proposed changes will reduce the city's costs for health care by about $4.1 million annually.