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New York Daily News


Public Employees' Cadillac Health Care Plans Are Bankrupting States And Localities

August 08, 2011

By Josh Barro

With stimulus money running out and the economy stagnant, state and local governments are under severe financial strain. So how can states and localities continue to afford to pay for ultraexpensive health plans for their workers?

Some insist these “Cadillac” plans are a figment of the right-wing imagination. But in a new report just out from the Manhattan Institute, I show that employees of state and local governments get health benefits that are significantly more generous than is typical in the private sector. The average government worker earns $4.66 per hour in health benefits, compared to just $2.08 per hour in the private sector.

That’s partly because public employees are more likely to get health insurance through work. But even when you just compare workers getting health benefits, the average benefit is higher by $1,300 per year for a government worker taking single coverage, and $2,100 for family coverage.

Why are government benefits more expensive? Partly it’s because government workers tend to pay a smaller share of their insurance premiums - roughly 15%, rather than the 25% that is typical in the private sector. And partly it’s because the government plans tend to be plusher, with lower co-payments and deductibles and shorter waiting periods for coverage.

It hasn’t always been this way. As recently as 1996, there was almost no gap between the average health insurance premium in the public and private sectors. Since then, the cost of public employee coverage has grown at a pace 20% faster than in the private sector. While private employers have responded to runaway health care inflation by adjusting their health benefits, too many public employers have failed to adapt.

The situation in New York is particularly extreme. Most city workers pay no contribution at all toward their health insurance premiums. City and state workers are also eligible for free or heavily subsidized health benefits in retirement, including after they become eligible for Medicare - a benefit that is rare in the private sector.

Some states are making progress on containing costs. A new law drawn up by Gov. Chris Christie and legislative Democrats in New Jersey will significantly raise employee contributions for health insurance, particularly for higher-paid government workers. And the contract that Gov. Cuomo recently reached with the Public Employees Federation will bring similar changes for some public workers here in New York. Cost-saving reforms have also been enacted in Indiana, Massachusetts, Ohio and Wisconsin.

But at the municipal level in New York State, most public workers still pay little or nothing toward their own insurance. A recent report by the Citizens Budget Commission estimated that if New York City employees were required to pay 10% of insurance premiums for single coverage and 25% for family coverage - levels below the private sector average - the city would save $600 million per year, enough to pay thousands of teachers’ salaries.

Public employees should contribute on roughly the same terms seen in the private sector. But governments should also look for ways to reduce the total cost of health benefits. In Indiana, the state government has implemented “consumer-directed” health plans that are designed to encourage employees to be more cost-conscious when consuming health care. By decreasing usage, these plans have achieved roughly a 15% cost reduction, with the savings divided among the government and the workers.

Whatever reform path Mayor Bloomberg and others decide on, we can’t go on like this. We have seen at agencies like the MTA what happens when unsustainable labor costs run up against weak revenues - you get layoffs and deteriorating service. The Cadillacs are heading off a cliff.

Original Source:



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