Opinion

It’s just health care math

Kirstin BucciThe week before last reminded me of one of the many reasons that I am grateful to live in Rye: our city employees.

The DPW workers had the roads cleared of nearly a foot snow by the time the storm ended. I’m convinced that they become more efficient with every storm. A few days later, high winds knocked down trees and power lines, leaving hundreds of Rye homes without power. My family and I live in one of those homes, and we are so appreciative of the firefighters and police officers who worked tirelessly through the night, keeping people safe from downed power lines and facilitating Con Ed’s efforts to restore power. Dedication and professionalism of the city’s employees is one of the reasons I am grateful to live in Rye.

That was the easy part of my message. The next part is much more difficult.

Health care: The Math

Rye’s health care costs have risen 9 percent annually since 1999 compared to a 5 percent annual increase in property taxes over the same period. This is clearly unsustainable. I will go through the math below in an effort to convince readers that this isn’t an issue for conservatives or liberals or republicans or democrats. It’s just math. And the math is troubling.

Health care expenses totaled $1.2 million in 1999 compared to $6 million in 2017. A portion of the $6 million is funded by fee revenue from the Boat Basin and Rye Golf Club. If we exclude those funds, 2017 health care costs funded by taxes will be approximately $5 million. To put that in perspective, 22 cents of every tax dollar goes toward employee health care costs. If your family spent 22 percent of its income on health care, it wouldn’t leave room for much other spending, and your family would probably look to make changes in its expenditure.

Rye’s property taxes rose 6.7 percent in 2017. If we exclude the transfer of paving costs from the general fund (the City’s savings account) into the operating budget, the property tax rate increase is roughly 4 percent. This is the city’s cost of doing business, its run rate.

Nearly all of the $23.8 million in 2017 property taxes will fund employee salaries and benefits. Other revenues (building permit revenues, sales tax, etc.) cover expenses related to materials, the library, paving, etc. If we plan to minimize property tax increases going forward, we will need to rein in expenses, focusing on what we can control. Employee health care and retirement health care costs represent the largest piece of the pie that we can control.

As City Council members, we have a responsibility to Rye’s 16,000 residents to use city funds efficiently. We never forget that we are spending other people’s money. Our challenge lies in balancing favorable salary increases and benefits for our dedicated city employees with the limited resources of our taxpayers.

What’s the solution?

Slowing the rate of growth of health care costs requires switching to a less expensive health care plan and/or increasing employee contributions. City-provided health care coverage is considered generous: low copays, no in-network deductible, and employees are responsible for no more than 5 percent of the premium.

Rye’s firefighters recently transitioned to a different health care plan, saving the city a considerable sum. If all city employees were on a similar health care plan, it could save the city as much as $1 million per year. This is achieved primarily through slightly higher copays and a tighter network.

In addition to health care costs for current employees, the city also provides health care for its retirees, covering 100 percent of the retiree health care premium. Retirement health care has an additional cost driver: longevity. Since these policies were initiated decades ago, average life expectancy has risen substantially. As our city employees spend more years in retirement, the total cost of providing their health care coverage will grow exponentially. The most recent increases in our unfunded health care liability were driven primarily by longevity.

The city recently began asking new employees in the APG and clerical groups to contribute to the cost of their retirement health care premiums when they retire. The second step in controlling the city’s health care costs is asking new employees in the other groups (police, fire, DPW) to contribute to retirement healthcare premiums.

Remember, any changes that we make now to retirement health care for new employees won’t have an effect on the budget for decades. (Police officers can retire after 20 years with full benefits, all other city employees 30 years.) The changes will, however, reduce the city’s long-term obligations and positively effect our $85 million unfunded liability.

It’s unpleasant to discuss and even more difficult to implement change. Combine that with the fact that changes to retirement health care for new employees won’t make budgeting any easier for the current City Council, and it’s no wonder that prior councils have not dealt with this issue. It’s a lot of unpleasantness with no near-term benefit. It’s like asking city employees to eat less ice cream so that your neighbors can be svelte in 20 or 30 years.

So, it’s a two-part solution: rationalize current employee health care benefits and retiree benefits for new employees. I’m optimistic that the combination of these two initiatives will favorably alter the math such that current and future councils can maintain services and contain tax rate increases while still providing generous benefits to the city’s valued employees.