Bargaining Changes in Health Insurance Contributions.

Ever since Governor Romney proposed legislation in 2003 setting municipal employers’ health insurance premium contributions at 75% and employee contributions at 25%, cities and towns have been attempting to bargain for the reduction to 75% of any higher employer contributions. While the reduction of employer contributions is generally undesirable, the employer’s anxiety about the cost of insurance can be turned to the employees’ advantage. Employers have been induced to pay substantially more in wage increases than they have gained in premium contribution reductions. This strategy is available to unions only when employers propose a reduction in their health insurance contributions; the union cannot expect such exceptional wage increase unless the employer first seeks a reduction of health insurance contributions.

Some recent contract settlements negotiated by this office demonstrate the possibilities. In the case of the Essex Police (MassCOP Local 270) Attorney Ken Grace negotiated a 6.5% wage premium to offset a proposed reduction of the employer’s health insurance contribution from 90% to 75%. The parties assumed that their general wage increases would have been 3%, 3%, and 3% without the change in insurance contributions. In that case the contract wage increases and the insurance reductions were as follows:

General Wage Increase Town’s Insurance %
July 1, 2004 3.0% 90%
July 1, 2005 9.5% 75%
July 1, 2006 3.0% 75%

Assuming that an employee has an HMO family plan costing a typical $12,000 per year, the 15% increase in employee contributions costs 15% x $12,000 = $1,800 per year. However, the 6.5% wage increase on a typical police salary of $50,000 per year generates 6.5% x $50,000 = $3,250 per year. Not only does this wage increase far supersede the increased employee cost of the insurance contribution increase, but unlike insurance contributions, it increases the overtime rate and it increases the employee’s pension benefit. For employees on the individual insurance plan, the gain would be even greater.

One concern about agreeing to any reduction in the employer contribution in health insurance is that any compensation for the change will be swallowed up by the substantial annual increases in the premium. Assuming that premium rates will increase at an average of 10% per year, the additional cost arising from the change in rates from 90% to 75% will not overtake the $3,250 wage premium for seven years. That is, the $1,800 increased at 10% per year will not rise over $3,250 until the seventh year. During the first six years following the change, the employee is getting far ahead of the game. By the time the seventh year comes around, there may be some entirely new approaches to health care.

Another approach to bargaining a reduction in the employer’s contribution to health insurance has been to make the reduction gradual, but again with substantial wage premiums. Attorney Amy Davidson of this office bargained the following package for the Dedham Firefighters (Local 1735, I.A.F.F.):

General Wage Increase Town Insurance %
July 1, 2004 2.0% 90%
July 1, 2005 6.92% 87%
July 1, 2006 3.0% 84%
July 1, 2007 4.0% 80%

Here the union obtained a 3.92% premium in 2005 and an additional 1% in 2007 (assuming a 3% increase would have been appropriate with no change in insurance) in exchange for the gradual reduction of the town’s insurance contribution from 90% to 80%. At the end of the contract the 10% increase in employee insurance contributions will cost about $1,200 per year while the compounded 4.96% wage increase generates $2,480 per year.

One final reason to consider this approach to bargaining is that some recent interest arbitration cases from the Joint Labor Management Committee have ordered the reduction of employer contributions. Rather than letting an arbitrator determine what compensation, if any, is appropriate as a trade for such a reduction, it may be desirable to bargain the appropriate trade.

Joseph G. Sandulli