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A better deal for retirees and NYC: But the city made two mistakes with its Medicare Advantage Plus plan

This post was written in collaboration with Charles Brecher.

A potential win-win initiative for retired city employees and local taxpayers is being undermined by two mistakes in its implementation. Indeed, a state Supreme Court justice just issued a temporary restraining order putting the reform on hold because of the confusion created by the haphazard way the city has handled the roll-out of what should be a welcome change to retiree health-care benefits.

The initiative is reform of the health insurance program for city retirees and their dependents who are on Medicare. The current program covers about 250,000 retirees and their dependents and costs taxpayers almost $1 billion annually, $350 million more than it cost 10 years ago, according to figures provided by the city. A new arrangement, known as an Advantage plan, has been created and is scheduled to begin in January 2022. Sponsored by Empire Blue Cross and Emblem Health, the plan was developed by the mayor’s Office of Labor Relations and the Municipal Labor Committee (MLC), a coalition of municipal employee unions that negotiates health benefits for the unionized city workforce.

Nationally, Medicare Advantage plans have 26 million enrollees and have grown rapidly, with membership more than doubling since 2010. More than 45% of Medicare enrollees in New York State are now in Medicare Advantage plans. By negotiating favorable rates with doctors and hospitals and by managing enrollees’ use of services, the plans reduce costs and apply the savings to lower out-of-pocket charges and enhanced benefits for members. The plan being offered to city retirees has these positive features. It caps out-of-pocket costs and has new benefits including payments for hearing aids, gym fees, rides to medical visits, and at-home meals after a hospital stay. Both the new plan and prior plan will require $15 co-payments for many office visits, as part of a prior health-care cost savings agreement between OLR and the MLC.

But in announcing the new plan, the OLR and MLC have hyped the savings in a way that has frightened some retirees. The outcry against the new plan resulted in the lawsuit in which the judge just acted, and a Council oversight hearing is scheduled for Thursday. The claim that the new plan will save the city $600 million a year may be accurate, but the savings come from the fact that the federal government covers the full cost of Advantage plans, saving the city the cost of reimbursing enrollees for Medigap insurance policies. In other words, the savings come from shifting costs from the city to the federal government, not cutting individual benefits.

Without this explanation, the implication is that services will have to be cut significantly and freedom of choice among providers will be limited to achieve this much cost control. This is not the case, since the new plan is designed to attract a large network of physicians and hospitals by paying current Medicare fees to all participating providers. Prior authorization from the insurance plan will be required for most hospitalizations and other expensive procedures, but this avoids unnecessary treatment and improves care through better coordination of services, which is part of the reason why Advantage plans are growing in popularity nationwide. To the extent the plan’s management of care falls short of the anticipated savings, the private insurers rather than local taxpayers are at risk.

The second significant mistake is in how the projected savings are being allocated. All the money will be placed in an obscure account known as the Health Benefit Stabilization Fund. Created in 1984, this fund was originally intended to hold money deposited by the city, to be used to keep the premiums on two different health insurance options offered to city employees at the same rate. The fund is “off-budget,” not subject to appropriation by the City Council or controlled by the mayor; instead, it is jointly managed by the MLC and OLR. In recent years, substantial sums accumulated in the fund have, based on collective bargaining agreements, been used to help pay for raises for municipal workers as well as to improve their health insurance benefits.

By putting savings from the new Advantage Plan into this fund, the mayor is effectively agreeing to build up a pot of money that can be spent only with the permission of the employee unions’ leadership.

The reputation of the Advantage Plan among city retirees could be enhanced by correcting the mistakes in its design and implementation. The basis for the savings estimate should be made explicit and transparent. And the savings should be divided, based on a negotiated formula, between taxpayers and retirees. The taxpayers’ share of the savings should go to the city’s general fund for appropriation through the usual budget process. The retirees’ share should be returned to them as enhanced benefits. That way, truly everyone wins.

This post was originally published on October 25th by the New York Daily News.

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