NEWPORT, R.I. – November 8, 2012 – While cities and towns throughout Massachusetts struggle to meet their obligations for retiree health benefits, the city of Brockton turned to the health insurance marketplace for a solution.
The city worked with KTP Advisors in an effort to drive down costs in its Medicare insurance plans. City officials agreed to the unusual step of running a process that forced existing providers to competitively bid for its Medicare Supplement plan against a field of national carriers that specialize in this market. Bidders were required to structure the plans without altering benefits and to maximize federal subsidies available to the city from the Medicare program. The result is estimated to save the city and its Medicare-eligible retirees $1.2 million in the current fiscal year and $2.4 million annually, without reducing benefits, explained Brockton Mayor Linda M. Balzotti. “The city and retirees will split the savings. This process was not only good for our city and taxpayers, but our more than 1,900 Medicare-eligible retirees and dependents will continue to receive the same benefits from Blue Cross/Blue Shield of Massachusetts as in the past, and at a rate that’s in the aggregate 24 percent lower.”
Generating competition among health care insurers for retiree health benefits is in the best interest of taxpayers and municipal retirees, said Barry Eyre, an official at KTP Advisors. “Competition allows municipal public officials to know they have maximized the prudent use of tax dollars. Retirees often share in the costs savings generated from competitive bids, as in the case of Brockton, and by maintaining a group plan, its retirees do not have to navigate the individual market where they have no bargaining leverage with insurance carriers, and prices can be volatile. Lastly, retirees don’t have to worry about changing doctors, because most doctors accept Medicare. This allows for a greater number of bidders which helps drive down the costs.”
During this review, Brockton switched from being self-funded to fully-insured for its Medicare-eligible retirees. Consequently, the city has significantly reduced its risk and added a higher level of certainty to its budgeting for retiree benefits, added Eyre. “We expect these changes to have a positive material effect on the city’s OPEB liability.”