City, FOP hope everyone benefits with health savings accounts
Although Warwick Police won’t see a pay raise for the next three years under the terms of an agreement to come before the City Council last night, they could get something no other Warwick union has – health savings accounts.
Mayor Scott Avedisian said savings accounts, HSAs, are something the Fraternal Order of Police brought to the bargaining table. And while unproven in Warwick, city personnel director Oscar Shelton believes they could become a model for other contracts.
FOP President Peter G. Johnston said the union warmed to the concept of the individual accounts after talking with Robert Knowles of Rhode Island Blue Cross and officers in other departments.
“We’ve talked to Cranston [Police] and they’re happy with it,” said Johnston.
Under the terms of the agreement ratified by the FOP membership, the city would put $2,000 a year into a health savings account of an employee with an individual health care plan. Those with a family plan would get $4,000. The accounts are based on a calendar year and would not start until Jan. 1, 2013, Shelton said.
The accounts build from year to year.
Shelton said the accounts are regulated by strict Internal Revenue Service guidelines and that the money accumulated can only be spent on medical-related expenses. The accounts are seen as especially attractive to those who don’t use or require a lot of medical services.
Shelton says the accounts serve as an “incentive” for those who are healthy to use less of their health plan.
“The FOP will contribute roughly 20 percent of their health care coverage. The difference now is that they will have health savings accounts that are designed to incentivize the individual employee to go for routine checkups and do preventative care,” Avedisian said in an email.
Will the accounts end up costing taxpayers, or could it result in savings for participants and the city?
Shelton can’t answer the question, nor could Blue Cross.
“It was their [police] proposal. They have the notion this is going to reduce co-share,” Shelton said.
The concept is that with reduced use of health care, rates will decline. That’s part of it.
As for the city, the accounts would enable a plan with deductibles of $2,000 on an individual plan and $4,000 on a family plan that would translate into a lower premium.
“Clearly the cost of the premium will go down,” Knowles of Blue Cross said Thursday. Depending on the level of the deduction and assuming plans with identical benefits, he said there could be as much as a double-digit percentage decline in the premium.
Under the terms of the agreement, the police health care contribution increases to 20 percent of costs, not to exceed $23 a week for individual coverage and $57 a week for family coverage that equates to $1,196 and $2,964 a year respectively.
As an example of how the account works, Shelton said a policeman who might only see a physician once in a year at a cost of $200, which would mean $1,800 in the account to be carried forward.
Knowles said the deduction would not apply to preventative care such as an annual medical checkup. Those costs are covered under the plan and wouldn’t come out of the account. He said users should be educated in how the accounts work, to keep track of deductibles and how they can reduce their costs. He said there are online tools to help members keep track of their accounts. Members are issued cards to access their accounts.
“It gets people aware of what health care costs are,” said Knowles.
As an example, he said rather than rushing to the emergency department in response to an earache, a member might want to consider first contacting their primary care physician, as care at that level is less costly than at the hospital.
Knowles said the accounts are portable so that a member of the police force can take it with them when they leave. Also, as they are an individual’s property, they can be assigned to a beneficiary in a will.
Knowles said the accounts can be used for other than medical purposes, but doing so carries a 20 percent IRS penalty.
“I don’t see it costing us [the city] more,” Shelton said.
As for whether it could become a part of plans for other employees, Shelton said, “we’re going to look at it and see what effect it has. It’s worth a look.”
The Jan. 1 implementation will give the city the time to work out arrangements with the Inter Local Trust. The city, which since the early 2000s had self-insured health coverage, meaning it paid for claims as managed by a third party, has gone to a fully insured plan with the Trust. Under the system, the city pays a set premium for Blue Cross coverage under a contract with the Trust.
Johnston believes the accounts have the potential of “changing behavior” because those with them will view it “as their money.”
Attorney for the FOP Joseph Pezza projected the saving accounts would drive down insurance premiums for police by 20 to 30 percent.
Avedisian said the contractual savings amounts to more than $2 million for the three years the agreements are in place. In addition, the mayor said pension actuaries say the contracts will reduce the city’s unfunded pension liability by about $32 million. Those reductions are achieved in large part because benefits for police and fire retirees are linked to the current pay scale. In place of a cost of living adjustment, retirees’ payments are increased by the same wage percentage increases won by active members of the plan.