Management & Operations

Healthcare Squeeze Is Key Transit Labor Concern

Posted on March 1, 2005 by Leslie Davis

When mechanics at the Los Angeles County Metropolitan Transportation Authority (MTA) went on a 35-day strike in 2003, the sticking issue wasn’t higher wages. Or more perks. Or better work environments. It was healthcare costs.

MTA employees, like those at many transit agencies across the country, were looking to increase health benefit contributions by the transit agency so they could retain their top-notch healthcare plan without paying more out of pocket. But as insurance premiums continue to rise for employer-sponsored plans, this request is becoming harder for transit agencies to accommodate.

“The cost of healthcare is the biggest issue in labor, and has been for the last three years,” says Jerry Benson, a board member of the Transit Labor Exchange, an informal group of transit labor negotiators. “We’re tracking double-digit increases year after year, and there’s no end in sight.”

In the U.S., healthcare premiums for all industries increased an average of 11.2% in 2004, the fourth consecutive year of double-digit increases, according to the Kaiser Family Foundation and Health Research and Educational Trust. Though that percentage was slightly lower than it had been the previous year, it was more than five times the national increase in wages, which rose 2.2% between spring 2003 and 2004, according to the .

The double-digit growth in healthcare costs may be due to easier access to specialists, higher payments to hospitals and doctors and the cost of new medications and technology, as well as the pressures of an aging population.

“Healthcare costs are rising at such a rapid rate that it’s difficult to figure out how to maintain them,” says Roger Snoble, CEO of the MTA. “Healthcare is a huge cost to any transit agency.”

The transit industry has historically offered generous benefits packages to employees as a way to compete for labor and maintain high retention levels. Employees aren’t necessarily willing to give up those benefits too easily, and at the bargaining table health insurance issues are dominating. “Employees don’t want to lose what they already have,” says Benson, who is also chief performance officer at the Utah Transit Authority (UTA).

In the UTA’s most recent labor negotiations, there was no increase in wages for employees so that healthcare benefits would be preserved. “They are telling us to take the money we would have given them in wages and put it into benefits,” he says.

UTA has had good experience with its jointly managed insurance trust, which has been in place since 1989. “For a given set of dollars, employees get the best healthcare available,” Benson says.

The trust has seven trustees, three each from the union and the agency and one neutral, that together select, design, negotiate and authorize the UTA’s healthcare plan. UTA puts a fixed amount into the trust, which has even generated surpluses that have helped offset costs.

While UTA hasn’t seen reductions in its healthcare costs, its rate of increases for healthcare have only averaged 5% to 6% per year, which Benson says is “pretty manageable.” The agency spends about $10 million annually on healthcare for all of its 1,800 employees.

No ‘wiggle room’
Even after all other issues pertaining to the MTA’s union negotiations were settled and service resumed, it was the issue of funding the Amalgamated Transit Union’s (ATU) health trust fund that became the subject of a 90-day non-binding arbitration. The ATU was administering the fund, with the MTA contributing more than $1.5 million a month so ATU could purchase healthcare coverage for its members. Arbitrators ruled, instead, that seven trustees should manage the fund — three appointed by ATU, three by MTA and one outside healthcare expert.

The MTA was also required to boost monthly healthcare subsidies for current ATU members and those over the age of 65, costing the agency an estimated $4 million over the life of the contract, which extends through June 30, 2006.

“Our funding has not increased dramatically, and there are a lot of different needs for the funding we do have,” Snoble says. “Unions know we can’t lay off [contract] employees and reduce service; that doesn’t give us much wiggle room.”

Realizing no reductions in healthcare costs, the agency has had to cut back where it can, Snoble says. Fare increases do not generate enough additional revenue to help with costs, and the agency isn’t able to reduce its levels of service. So, last year, the MTA had to lay off a large number of non-union employees, and it may have to do the same this year.

The MTA has five labor unions with which it negotiates, and all have proven to be a challenge, Snoble claims. “Labor unions are political bodies. They’re always looking for more,” he says. “But some understand more and are willing to negotiate.”

Containing costs
Dallas Area Rapid Transit (DART) was fortunate to have a union local willing to negotiate. At the forefront of the agency’s current negotiations was the rising cost of healthcare, says Ben Gomez, executive vice president and chief labor negotiator at DART.

“Everyone is facing similar situations. Some unions are just more willing to compromise on wage increases to contain healthcare costs,” Gomez says. “The unions are trying to minimize the financial impact on their members, and I appreciate that.”

Having experienced double digit increases (as high as 14%) in premiums the past couple of years, DART proposed an 80/20 split that put a higher financial burden on employees. “That has to be shared,” Gomez says. “It’s not something DART can fully absorb.”

The agency’s healthcare plan characteristics changed, and a plan based on co-payments was put into place that doubled certain co-payments. For instance, the hospital co-payment increased from $250 to $500 per visit.

DART made a point of informing employees of changes in its plan so that they wouldn’t be surprised. “Employees recognized our efforts,” Gomez says. “We would have seen minimal reaction to the changes if it weren’t for the hospital co-pay.”

Gomez says he realizes that employees need wage increases to withstand the impact from increases they are seeing everywhere else, like healthcare and costs of living. He says he appreciates that they are taking a more conservative approach on the wage side and instead asking employers to minimize healthcare costs. “The unions are being responsible and understand there’s only so much money,” he says.

Instead of projecting savings through the new healthcare plan, DART is looking to contain costs. It’s hoping to do this through such measures as discouraging employees from unnecessarily visiting emergency rooms. It increased the co-payment for emergency room visits from $75 to $150, and made the co-payment for less expensive urgent care facilities $50.

“I don’t think we’ll realize savings,” Gomez says. “What we’ll hopefully do is slow down growth.” For DART’s 3,000 employees, the agency spends about $20 million per year on healthcare, the largest chunk of its benefits package.

A real struggle
Lane Transit District (LTD) in Eugene, Ore., is also looking to control healthcare costs. At press time, the agency was continuing negotiations with its local ATU that started in May 2004. Healthcare is the primary fiscal issue, says General Manager Kenneth Hamm.

Between 2000 and 2004, the costs of the agency’s healthcare package increased 100%. The agency’s most recent proposal wouldn’t save any money in the next several years, but would cap the increases at 10% per year, Hamm says, despite a 34% increase in the cost of insurance premiums in January 2005. “We really didn’t think we could survive without cutting service again,” he says.

LTD is negotiating a three-year contract with the ATU, and has performed economic assessments to index its financial situation against other agencies to come up with what it feels is a fair offer. The district’s last best offer during mediation was an 80/20 plan costing $818 per employee per month with an employee health savings account of $77 per employee per month, for a total of $895 per employee per month. The union’s most recent offer would cost the district $987 per employee per month, a difference of $258,336 annually.

Under LTD’s previous plan, there were no costs to employees other than a $10 co-payment. LTD is offering the same healthcare plan it has had in place but raising individual and family deductibles to $500 and $1,500 annually, respectively. “The union moved off its position of rolling over the managed care health plan, but is still interested in a plan that covers 100% of the employee’s out-of-pocket costs,” Hamm says. “We’re hoping to get back to the table.”

LTD is funded by payroll tax. After being hit especially hard by the 2001 recession, LTD had to cut 11 administrative positions and two union positions, many materials/services expenses, discretionary spending and 9% of its service. If LTD were to roll over the health plan specified in the old contract, it would have to again cut service. Since final negotiations have yet to be reached, the agency implemented its final offer plan on Feb. 1. “It’s been a struggle,” Hamm says.

Staying afloat
The Kansas City Area Transportation Authority (KCATA) has also had funding problems in the past, and was even on the brink of shutting down several years ago due to a lack of funds. Fortunately, in November 2003, a transportation-dedicated sales tax was passed that provides the agency an additional $20 million to $22 million a year.

“We are constantly trying to keep costs down,” says Deputy General Manager Fern Kohler. “We don’t have a lot of money, but that doesn’t keep [unions] from asking for things.”

Besides wages, healthcare is the biggest cost for KCATA. Kohler says the agency hasn’t been able to bring costs down as low as it would like, and has even reduced its employee co-payments. To help keep its own costs down, the agency has stayed with the same healthcare provider over the years.

“Where we want to control costs, employees want more,” Kohler says. The agency’s employees are seeking better plans and lower contributions, areas where KCATA is trying to save money. The agency anticipates spending about $3.6 million on healthcare in 2005 for its 850 employees, 650 of which are in a union. It is experiencing double-digit increases in the costs of premiums, and is trying to keep costs down by increasing its emergency room co-payments.

Improving employee health
An American Public Transportation Association Webinar held on healthcare benefits for employees articulated three steps for transit agencies to minimize, and hopefully reduce, healthcare costs. The first is to aggressively negotiate with healthcare providers to get the best deal. Secondly, analyze the agency’s benefit design and cost-sharing model to see where costs can be saved on the employer end. “Check to see where you have inefficient design issues,” says Benson, who contributed to the Webinar. “If it’s just as cheap to go to the emergency room as it is to the urgent care facility, you have a problem.”

The third area is to improve the health of the workforce in measurable ways that come back in dollars. “This goes beyond wellness programs to addressing high-risk populations and those with chronic conditions,” Benson says. “All we’re doing now is arguing about who pays for what.”

In the meantime, transit agencies are working to improve the health of their employees. At DART, a hotline was set up that allows employees to talk to a nurse and get information before going to see a doctor. Besides potentially avoiding a doctor’s appointment altogether, the nurse can provide a patient with a list of talking points to help avoid repeated visits.

The agency is also encouraging employees to be fit with a weight-management program, walking club and subsidy for gym membership. Staff from the University of Texas Southwestern Medical Center went to the agency to perform free blood pressure and cholesterol screenings, as well as prostate screenings for men.

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