Pittsfield Finds Health Insurance Contract Overfunded
PITTSFIELD, Mass. — The City Council cut another $39,168 from the budget Tuesday night after discovering a union contract had been overfunded.
In 2014, then Mayor Daniel Bianchi had negotiated with the Public Employees Committee to switch from the Group Insurance Commission to Blue Cross Blue Shield, which saved the city around $2 million over the course of three years. The city's Public Employees Committee, which is made up of representatives of the city's 15 workers unions, approved a contract with the city on how to share those savings.
The contract calls for the city to establish an "employee mitigation fund."
In the first year of the contract, the city was supposed to put 25 percent of the savings between the GIC and Blue Cross Blue Shield plans into the mitigation fund. In year two, the city would place 25 percent of the savings seen, but that was not to exceed $250,000. The same is called for in year three.
But the city jumped ahead a year by funding the line at $250,000 in the FY16 budget. Director of Finance Matthew Kerwood described it on Tuesday as having "preloaded" the fund. Instead, he said, the allocation schedule calls for the first year being in FY17, second in FY18, and third in FY19.
What Kerwood says the council should have done is budget the actual difference of $332,878 in FY17 and then $178,001 for this upcoming year. Whatever the 25 percent difference between the GIC and Blue Cross Blue Shield is next year would then get funded in 2019.
What actually happened is the council put in the $250,000 ahead of time, then followed up in FY17 with another $300,049. During this budget process, Kerwood put $250,000 in for this year as well, not knowing the exact savings. That had led to a debate on the City Council floor last week, which ultimately brought in legal counsel to review the fund.
In figuring out the issue with the fund, Kerwood then tracked down the actual amount needed to be allocated, which is $178,001 — some $70,000 less than allocated in the proposed budget. At this point, the city would have only needed $510,880.02 in that account. But instead has already $550,049, thus an overage of $39,168.98.
The City Council cut that amount from this upcoming budget to bring the totals in line with what the final cost estimate is expected to be. This year's allocation of $210,832 brings the account to a balance of $368,568, which could still be more than needed.
That total estimated the maximum the city should need because it would assume 2019, which is still a year away from being known, is at the maximum $250,000 allocation. If there are excess funds left over then, Kerwood believes it could go toward offsetting other deficits in other lines. He does not anticipate having to add any more funds next year.
Ward 5 Councilor Donna Todd Rivers, a former attorney, worried about the language in the contract reading that the accrued funds would be negotiated with the employees. She fears that the union would have a claim on any funds the city puts into the account above what the contract says it needs to put in. Rivers advocated for cutting that line item even more instead of funding through next year.
"I'd rather err in the line of taking too much out and have to add a little in FY19," Rivers said.
Councilor at Large Melissa Mazzeo had argued that the budget was overfunded last week and continues to suggest that the budget could be cut even further. She pushed for a $50,000 cut on Tuesday, saying the amount the city has been required to place into the account has been decreasing.
The amount needed has gone down for this year and, with a 12.9 percent increase in Blue Cross Blue Shield premiums, should go down again. The likelihood is that that the savings between the two plans will be less than the $250,000 currently estimated.
The city pays out each year to some employees to offset increases in their health insurance premiums. How to disperse whatever is left in that account is to be negotiated at the end of the contract. So far the city has paid out $216,246.44 in the first year, and $176,065.37 the second. It will know the final payout and allocation amount this time next year.
Tags: fiscal 2018, pittsfield_budget,
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