September 1, 2010
The Metropolitan Water Reclamation District recently announced that it is facing a $24 million budget deficit for FY2011.
After hearing a report of the FY2011 budget and the grim financial projection at a study session meeting held on July 8, 2010, MWRD Commissioners requested a list of possible cost-cutting measures. MWRD Executive Director Richard Lanyon provided a preliminary report focusing on areas of potential cost-savings to the District during a subsequent study session on August 12, 2010. The cost-cutting options included changes to health insurance contribution rates for current and retired employees, reduction or elimination of other employment perks and a revision of its salary schedule
In total, Mr. Lanyon identified approximately $7.3 million in potential savings for some of his proposals, about $3.2 million of which result from a variety of changes to employee and retiree health insurance benefits. The savings associated with health benefit reforms could vary widely, depending on the depth and breadth of possible policy changes implemented by the board. The following is an overview of the employee and retiree health benefit proposals made by Mr. Lanyon.
Current Employee Contribution Rates:
Mr. Lanyon calculated cost-savings resulting from adjusting current employee health insurance contribution rates. Current employee contributions stand at 12% of total premium cost. Mr. Lanyon computed the cost-savings to the District for every percentage-point increase in employee contributions from 12% to 25%, breaking down employees into two subsets: unionized and non-unionized employees.
If both unionized and non-unionized employees were included in a health care contribution rate increase from 12% to 16%, the District would save just over $1.0 million; if only non-unionized employees, the savings from the same rate increase would be just under $600,000. Likewise, an increase to 20% for all employees would save just over $2.0 million; for only non-unionized employees, the savings would be about $1.2 million. An increase to the highest calculated rate-change of 25% for all employees would save nearly $3.3 million; for only non-unionized employees, just under $2.0 million.
These potential savings from adjusting employee contribution rates were not included in the total estimated savings of $7.3 million because no recommendation had yet been made. Mr. Lanyon did not make a formal recommendation in part because including unionized employees in the change would involve opening new contract negotiations.
Retired Employees:
Similar changes to retiree health benefit contribution rates were presented by Mr. Lanyon and would also result in significant savings for the District. Retirees currently contribute 25% of the total premium cost for their health care, while the District covers the remaining 75% of the premium cost. District staff recommends restructuring the rate to a 35% retiree contribution rate and 65% District contribution rate for retiree health benefits, which would save the District approximately $1,903,000. The District has not said whether the change would apply to current and new retirees, or only to new retirees.
Deductible:
In addition to changes in contribution levels, Mr. Lanyon laid out additional health benefit alterations. He proposed increasing employee health deductibles from $250 to $750, noting that the District could save nearly $1.3 million annually by making this change for non-union employees. If negotiations were successful, such a policy change could be expanded to include unionized and retired employees. If unionized employees and retirees were included, the total savings would be $2,641,801.
The calculation of savings from adjusting deductibles was based on individual plan contributions. The Board requested that Mr. Lanyon’s team prepare new figures adjusted to distinguish savings from family plans as well as individual plans.