COVID-19 Affect on Local Government: What Can We Do?

From a Public Health perspective, having the proper funding and access to resources to address the pandemic in our local community is of utmost importance. Personal Protection Equipment, testing, treatments in our hospitals, all of that is critical.

But we also need to be aware of the financial affect our community faces with this crisis. Recession is imminent, and with the social distancing orders, worker’s wages and consumer spending has dramatically been reduced. That, in turn, has caused sales taxes to plummet. Also, lower taxes and increased demands for funding will impose severe strains on state and local budgets.

Local governments do not have the same level of ability to raise spending as the federal government. Most have “balance budget” requirements as well, so when revenues fall, local governments must address those reductions with spending cuts, or tax and fee increases, or both.

One Area Cities Should Focus On: Healthcare

If you read our blogs, you’ve likely heard me cite the examples of how General Motors spends more each year on employee healthcare/benefits than they do on steel to make cars. Or how Starbucks spends more each year on healthcare/benefits than coffee beans. Point being, employers, including local governments are in the healthcare business whether they want to be or not.

For the City of Amarillo, we spend approximately $29M per year on healthcare/benefits for City workers and their families, $26M of that is on medical alone. To break that number down, the City is spending approximately $12,000 PER EMPLOYEE PER YEAR on healthcare/benefits. It is one of the largest expenses in the City budget.

From the City’s 2018-2019 Budget

Major Opportunity, Right Under Your Nose

Plans that run similar to the City of Amarillo’s plan (approx $12k PEPY), have tremendous opportunity to reduce costs while simultaneously improving their benefit plans. The Health Rosetta model for higher-performing health plans has yielded scores of case studies on plans of similar size that are running UNDER $7,000 PEPY. If the City of Amarillo were able to attain those numbers, it would be a reduction of approximately 42% from current, or a $10.9 MILLION reduction in the current spend.

I know what you’re thinking, “There’s no way an employer could reduce costs in the health plan by that much”. To that, I ask this: How are other employers of similar size doing it? Are they just lucky? They just don’t have as many sick people? No, that isn’t the case.

A friend and Health Rosetta colleague of mine from Phoenix, AZ took over a client a couple of years ago, and in two years, the company has reduced their healthcare costs by 40%. With the savings, the company has reinvested into their employees by ELIMINATING the health plan’s deductible. That’s right, employees there have no deductible if they choose the “high-value” pathway of care that their advisor built within the health plan for them.

Another advisor colleague and friend of mine in St. Louis helped one of his clients reduce spend by 10% in the first year, and even more in year two. This took the company from a $12,000 PEPY to $9441 PEPY, a 21% drop in two years. How is this company doing this? Just luck? Or strategic design? While status quo health plans are saying, “10% annual increases are the new normal”, Health Rosetta advisors are showing employers how to go in the opposite direction, AND STILL MAKE BENEFITS BETTER!!!

And just in the past few months, we’ve started working with a large municipality that is currently running around $8000 PEPY on just their medical spend, but they know they can do better. We are in the early stages of working with them, and we have already identified MILLIONS of dollars in cost reduction opportunity. They know they are going to need it. Every local government is going to need it.

Now is the time for engagement and meaningful change in healthcare. Cities sit in a very unique position to make a difference around the country. Let’s move!