The City of Omaha is preparing to get out of the business of providing health insurance for more than 600 of its employees.
And the city’s fire union wants to get into the health insurance business.
In the latest round of labor negotiations, the union went in trying to avoid health care cuts. To meet that goal, it proposed a change that’s unique for the City of Omaha: Run its own health care fund.
Under the proposal, the fire union would take the money that the city and firefighters currently pay toward premiums and create an insurance fund run by the union. It’s a critical component of a tentative contract agreement that the city and the union reached last month.
The city’s contribution is capped at about $920,000 each month, or about $11 million annually, through 2018.
It’s an arrangement that Mayor Jean Stothert calls “strange,” and she emphasized that it was the union’s idea. Stothert said she recommended that the firefighters instead sign on to an alternative plan that would keep them on a city health plan.
“This is a risk the city would never impose on the employees,” said Mark McQueen, the city’s lead labor negotiator.
Omaha firefighters union President Steve LeClair said it’s a “radical shift,” and he has acknowledged that it could be controversial with some union members. But LeClair said he believes a new insurance trust can provide firefighters with health care savings better than an insurance company.
“We’re trying to approach health care in a more logical manner, much like we approach all major purchases in our life,” he said.
Under the proposal, the union would take over all the administrative duties to become the health insurer. A board of union members, experts and a city employee would govern the fund.
A contractor or employee would process claims, and those costs would be paid out of the fund, along with any administrative costs associated with running an insurance fund.
Currently the city contracts with Coventry Health Care to administer its health care plan. But under the proposed arrangement, the new board would not work with an existing insurance company such as Coventry.
Union leaders started to look at alternative health care plans following negotiations for the current deal, after it became clear that the city intended to raise employee premiums and decrease benefits.
Firefighters now have their own health care plan through the city, but Stothert wanted them to move to a different, high-deductible plan.
LeClair said that would be unacceptable to the members.
“We’ve found a creative way to really control health care costs,” LeClair said.
LeClair said he believes the firefighters can manage claims more efficiently than an insurance company, but he declined to provide specifics about where the savings would come from.
But he said he’s optimistic that the new arrangement will work.
In fact, both the city and the union expect the fund to be profitable in the coming years. By 2018, both sides have built in potential for a “premium holiday,” a month in which the city and employees are excused from paying the monthly premium because the fund has built up enough.
The health care agreement will be governed by a memorandum of agreement between the city and union. Stothert declined to provide the memo, saying it is still being reviewed.
LeClair said the proposal is modeled after similar arrangements in Vancouver, Washington; Boise, Idaho; and Toledo, Ohio.
He acknowledged to the city’s Personnel Board that the plan will be criticized by his own members.
He said he’s trying to make sure all members have their questions answered before they have to vote on the plan. Union officials plan to host seven meetings on the topic of the new health care proposal and two more on the contract in general.
The contract must be approved by the union membership and the City Council. The City Personnel Board already approved.
LeClair said the response from members has generally been good.
“I think they’re excited overall,” he said. “It’s been met with very positive reactions, but they have a lot of questions.”
A similar plan has been implemented in Nebraska, by the union that represents the Nebraska State Patrol and some other state employee groups.
Brian Petersen, the president of that union, said the group created the trust in 2002 and that members have been happy with their self-insurance.
“We can control our own destiny in terms of the costs,” he said.
He said the plan has been cheaper for the union members and has allowed them to maintain benefits.
That plan, however, received harsh criticism four years ago, when then-State Auditor Mike Foley said the plan suffered from serious mismanagement. He said the board of trustees shouldn’t have bought a building with the fund and that the board was too lax with the money.
Petersen said the trust has corrected the problems and moved forward, and he said the plan has since continued to succeed.
LeClair said the State Patrol plan has shown good signs, including mostly steady premiums over the past 10 years.
McQueen said the city and fire union built safeguards into their proposal to avoid the management problems the State Patrol encountered.
For example, the new insurance trust could not make any decisions that would increase city spending — such as buying a building or increasing benefits — without the city’s permission.
The mayor will appoint one member of the board. And the union has agreed to follow standards set out in the federal Employee Retirement Income Security Act.
The trust could eventually hire staff and will have administrative costs, but McQueen said the city should have enough information to assess whether the board is overstepping.
“There’s a difference between prudent and necessary costs,” he said, “and a boondoggle.”
If the firefighters decide they don’t like the plan, they can come back to the city and to the plan Stothert proposed, which has higher premiums for employees and lower levels of benefits.
The city and the union will work hard to see that the plan succeeds, officials said.
But “if it works really well, good for us,” Stothert said. “If it doesn’t work, good for us.”