Public employers search for healthcare savings

WASHINGTON (Reuters) - Public employers can find savings on healthcare costs and still deliver high-quality benefits, according a study released on Tuesday.

Benefits for public employees, especially pensions, have been under attack for more than a year

Fiscal conservatives say cities and local governments, suffering from a collapse in revenues from the recession that began in 2007, should cut spending on their employees.

Conversely, public employees say one of the few upsides of working in the lower-paying public sector is that they are assured of benefits, such as healthcare.

At the same time, healthcare costs are rising, making it harder for governments to contain costs.

“While public employers are under pressure to contain employee benefit costs, they are also motivated to provide benefits that help them maintain a healthy and productive workforce and attract the best employees to public service,” said Anne Spray Kinney, director of research and consulting for the Government Finance Officers Association.

GFOA, along with Colonial Life & Accident Insurance, looked at how local governments are addressing the challenge.

They found that by providing an on-site clinic, public employers can drive down healthcare costs, saving $1.60 to $4 for every dollar invested.

This also provided a “soft-dollar saving such as increased productivity,” because employees did not have to take time off from work to travel to doctors’ offices.

But the survey found that this only works well for large organizations with at least 800 people.

In the same light, larger organizations can cut healthcare costs 10 percent by turning to self-insurance, with the employer assuming “the risk for providing healthcare benefits, rather than transferring it to a third-party insurer.”

Groups with more than 200 employees showed the greatest cost benefits.

Another area in which governments could save is cooperative purchasing of healthcare, even though most use such arrangements for purchasing other goods.

“Only about a third of governments use cooperative purchasing for healthcare, but of those that do, most recommend it enthusiastically. This suggests untapped potential,” the survey said.

These arrangements can include pooling purchasing power or negotiating with vendors and can knock 5 percent to 20 percent off governments’ healthcare costs, the survey found.

Increasing premiums, co-pays or deductibles were also popular among employers, but many were hesitant to do so, the survey said, because of “the negative impact on employees and raising premiums could disqualify an employer from other benefits granted under the healthcare reform law passed last year.”

Another means of reducing costs is instituting wellness programs.

“This enthusiasm is not misplaced,” the survey said, noting that every dollar spent by a large employer on wellness programs would return $3.27 in savings.

Reporting by Lisa Lambert; Editing by Dan Grebler