Taking Back Buy Backs

WPRI’s Tim White has been looking into the practice of teacher healthcare buybacks in Rhode Island (with the television segment airing tonight at eleven):

After combing teacher contracts for all 36 school districts, Target 12 crunched the numbers. Here are some of the most generous buy-back offers we found.
-Newport teachers can get up to a $5,800 check to opt-out of coverage.
-West Warwick teachers can get $5,500 per family plan.
-Smithfield teachers can get a $4,500 check every year.

There’s a perverse sense to the typical argument on behalf of buybacks:

“I think providing a modest cash incentive is a reasonable opportunity and unions give to the employees by providing these waiver payments,” said James Parisi of the Rhode Island Federation of Teachers.
Parisi believes that buy-backs are a good deal for towns.

The perversity comes in when one considers that the reason “incentive” comes into play is that the public gives its employees benefits so far out of proportion from what’s available elsewhere that they are unlikely to find incentive in the fact that a spouse’s healthcare is better.
(A secondary argument is that households containing two members in the same public-sector workplace could cost the employer more by each taking the healthcare, but that possibility ought to be obviated out of hand in policy, if not in law.)

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Thomas Schmeling
Thomas Schmeling
12 years ago

Justin,
I’m trying to understand your argument here. Please tell me where I’ve misunderstood it.
You say, “…the public gives its employees benefits so far out of proportion from what’s available elsewhere that they are likely to find incentive in the fact that a spouse’s healthcare is better.”
If public employees’ benefits are “so far out of proportion from” (by which I think you mean “better than”) what’s available in the private sector, why is the public-sector spouse giving up his or her benefit package and relying on the private-sector spouse’s benefits?
Then you say “(A secondary argument is that households containing two members in the workplace could cost the employer more by each taking the healthcare, but that possibility ought to be obviated out of hand in policy, if not in law.)”
Do I understand you to be advocating that a public-sector employee should, by law, be denied health benefits if she has a spouse that receives family health coverage from a private-sector employer? Is this so even if the combined benefit is greater than either of them individually?
If so, wouldn’t it be reasonable for the public-sector employee to say “since you’ve just reduced the total compensation for the work I do (an employee with an uninsured spouse is now getting more in salary+benefits for the same work than I am) I think my salary should be raised by the value of the health insurance to compensate for that”? It seems reasonable to me.
(BTW, which private-sector employer deny health coverage to their employees if the spouse also has health insurance? The ones I know do not do this, but my experience is limited).

warwick taxpayer
warwick taxpayer
12 years ago

In 2007 the Warwick City Council passed an ordinance that that would have eliminated Health care buy backs. The Ordinance was Vetoed by (Union loving)Republican Mayor Scott Avedisian and the council did not have the 2/3 votes necessary for an override.
The total cost of these buy backs in schools and in the city $280,000.
The argument that this act would have cost money because those who received the buy back would simply take double coverage is nonsense if the cities and towns have a realistic co-pay. For example a 20% co-pay in Warwick would cost about $2,800 for a family plan. I don’t think anyone would pay $2,800 a year for a plan they don’t need.
The current $11 a week co-pay for teachers 572 a year is not a disincentive enough to stop people from taking double coverage or from taking the $1,500 buy back.

Justin Katz
12 years ago

Your first point catches a mere typo. I meant (and have changed the word to) “unlikely.”
On the basis of your second point, I’ve changed my language to clarify some, but the circumstance that I’m indicating is that of a household with two spouses eligible for the same healthcare package from the same employer. What ought to be easily denied is a policy that allows them to double up.
As to your statement of reasonableness, we may be stepping into an area of stark disagreement. Unions like to monetize benefits because it leads to such requests as buy-backs, but it misconstrues the nature of a benefit to do so. A benefit is a service (a “benefit”) that the employee receives, and all employees have available. That one does not take that benefit does not indicate that a salary imbalance is occurring.
An employee could not ask for a stipend because he doesn’t partake of free beverages that the company makes available in the staff room. That a coworker gets to cash in on a family life-insurance policy doesn’t meant that those who never leverage their benefit should get a lump payment upon retirement.

Justin Katz
12 years ago

To clarify: My comment was in response to Thomas Schmeling.

Thomas Schmeling
Thomas Schmeling
12 years ago

Warwick Taxpayer: I have certainly seen situations where is IS worth it for the couple to have double coverage. They are not paying $2,800 (or whatever it may be) for nothing…they are paying $2,800 for something worth more than $2,800 (as all good rational actors would). Double coverage often provides some additional advantages, which may or may not outweigh the additional co-share, depending on individual circumstances (prescriptions, care required, etc.) The buy-back alters the calculation. Now they save $2,800 plus the amount of the buy-back. If that is worth more than the benefit they will take it, AND the government (i.e. the taxpayer) will save over the cost of purchasing the policy, as long as the buy-back amount is less than the cost of the policy. Justin: The correction of the typo doesn’t seem to me to fix the problem, and may make it worse. If public sector benefits are so much better than private sector ones, then public sector employees should not give them up. Yet they do! Possibly, they are not always better. For instance, state higher-ed employees lost BCBS some years ago and now have United Health (which, as Mr. Block has recently pointed out, is disfavored by many providers). A private sector spouse with BCBS may have better coverage, even with a higher co-share. If you really are just talking about the case where both spouses work for the same employer (e.g. the Tiverton school district), then I will have to re-think. I have to wonder how many people you’re talking about, and think it can’t be many, but I guess it’s the principle that matters, not the degree. I guess it might matter whether, in such a situation, the second policy provides the worker any additional benefit. “Unions like to monetize benefits because it leads… Read more »

Justin Katz
12 years ago

But if public sector employees are giving up their benefits for the better ones of their spouses, then there’s no need to offer them additional financial incentive to do so.
Regarding two-employee households, I’m not making any claim about dollar amount. It’s just an argument that I’ve heard multiple times in this debate: If two spouses each take the plan, it’ll cost the employer that much more. My answer: forbid that.
Regarding monetization: Yes, when assessing the cost to the employer of a benefit, one must take into account the dollar amount. Part of that dollar amount, however, includes the possibility that some employees won’t utilize the benefit.
A company must take into account the grocery bill for stocking the staff-room fridge, and if new employees will necessitate higher bills, that must be considered. If employees demand stipends for not partaking, however, that only increases the cost that much more.
Regarding this: “I’d rather make private employers provide decent health care.” So you’d rather lower private-sector salaries?

Patrick
Patrick
12 years ago

I’m ok with health care buybacks, but the amounts that many in the public sector receive is just a bit much. In my employment, the buyback is $750. That seems more reasonable. This change alone, according to Warwick Taxpayer’s numbers, would have saved Warwick just over $200,000. That gets you what, two more teachers? How many more books? A few new librarians? 4 or 5 teacher’s aides? Enough school supplies so that no teacher has to visit Office Max again?
A little bit can go a long way.

Tom W
Tom W
12 years ago

I have to agree with Mr. Schmeling – the “benefits” are part of the compensation package.
After all, but for the presence of the employee the cost of those benefits would not be incurred by the taxpayers.
Pensions, health care and the rest accrue to the benefit of the employee, but the cost is borne by the taxpayers. Just like salary. It’s just that those benefit costs don’t show as taxable income to the employee (in the case of the pensions it is deferred until they actually start collecting – and then they are presumably in a lower tax bracket).

Robert Balliot
12 years ago

The buyouts were orginally a fixed percentage of the cost of health insurance premiums. They did not start out at $5,000 or anything like that and did generate cost savings.

However, after years of extraordinary double-digit premium increases, the buyouts became large. It was not really the effect of giveaways to the Unions – it was the result of out of control inflation in health care costs.

Isn’t the real solution to bring down the costs of premiums to a level on par with normal inflation? Then the buyouts as a percentage would return to being cost savings incentives.

Patrick
Patrick
12 years ago

Robert, spare me. The contracts are at the most, 3 years long. The premium costs didn’t jump up that fast. When the buyback is currently 50% in some towns, that’s just crazy for the school committees to give that away.
As for your last question, no, the immediate answer is to lower the buyback amounts to a fixed cost, like $500 or $750 or even $1,000. HUGE savings for the towns, as long as the School Committee doesn’t give it back somewhere else.

Robert Balliot
12 years ago

Patrick,
I am not sure how I am supposed to spare you. But, the logic you use would also show three years from now even if 100% of the buybacks were given up, double-digit inflation of premiums will have eliminated any savings.

So, the same argument of failure to act could be attributed to your short-sighted reaction.
It is a tough problem, similar to the seven/ten split – tough to spare.

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