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Milton, state debate city’s buyout program

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Stacy Vogel
October 28, 2007
— It seems like a win-win for Milton.

The city saves money in insurance premiums by paying employees not to take city insurance.


Workers, instead of getting free insurance, pocket some extra cash.


But someone’s the loser in that equation, state officials say.


They’re demanding Milton—and a handful of other municipalities that offer insurance buyout programs—either drop the incentive or drop the state-run insurance plan.


“If they want to participate in our program, they’re not supposed to do it,” said Tom Korpady, an administrator for the Wisconsin Department of Employee Trust Funds.


Since 2002, Milton has kicked back half the cost of insurance premiums to employees who choose not to take the coverage. For example, an employee who didn’t take family coverage in 2007 would receive $420 a month, half the cost of the $841 premium. The option also is available for dental coverage.


City Clerk/Treasurer Nancy Zastrow said seven employees who have opted out of city insurance in 2007 will be paid a total of $39,000.


But the city would pay twice that amount if all seven employees decided to take the insurance, City Administrator Todd Schmidt said.


“From the outside, I think somebody could look at this and say, ‘Look at the outrageous benefits that Milton employees are getting,’ when in fact it’s really not a benefit, it’s an incentive not for the city to bear the burden quite as much,” Schmidt said.


But Milton’s gain is the state’s loss, Korpady said.


“If you have a program where a municipality is paying people to opt out, who’s going to opt out? The ones who need it the most? No,” he said. “So you get rid of all your good risk and their premiums, and your bad risk starts spiraling out of control.”


In other words, people who opt out of insurance plans are more likely to be people who incur fewer expenses. That drives up premiums for everyone remaining on the plan, Korpady said.


“They think they’ve figured out a great scheme, and they have for themselves, but what it’s doing is driving up the cost of the program for everyone else who’s in it,” he said.


Schmidt disputes the logic, pointing to himself as an example.


When Schmidt first arrived in Milton in 2003, he took the city’s insurance because his wife was unemployed. When his wife got a job and benefits, he chose to take the buyout incentive because he had another option for insurance—not because he was healthy enough to go without it, he said.


All employees taking the incentive are covered by other insurance plans, Schmidt said.


The city will attempt to eliminate the program in the coming year based on the state’s demand, Schmidt said.


The state ordered municipalities to eliminate buyout programs about three years ago, just after Milton negotiated its latest union contract, Schmidt said.


Now, the city is facing a new round of union negotiations, and officials will try to negotiate the incentive out of the contract set to begin Jan. 1, 2008, he said.


Milton’s not the only community faced with losing the incentive. The city of Delavan negotiated a similar program out of its union contracts in 2005 after the state issued its regulation, Administrator Joe Salitros said.


“Any time you can save a few thousand dollars, I suppose it’s worthy of consideration,” Salitros said. “That savings isn’t there anymore.”


If Milton’s unions agree to the change, it could increase the city’s 2008 benefits budget, Schmidt said. He’s had “informal” talks with the other employees taking the incentive, and he believes at least half of them would choose to go back on the city’s plan if the incentive were cut.


As for Schmidt, he’s not sure if his family will go back on the city plan if he loses the buyout option, he said.


“We’d have to sit down, plug out the numbers, do a comparison and find out what would work best for us,” he said.


HOW IT WORKS

For full-time employees, Milton pays 100 percent of the health insurance premiums for the lowest-cost state plan. In 2007, that plan costs the city $841 a month for each employee that takes family coverage.


The city offers half of that cost to employees who choose not to take the plan. So an employee who chooses not to take the family plan in 2007 would receive an extra $420 a month—$5,040 a year—in his or her paychecks. The option also is available for dental insurance.


The incentive saves the city money by encouraging employees to take their spouses’ insurance, City Administrator Todd Schmidt said.


In 2007, the city will pay $39,000 to the seven employees who chose the incentive, City Clerk/Treasurer Nancy Zastrow said.


It’s impossible to know how many of those seven employees would take the city’s insurance plan if the incentive weren’t offered, but Schmidt said he has had informal conversations with all of them and believes at least half would go back on the plan.


“If half of them took it, it would eliminate the savings,” he said.



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