Public Employee Heathcare Costs Huge

The conclusion here is that states must redefine what a contract does to the tax base and just who, the government employee and districts managers, has to rethink their demands and allocations of resources.

Wisconsin found, under the new Walker budget, that school districts can save millions and teachers and other government workers are not being laid off because the law allows the districts to find new ways and proposals to redefine health care contracts.

The unions attacked the budget as being biased against the people, but even now the 'employees' are finding the sky didn't fall down and most everyone still has their job. If nothing had changed, like the unions wanted, collective bargaining, thousands of teachers and others would have be laid off.

The High Cost of Public Employee Health Benefits
Source: Josh Barro, "Cadillac Coverage: The High Cost of Public Employee Health Benefits," Manhattan Institute, August 2011.

In light of budget deficits and the need to identify ways to reduce spending in states across the United States, public discussion has increasingly focused on health care costs for public employees. Much of that discussion has focused on the relatively low share of insurance premiums paid by government workers when compared with their private-sector counterparts.

Although this is a real phenomenon, it is not the only, or even the most important, reason for high health insurance costs, says Josh Barro, the Walter B. Wriston Fellow at the Manhattan Institute.

Among the reasons identified for the cost differences are:

Public employees contribute less to their premiums -- an average of about 15 percent of the overall premium, compared with about 25 percent in the private sector.

Public employee plans offer more generous benefits, including lower deductibles and lower copayments.

Governments require shorter enrollment waiting periods for new employees than in the private sector.

Public employees have higher opt-in rates for employer-provided coverage: 26 percent of private-sector workers choose not to participate in available employer health plans, while just 16 percent of government workers chose not to.

Realigning government-employee contributions to match those of the private sector could save taxpayers millions of dollars a year. However, this simple approach does not bend the cost curve over time -- benefits will still continue to grow astronomically -- and further, it will understandably upset workers by reducing their take-home pay.

Barro recommends instead that governments work more broadly to reduce their spending on health benefits -- including by reducing the overall cost of plans offered to employees.