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s work continues to finalize the proposed FY26 Town and School District budgets, the rising cost of health insurance poses a serious challenge. Double-digit increases have roared back after a handful of years of low to no increases. Projections are that high annual increases will be with us for a few years to come.
The Town uses the MA Interlocal Insurance Association (MIIA) to purchase health insurance from Blue Cross/Blue Shield of Massachusetts. MIIA pools together the needs of some 90,000 lives (staff and their families) from over a hundred municipalities. Premiums are based on a combination of the locality’s utilization rates and the overall experience of the pool. This tends to tamp down very high increases to any given municipality. Each year MIIA announces a range of increases with individual towns falling somewhere within the range. After years of the range being from low to high single digits the range for next fiscal year is from 10-20 percent. Manchester received a 16.4 percent increase.
MERSD used a consulting broker to seek quotes from various carriers every two to three years. They have used MIIA in the past but not recently. For a while they were able to obtain competitive quotes. However, for the upcoming fiscal year they have not been able to secure alternative quotes, and their current carrier has imposed a 27 percent increase on the premiums to be paid.
These increases outpace the normal boost in revenue we typically see with a 2 to 2.5 percent tax hike. A 2.5 percent tax hike generates about $760,000 in new tax revenue. New growth (taxes on new construction) typically adds another $200,000. However, a 27 percent increase to the District’s health insurance costs adds over $1.3 million and a 16.4 percent increase on the Town side adds about $250,000. Manchester pays two thirds of the District ‘s bills so in this case about $850,000 more for higher cost health insurance. Combine this with the Town’s insurance increase and we have exceeded what we will generate in new revenue using a 2.5 percent tax hike.
There are many reasons why health insurance premiums are skyrocketing. Utilization rates are up, especially for mental health. And with a growing shortage of primary care physicians, emergency rooms and urgent care facilities, which are more expensive than a visit to your doctor’s office, have climbed. Very expensive prescription drugs and specialty pharmacy medications are responsible for the higher healthcare spend. With labor shortages throughout the healthcare system, personnel costs are rising in attempts to reverse the labor drain.
Chronic health conditions continue to rise as we as a society suffer from all-too-common unhealthy lifestyles and the presence of accumulating toxins in our environment. Ninety percent of the dollars spent on healthcare in the US is on high-cost chronic diseases and mental health conditions. Of course, as the population continues to age these conditions accelerate. Those over 65 (the fastest growing cohort of our population) spend 2.5 times more than working aged people. And finally, low Medicare and Medicaid reimbursement rates cause medical providers and facilities to seek higher payments from patients and insurers who do not have these government sponsored plans to fill the gap.
These pressures are impacting the ability to balance our local budgets. Of course, this is not the first time we have seen double digit premium increases (but never over 20% before!). Last time we undertook to move to plans with higher co-pays and deductibles as well as asking employees to pay a higher share of the premiums. These types of changes must be negotiated with our labor unions and take time to implement. No doubt these new increases will renew similar efforts and possibly other approaches but not in time for the FY26 budgets.
Balancing these budgets will likely require tax hikes in the 3.25-3.5 percent range.
Greg Federspiel is the Manchester Town Administrator.
