Municipalities turn to borrowing to cover health care

By Kyle Cheney
State House News Service / January 5, 2011

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As cities and towns buckle under the weight of rising health care costs, some are looking to the credit card and Beacon Hill for short-term help.

In the most recent example, Governor Deval Patrick is weighing a proposal to permit Orange, a western Massachusetts town of fewer than 8,000 residents, to borrow $445,000 to cover health care claims and pay it back over the next five years.

The bill, passed by lawmakers last week, would spare Orange further cuts to its $16 million budget, said Representative Christopher Donelan, who represents the town in the House. He added that local officials opted to borrow rather than cut the budget because residents recently endorsed a property tax increase to support the town’s landfill and library.

According to Donelan, Orange used to be self-insured, paying directly for all health care claims made by town employees. In April, the town voted to shift to private insurance coverage, he said. But after the switch, unpaid claims from the town’s self-insured days continued to pour in, leaving the town $445,000 in the hole and exhausting the local health insurance trust fund intended to cover cost overruns.

Richard Kwiatkowski, Orange town administrator, said yesterday that the high cost of health care — and inaction on controlling municipal health costs on Beacon Hill — had led to the town’s predicament and its effort to borrow.

“The trust fund has been around since 1991; it’s worked for 20 years,’’ he said. “What’s impacted trust funds is the cost of health insurance skyrocketing. Until somebody steps up and gets control of that, then you can’t collect enough in premiums to cover the amount of claims that are put in.’’

Kwiatkowski pointed out that other cities and towns faced similar — in some cases, greater — challenges to covering health care costs. Orange modeled its borrowing plan on one approved in July for North Adams, Donelan said, adding that a handful of other communities have also sought such authority. The North Adams plan let the city of about 15,000 borrow $880,000 for health bills.