New York City employee health insurance fund is insolvent, audit finds

A joint fund created to stabilize health insurance costs for New York City employees and retirees is insolvent and has accrued $3.1 billion in unreported liabilities, according to a Dec. 30 audit from the NYC Comptroller.

The audit found that the Health Insurance Stabilization Fund, created in 1985 and jointly managed by the city’s Office of Labor Relations and the Municipal Labor Committee, can no longer fulfill its intended purpose and recommended that it be dissolved.

Five notes:

1. The fund was established to maintain reserves covering the cost difference between two health plans offered to city employees, ensuring both remained available at no additional cost to workers. Since 2001, the city and municipal unions authorized $4.3 billion in transfers from the fund to cover employee wage increases, union welfare fund contributions and deferred layoffs, which the audit found were inconsistent with the fund’s original purpose.
   
   
2. An additional $3.3 billion in “offsets” to required payments into the fund were considered as healthcare savings under agreements in 2014 and 2018, even when they did not reflect actual reductions in healthcare spending. The audit found that the offsets eroded the fund’s balance and contributed to its insolvency.
   
   
3. City officials and union representatives knew as early as 2018 that the fund would be insolvent by 2021 but did not take timely action to address the shortfall, according to the audit. A committee created to study solutions and make recommendations by June 2020 never issued formal findings.
   
   
4. The fund has not made required equalization payments to the city since 2019. Its reported cash balance of $843 million as of fiscal year 2024 drops to $3.1 million once required reserves are accounted for.
   
   
5. A new self-funded health plan from EmblemHealth and UnitedHealthcare took effect Jan. 1. The city estimates the contract could generate up to $900 million in annual savings, though the audit notes this would not be enough to ensure the fund’s solvency even if the savings are achieved.

The Office of Labor Relations and the Municipal Labor Committee disputed the audit’s findings, arguing that they had authority to use the fund for any mutually agreed purpose through collective bargaining. OLR stated that healthcare costs and benefits should be budgeted based on collective bargaining agreements and statutory requirements.

In response, the comptroller said that the fund’s stated purpose was never formally modified, and that OLR submitted annual reports stating compliance with requirements and accurate fund balances that did not reflect the unreported liabilities.