Healthcare costs squeeze municipal budgets, prompting exodus from regional insurer

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The scene that played out Tuesday in Easthampton is one too familiar to cities and towns across the region: sharply divided voters heading to the polls to decide whether to raise their taxes to fund critical local services or to lay off teachers, first responders, and others to balance the books.

By a narrow margin of just 239 votes, 52% of Easthampton voters decided to raise their taxes, avoiding cuts to city services. Other communities across the region and state, however, have voted down tax overrides and are facing what the Massachusetts Municipal Association has called the largest round of layoffs since the Great Recession. 

A major reason voters have had to make that choice comes down to the ever-increasing cost of healthcare.

Central to this struggle are the financial challenges facing the Hampshire County Group Insurance Trust. The trust provides health insurance to more than 12,000 municipal employees of 73 cities, towns, school districts, and other public entities in Franklin, Hampshire, Berkshire, Hampden, and Worcester counties. It’s a vestige of the Hampshire Regional Council of Governments, which officially dissolved in 2019 due to financial and governance issues. 

HCGIT minutes show that at the end of 2024, the trust finished the year with a total of $22.8 million. However, this March, the trust had around $5 million cash left in the bank. Trying to catch up with rising costs, the HCGIT increased member rates twice in the past fiscal year, initially by about 20% last July and again in October by another 20%. In February, the trust voted 55-27 to increase premiums again for the upcoming fiscal year, this time by 12.5%.

As health insurance premiums soar, municipalities and their workers have struggled to keep up with all kinds of rising costs, resulting in a flurry of tax override votes across the Connecticut River Valley. Easthampton, South Hadley, Hadley, New Salem, and other towns across the region have been pushed to vote on tax overrides — allowing them to increase their property tax levy beyond the usual 2.5% cap — to maintain level funding for basic services.

Amid the turmoil, some say that it is time for a systematic reckoning.

“Our healthcare system is broken and careening towards a moment where we are going to have to make some changes if we want to actually provide healthcare to everyone,” state Rep. Lindsay Sabadosa, D-Northampton, said in an interview with The Shoestring.

The reason for the unsustainable spending, according to the trust’s executive committee, is a popular — and, due to the fact that they’re patented, expensive — class of drugs known as GLP-1s that were originally developed to treat Type 2 diabetes but that doctors are now prescribing for a wider range of issues, particularly for weight loss.

“GLP-1s for weight loss have been a significant contributor to the financial challenges faced by the Trust over the past two fiscal years,” the HCGIT executive committee said in a written statement. “This situation has presented serious challenges, especially given that the Trust has operated with financial stability for decades.”

However, Sabadosa said GLP-1 drugs are just one piece of the puzzle. She said it was inadequate financial planning by the HCGIT trustees — exacerbated by the rising cost of healthcare, economic inflation, and an aging population in western Massachusetts — that led to the dramatic increase in expenses.

“We are seeing the repercussions of year after year, after year, of not increasing rates where they needed to be,” Sabadosa said. “You had people with loyalty to their towns deciding not to increase premiums, making decisions based on what was best for their communities, but not what was best for the long-term sustainability of the trust.”

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As some HCGIT members are tightening their belts to deal with rising costs, others are leaving for new insurers. At least 12 municipal entities have opted to withdraw from the HCGIT and find new insurers for the coming fiscal year, The Shoestring has learned, and others have been considering leaving.  

State Rep. Aaron Saunders, D-Belchertown, introduced an amendment that the Legislature passed last year to allow members to withdraw from the HCGIT and pay back their bills over a period of five years. 

“The Trust does not view GLP-1 medications as the sole driver of recent cost increases,” the HCGIT executive committee wrote in response to follow-up questions this week. “While the rising utilization and cost of GLP-1 drugs have contributed significantly to claims expenses, other factors have also played a role, including overall increases in healthcare costs, higher utilization of medical services, and elevated claims activity across multiple areas of coverage.”

Among those leaving the HCGIT are the Pioneer Valley Regional School District, the Franklin Regional Council of Governments, and the towns of Bernardston, Leyden, Chesterfield, and Southampton, which have all opted to join the state-run Group Insurance Commission, or GIC, instead. 

Linda Dunlavy, the executive director of the Franklin Regional Council of Governments, told The Shoestring that recent premium hikes and uncertainty surrounding the HCGIT’s financial solvency prompted the decision to leave the trust. 

“We made the decision after weeks of discussion and analysis and decided it was the best move for the FRCOG, our staff and for the towns we serve,” Dunlavy wrote in an email. “The transition was difficult but successful. We arranged listening sessions with each GIC provider for our staff and retirees and for employees and retirees from other Franklin County Units also leaving the HCGIT.”

The GIC is a “a quasi-independent state agency” established by the legislature in 1955 and managed by a 17-member commission appointed by the governor. Today, the GIC provides health insurance to more than 460,000 state and municipal employees. 

Other former HCGIT members, the Franklin County Technical School and the town of Southwick, are leaving to buy insurance through the private Pennsylvania-based FernRock Insurance Agency, according to the trust’s meeting minutes. The Massachusetts Strategic Health Group, Cigna Healthcare, and the nonprofit Massachusetts Interlocal Insurance Association are other options that western Massachusetts municipalities are choosing as they leave HCGIT.

Steep health insurance increases have also forced drastic cuts to public services across the region. At Swift River School, the shared elementary school serving New Salem and Wendell, five paraprofessional positions will be eliminated in the upcoming school year. School officials have cited much higher premiums paid to the HCGIT over the past fiscal year, totaling nearly 30% of the school’s total budget, as the primary reasons for the layoffs. 

“Schools carving money from the instructional budget to pay for costs completely unrelated to education, like health insurance, is a nonsense system,” Nancy Slator, the chair of the New Salem/Wendell School Committee, told The Shoestring. 

The Frontier Regional School District will cut seven positions in the upcoming school year due in part to rising health insurance costs. And in Easthampton, the president of the educators’ union, Adam Czerwiec, said that health insurance costs have been a point of contention between the city and its employees.

“It’s a significant cost, and with wages not going up as much as they should — and everything else going up, like gas, cost of living, groceries — it’s really hard for a lot of people to have insurance when everything is so expensive,” Czerwiec said. “I understand things go up, but that was a big hit for members. A lot of teacher assistants and administrative assistants didn’t really get their raises.”

Gerald Friedman, a professor of economics at the University of Massachusetts Amherst who studies healthcare financing, said there are several major factors contributing to the rising cost of healthcare in the United States: the consolidation of hospital systems, healthcare workforce shortages, pharmaceutical companies seeking patent-protected profits, and the fact that people are living longer with more complex medical interventions.

“This is a major threat to the viability of local education and local government,” Friedman told The Shoestring. “It’s all about monopoly power reinforced by patents and trademarks.”

Federal funding cuts and new eligibility requirements for Medicare, Medicaid, and Affordable Care Act plans could spell further trouble. Work requirements and shorter reauthorization timelines are set to go into effect next year, Friedman explained, which will reduce access to federally subsidized healthcare. This could leave the states to pay more of the cost to insure their citizens. At the same time, tax cuts at both the federal and state level have reduced revenue.

“The people running the commonwealth are trying to do the right thing within the system,” Friedman said. “One aspect of the system these days are federal cuts hurting us on the revenue side and hurting us on the expenditure side.”

Last year, the trust’s executive insurance director, Joe Shea, retired at the age of 65. The trust chose not to replace him, instead hiring a consulting firm, the Hilb Group, to help strategize, draft new policies, and implement cost-saving measures for the coming fiscal year. 

“I think they are moving in a better direction than they were, but I also think their pool is small and it’s getting smaller, and that creates difficulty,” Sabadosa said. “I don’t think the insurance trust went through difficulty because the idea was bad, but it wasn’t properly managed, and there wasn’t proper oversight.”

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One cost-cutting measure is discontinuing coverage of GLP-1 drugs for weight loss, a decision made last October which will go into effect for the coming fiscal year. The HCGIT paid out $4.5 million for GLP-1 drugs for members between January and September 2025, according to HCGIT leadership. Fewer than 3% of policyholders currently use the drugs, they said, but GLP-1 drugs account for nearly 30% of the trust’s pharmaceutical spending.

“We remain optimistic about achieving stabilization, particularly with the discontinuation of these medications for weight loss,” the HCGIT told The Shoestring.

The GIC and the Massachusetts Interlocal Insurance Association also recently discontinued coverage of GLP-1 medications for weight loss. 

“The GLP-1 conversation is a complicated one,” Sabadosa said. “There is no other type of medicine which we have decided we’re no longer covering, or we’re putting parameters around it … We cannot simply not cover drugs that have health benefits.”

Sabadosa said she hopes the GIC, which commands a much larger share of the insurance market than the HCGIT, can use this power to negotiate lower rates for GLP-1 drugs. Unions representing municipal and state employees have been pushing back against the exemption. These include the Massachusetts Teachers Association, whose president, Max Page, said in a statement in April that while the nation’s healthcare system may be broken, “We cannot use that as an excuse to deny people access to life-changing medicines.” 

The MTA’s representative on the GIC, Dean Robinson, told commission members ahead of its vote on GLP-1 drugs that it doesn’t make sense to separate obesity from illnesses related to it.

“Fat tissue actively drives inflammation, insulin resistance, and cardiovascular damage,” Robinson said. “When a doctor prescribes a GLP-1 for weight loss in these patients, they’re treating the root cause of the heart disease and hypertension we’re already paying to manage. The proposal draws a billing line, not a medical one. Same patient, same heart disease, same drug — covered with a diabetes code, not covered without one.”

Other cost-saving measures the HCGIT is implementing include increasing copays, imposing new deductibles, changing plan designs, and signing a contract with a new drug provider. 

According to Friedman, changes like these often lead to worse health outcomes for patients.

“They are going to degrade the quality of healthcare and health insurance,” Friedman said. “Fewer people will use their plans because they have to pay more out of pocket that they can’t afford, then more people get sick, then they get sicker and end up in the emergency room.”

Friedman, who has helped model economic plans for single-payer healthcare systems in Massachusetts and nationally, says there are better ways to cut costs. Removing the complex web of insurers, employer plans, and network negotiations from the equation could lead to significant administrative cost savings, he said. He added that healthcare providers are increasingly burdened by the paperwork — and often, the appeals — necessary to get their patients’ care covered.

“We know what to do. If we wanted to fix this we would have a national healthcare system,” Friedman said. “The gap between the life expectancy between the rich and the poor is wider in the United States than any other country by far – not just in mortality rates but in morbidity rates, too.”

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Sabadosa is a House sponsor of a bill that would establish a “Medicare for All” system in the state, pooling all funds Massachusetts receives from the federal Centers for Medicare & Medicaid Services with state tax dollars to pay directly for healthcare for all residents. 

Sabadosa said she recognizes that establishing a statewide single-payer system, which would require the federal government’s approval, is a farfetched idea right now. But she and other legislators are making plans so they are ready when the opportunity comes. Various versions of the Medicare for All bill have been introduced on Beacon Hill since at least 2013. 

“We’re getting closer and closer to having support for this legislation because more and more people are struggling,” Sabadosa said. “You have quite a few states that really want to move the needle on this, and if the federal government let any one of us do it, we would be in a position to be a model nationally.”

Other bills currently before the Legislature aim to expand access to primary and preventative care by streamlining the insurance prior authorization process, and allowing Massachusetts to enter the Interstate Medical Licensure Compact so that healthcare providers can practice over state lines. 

“There’s no one single piece of legislation that could fix this,” Saunders said. “It’s going to take a real concerted effort, because anytime you have a profit motive on one side and a guaranteed payday on the other, it takes oversight to use that responsibly.”

Saunders told The Shoestring he thinks HCGIT’s problems are a “cautionary tale of the promise of single-payer healthcare.” He said he believes that to work, a single-payer system would require more oversight, as well as the federal government’s financial and regulatory backing.

“I think what we saw with [the HCGIT] was how this can go so wrong so quickly,” Saunders said. “Part of it is not being prudent in recognizing that these costs were escalating as they were, and part of it was not adapting quickly enough.”

Others affected by the recent premium hikes say they see the local crisis as yet another sign that the United States — nearly alone among developed countries in its failure to provide universal healthcare — needs to follow the example of much of the rest of the world.

“The United States is not a poor country. We could pay for healthcare for everyone with what we spend in one day at war with Iran,” Sabadosa said. “It’s a matter of political will.”

Others say that statewide efforts could be the first step.

“I support whatever efforts are being made to create a statewide single-payer health insurance system,” said Nancy Slator, the chair of the New Salem/Wendell School Committee. “But eventually we need to join all the other well-off countries that have figured out how to do this on a national basis.”

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