Senate President Joseph Montalbano, center, confers with Sen. Dominick Ruggerio, left, George Nee, of the AFL-CIO, right, and chief of staff R. David Cruise, far right, yesterday.

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Providence Journal Connie Grosch

PROVIDENCE — A proposal that could force cities, towns and school districts to join the state’s health-care system is hanging in the balance as lawmakers cobble together a new state budget.

“It’s not dead, but I’m not saying it’s alive either,” House Finance Committee Chairman Steven M. Costantino said this week. “You try to work out a compromise that does the best for the state and that’s what we’re in the process of right now.”

The insurance consolidation idea surfaced this winter as part of the governor’s midyear budget-repair bill. Moving local communities under the umbrella of the state’s three-year-old coverage by UnitedHealthcare of New England would help alleviate financial pressures for cities and towns as they face state-aid cuts, Carcieri said.

Lawmakers temporarily sidelined the proposal, but Costantino has said consolidation remains a consideration for the fiscal 2009 budget, which could be unveiled as early as next week.

The problem with the concept, the chairman acknowledges, is that it assumes all school districts and municipalities would save money by transferring to the state plan, when in fact regional purchasing collaboratives have helped a number of communities secure lower rates. “I don’t think anybody should be tied to a product that’s actually more expensive for the city or town,” he said.

A set of bills before the House and the Senate may offer a more palatable solution: require only those districts that would save money by joining the state’s United coverage to do so.

“My bill says if there’s a savings to you, then you have to join the state system. But if you’re already saving money, you can stay where you are,” said House sponsor Jan P. Malik, a Warren Democrat.

This is the third year Malik, together with the Education Partnership, has introduced the bill to strong opposition from the state’s union leaders who say it’s unreasonable to remove health care, “one of the most fundamental benefits,” from the realm of collective bargaining.

“We believe this would be a terrible infringement of the rights of working people to participate in the collective bargaining process,” said AFL-CIO secretary-treasurer George Nee.

A Rhode Island Department of Education report released this winter suggests that school districts alone could potentially save $17 million over the next three years by moving to the statewide plan. A Senate fiscal analysis suggests municipalities and districts could together save $10 million a year.

But the various union leaders and others who testified at two committee hearings in the last week said such figures don’t take into account the entire scope of health-insurance costs.

Public employee health care is a complex phenomenon here in Rhode Island. About three-quarters of cities and school districts are self-insured — they pay the cost of all their medical claims, plus a per-subscriber fee to the insurance company that administers their program.

That means little to a patient sitting in an exam room, but the particulars of these arrangements can make or break the associated savings.

The vast majority of school districts and municipalities use Blue Cross & Blue Shield of Rhode Island as their administrator, though several around the state have weighed a swap to the state’s other insurer, United, which frequently offers lower administrative fees. When Warwick contemplated a switch last year, United promised to save the city close to $900,000 a year.

But administrative rates are just a small fraction of a community’s insurance costs. Health-care claims make up about 90 percent of the cost, and critics warn that schools and municipalities must be careful not to fall into the trap of saving on administrative fees, but incurring higher claims, therefore increasing their overall price tag.

Sen. Walter S. Felag Jr., D-Warren, who sponsored legislation that matches Malik’s in the House, said that discrepancy has caused him to rethink his bill, which like Malik’s has stalled in committee. “When that was pointed out to me, I realized if we’re going to have a bill then we should talk about total costs,” he said.

Costantino too says it’s critical to pinpoint overall costs in order to accurately project the potential savings.

The governor believes local communities must also eliminate contractual provisions that require them to use one insurer, generally Blue Cross. But for that to happen, Malik and others say Rhode Islanders must overcome the well-publicized perception that the two companies offer a different quality of care.

Those familiar with the issue on a local level, including Dan Beardsley, head of the Rhode Island League of Cities and Towns, say a growing number of purchasing collaboratives may provide a good settling point. About half of Rhode Island’s communities currently participate in several regional programs. By virtue of their large memberships, these groups can negotiate cheaper administration and claims rates, thus saving money for districts, cities and towns.

But they leave the particulars of the benefit design at the bargaining table.

“We’re bringing people together to work collaboratively and save money for their districts and we’re doing it without any state mandates,” said Robert W. Dooley, executive director of the WB Community Health collaborative. “…We can do it, we can do it well and we can do it on a limited budget. I don’t think the state can do that.”

cneedham@projo.com