As we know, health care costs are escalating at double-digit rates. The continuous high costs are a burden to the self-insured, businesses and government. In San Jose, we have an unfunded health care liability of approximately $1.5 billion. The City of Stockton has been in the news for starting the process of bankruptcy under AB506, and much of their plight is due to the cost of health care benefits.

San Jose should implement a incentive/mandatory wellness program in 2012 to reduce the cost of health care. Any mandatory wellness program would require negotiations with the unions. Since many of the unions have shared their support of wellness programs at public meetings, I am hopeful they will be open to this idea. While voluntary wellness programs may slow the rate of grow, they do not decrease the cost of the plan. On the other hand, raising deductibles does reduce the cost of the plan. Mandatory wellness is somewhere in the middle on cost savings to the plan.

In 1984, the city of San Jose decided that employees and the taxpayers should share 50 percent of the unfunded health care liability costs. The employees’ share (pre-tax) is expected to double next year since there are more retirees than current employees. Current employees partially fund the health care of existing retirees. As soon as one person retires from the city, the retiree no longer pays for anything towards health care. However, the retiree will receive free health care until he/she turns 65 and is eligible for Medicare. At that time, the city will fund the retirees’ monthly Medicare supplement. Incidentally, the Medicare eligibility age may rise to 67 under a proposal floated last year by President Obama, which would further increase the cost to the city. The most expensive part of retiree health care is the 50-65 age range or pre-Medicare eligible.

Doing nothing will increase the cost to employees substantially and would eventually drain the health care reserve to pay for retirees health care, leaving nothing. San Jose is taking steps to make payments on the unfunded liability over a 30-year period. Some unions like the police union, for example, understand we must fund some portion of the benefit now for people to receive it in the future.

Health care tied to jobs costs any organization that employs people. Unless there is dramatic change, costs will continue to rise, which presents a dilemma on whether or not to: hire the next employee; stay with the current organization; or find a health care plan on the open market that may be less expensive to the individual.

An incentivized health care system may be an appropriate cost savings alternative.

For example, in Chicago, Mayor Rahm Emanuel, who served under President Obama, has decided to add teeth to the city’s wellness plan. If a Chicago city employee does not participate in health screenings, then they pay more for health care. Those who participate in the wellness program pay a reduced rate. Health screenings are like a physical, measuring cholesterol, blood pressure, weight, etc.

After these screenings, individuals are given advice on how to reduce their chance of illness and/or change unhealthy habits. It is not used to discriminate against those with pre-existing conditions, however, health screenings may prevent individuals from becoming a diabetic, for example.

We should examine Chicago’s mandatory wellness program and see how we can use preventative measures to ensure better health and lower costs.