Health Benefits
Health insurance costs are skyrocketing and are the primary driver of all budgetary growth in FY27
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Still have questions? Contact:
Budget
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1 City Hall Square
Room 813Boston, MA 02201-2037
How City Health Benefits are Funded
The City of Boston provides group health insurance, dental insurance, and life insurance to employees, retirees, and their dependents. Funding of these health benefits costs has largely moved to self-insurance over the past decade, providing the City greater flexibility in designing its health plans. Through self-insurance, the City, rather than the insurance carrier, assumes the financial risk for plan members’ medical claims.
Since 2011, all public employee unions bargain collectively for health benefits through the Public Employee Committee (PEC), a committee of union representatives and a retiree representative. The City and PEC have entered into a new agreement every five years, with the exception of the current two-year extension agreement (through FY26-27).
Negotiations for the agreement include plan design elements (such as deductibles and co-pays) and cost sharing (the employee/employer percentage split of premiums). The premiums that the City, employees, and retirees pay are updated each year.
Growing Health Benefits Costs
In FY25, the City experienced an unexpected jump in claims activity paid out from its self insurance fund. Premiums had been set based on projected costs, but actual costs ended up being much higher. This rapid cost escalation was driven by three factors:
- Increasing nationwide health care costs
- A series of unusually high-cost claims on non-Medicare plans
- A dramatic increase in usage of GLP-1 drugs for weight loss
With continuing high claims activity, the City has used up the available reserves in its self insurance fund that had been set aside to cover fluctuations in costs and claims activity. Even if health care expenses are greater than the available funds in its self insurance fund, the City by law does not have the option to stop payments. For FY27, employees, retirees, and the City will need to contribute higher premiums to repay FY27 expenses and rebuild reserves in the self insurance fund.
The FY27 budget includes $499 million for the employer portion of City health benefits costs including BPS and BPHC, a 24% increase over the FY26 health benefits budget. The employer share of monthly premiums for non-Medicare plans make up the majority of the health benefits budget, reflecting a 20.3% increase in non-Medicare premiums.
Cost Mitigation
In March 2026, the City and PEC reached an agreement to implement utilization management for non-specialty prescription drugs (including high-cost GLP-1s) on the City’s PPO and standard HMO plans in FY27. Utilization management is an industry-standard cost containment tool to ensure that prescription drugs are only prescribed when clinically appropriate.
Previously, utilization management for non-speciality prescription drugs only applied to the value HMO plan; this new change will bring the PPO and standard HMO plans in line with the value HMO plan. This change is estimated to generate $10.6 million in savings for the City and its plan members.
In spring 2026, the City will begin negotiations with all municipal unions on health benefits costs through the PEC, looking to establish a new agreement that addresses the unsustainable cost growth for both the City and its employees and retirees.
Learn more about the budget
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Still have questions? Contact:
Budget
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1 City Hall Square
Room 813Boston, MA 02201-2037
