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"Déjá Vu All Over Again" for Child Care

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Piece by piece, the Bloomberg administration is slowly dismantling a core government program that for over two decades has benefited New York City taxpayers, non-profit social service organizations, and children and families in need. The next girder is scheduled to fall at the end of this week, and it is high time to stop the demolition and start rebuilding.

The program at issue, started in the 1980s, revolutionized the way New York City provides insurance for vital social services such as child care, afterschool and senior programs.

Every year, the City spends billions of dollars contracting with hundreds of non-profits to provide these services. These non-profits must have general liability, workers' compensation and other types of insurance, but unfortunately are too small to bargain effectively with insurers, and therefore pay very high rates. Insurance is part of the cost of providing these City-funded services, and so taxpayers end up bearing these costs.

This system began to unravel about 30 years ago, when child care providers saw their insurance costs become prohibitively expensive, and the City saw an increasing percentage of its funds being used for insurance rather than programming.

The City's response was both bold and comprehensive. Rather than having each organization negotiate individually with private insurers, the City recognized that it could centralize the process and use its bargaining power to negotiate lower rates with insurers, or even could "self-insure" and skip the insurers completely.

The City therefore set up a new Central Insurance Program, which at first provided coverage just for day care centers, but then was quickly expanded to include youth programs, home attendant programs and other City-funded services. The City also established a special risk management unit to analyze loss claims, identify trends, and implement safety improvements to reduce similar claims in the future.

The program was such as spectacular success, and saved so much money, that in 1994 Harvard University's Kennedy School of Government's bestowed its "Innovations in American Government" award to the City for its Central Insurance Program. It was a win-win-win for the City, the non-profits and the taxpayers.

Unfortunately, this wonderful cost-saving program is slowly being shut down. Non-profits with contracts with the Department for the Aging and several other agencies have already been removed from the program and required to obtain their own insurance in the private market. Next to go are the non-profit child care providers, which will be dropped from the system on November 1, 2013.

It is particularly surprising that this dismantling is being conducted by the Bloomberg Administration, which has been at the forefront of data-driven government innovation and efficiency over the past twelve years. Indeed, if it did not already exist, the Central Insurance Program -- which is based on consolidating functions and using market power to drive down costs -- is exactly the type of innovation that the Bloomberg administration would have created.

To its credit, New York City is trying to soften the blow by using the money it currently spends on insurance coverage to increase payments to the child care providers, and this will provide some funding to cover the cost of replacement coverage.

But the Central Insurance Program's central conceit was that the City's purchasing power and self-insurance capacity allows it to spend less than all the child care providers would spend individually. So, by definition, the amount of money the providers receive will be insufficient to purchase equivalent coverage in the market.

For Union Settlement Association, the nonprofit that I oversee here in East Harlem, the increased reimbursements will be only about 75 percent of the increased costs, and we will have to raise another $30,000 to make up the difference. This is just another of a series of steps by government to shift costs to non-profits, seemingly based on the assumption that these organizations can simply turn to their donors to cover the increases. We can't.

But the worst losses will not be monetary.

Some non-profit child care providers are barely surviving now, will not be able to afford the increased insurance costs, and may have to close. If others cannot secure coverage by November 1, they will be shut down by the City, which rightly does not want children cared for in facilities that have no insurance. What will happen to those children? And to their parents, many of whom rely upon the child care to allow them to work?

In short, this de-innovative action of closing the Central Insurance Program will not save the City any money, will impose additional costs on non-profits, and will place low-income children and parents at risk. A lose-lose-lose.

The only winner will be the insurance companies, which will once again reap the benefits of a decentralized insurance purchasing system.

And in the future, when insurance costs predictably rise, child care providers will inevitably ask the City to increase their reimbursement rates, imposing new costs on our taxpayers.

At that point, some bright staffer in City Hall will suggest: "Why don't we save money by centralizing all these insurance costs!" As Yogi Berra famously said, it will be "déjà vu all over again."

We don't need to get to that point. Hopefully our next Mayor will be as innovative and data-driven as the current one, and will recognize the Central Insurance Program as one worth saving. Or maybe the current one will.