“As I understand it, we are freezing their portion at whatever it is right now,” said City Manager Don Hoyt. “So, if any premiums go up, the city’s going to have to eat it.”
Currently, the city shoulders 75 percent of the insurance costs for employees and 20 percent for retirees. This year, Blue Cross raised its rates to the city, meaning a higher cost for the city, its 332 employees and 41 retirees. The retirees, who pay a higher percentage of the cost, were expecting an increase to $796 a month, up from $592, if they were enrolled in family insurance. That increase would have kicked in July 1.
A proposal approved Tuesday night won’t allow the city to raise the amount collected from employees and retirees unless they are given a cost-of-living adjustment that would cover the hike in rates. The 41 retirees still on the city’s plan did not receive a cost of living increase last year. So, the city will have to pay the increase in insurance rates.
Not all retirees are on the family plan. Some are on an individual plan which also increased but not by the same amount. Chief Finance Officer Danny McCullars didn’t have a breakdown of how many retirees were enrolled in the different plans. Based on the numbers provided by McCullars, if all 41 were on the family plan, the city will pick up an additional $8,364 a month for the retirees.
The employees’ increase kicked in last January 1 and was included in the cap. The city won’t feel any effects from that cap until next January.
The city has not received next year’s rates for insurance, so McCullars couldn’t estimate how much, if anything, the policy change will cost the city in its upcoming budget year set to begin Oct. 1.
Blue Cross sets insurance rates based on the city’s history of usage. One complication is the rapidly rising cost of health care which averages a 9 percent increase each year. Another complication is that the city’s plan is self-funded. The city assumes any risk associated with health care usage by its employees and retirees and reimburses Blue Cross for any payouts not covered by premiums. It maintains a catastrophic insurance policy from another company to minimize its risk.
This year so far has been a good year for usage, McCullars said. The city budgeted $2.5 million for health care and if everything stays on par, it will be under budget by about $200,000.
The city has not always been so lucky. Last year, it went over budget by $450,000.
“The arrangement has been beneficial over the long haul,” McCullars said in an email. “But you also see how capping premiums as opposed to tying them to actual cost increases can complicate the benefit/cost relationship.”
Hoyt said the councilmen did not ask for an estimate of how much the change would cost the city or offer any suggestions for how the city would pay the increase.
“These are very hard and these are very difficult times,” said Councilman John Spain to introduce the proposal Tuesday. “Certainly we’re not able to raise the pay of the retirees nor have we been able to give the actual city, the workers of the city, the raises that we would like to give them.”
The city has not given a cost of living adjustment to its employees for at least four years. The City Council made some cuts in other areas in order to give merit raises last year. Merit raises, though, aren’t across-the-board raises, and according to the newly passed resolution wouldn’t be considered when figuring premiums.
Councilman Herbert Palmore expressed his support for the proposal, saying life was “not fair” to retirees.
“If you’re working and have the opportunity to have overtime, that helps subsidize your yearly salary,” Palmore said. “I am a retiree and I found out the hard way that, life is not real, life is not fair to a retiree. You’re losing income when everything around you is going up.”
Mayor Gene Robinson voted against the proposal, saying it should be discussed along with a solution to the under-funded pension fund for police officers and firefighters, which could go bankrupt by the year 2024.
The City Council approved the cap on insurance rates 4 to 1.
McCullars will try to plan for the change in the upcoming budget, but health care is one of the most difficult things to plan for because it is so uncertain, he said.
“You can’t predict the future, how sick people are going to be or car wrecks, things like that,” McCullars said. “All we can do is plan the best we can taking into account what the national inflation factor is, and then look at the last year’s experience is and look at the ages and just kind of see.”
McCullars said if the cost becomes unmanageable, he will have to bring the issue back to the council members for discussion.
Star staff writer Laura Camper: 256-235-3545.