Health Insurance Costs for LFUCG Employees
What is the fair way to correct a budget problem that for years was understood by few in government and acknowledged by no one?
In the past three years LFUCG, which is self-insured and thus pays all health care claims for enrolled employees, families, and retirees, has run a total deficit of $31 million in its health care account. Council members were unaware of the existence of this deficit until after the election of 2010, and the news came as an unfortunate surprise with serious economic implications.
In 2010, for example, LFUCG dedicated roughly $16 million to its benefit pool, which makes a set amount available to each employee to be applied to a range of benefits. Most employees apply those funds to their health care premium, substantially reducing their cost. In 2010, employees paid roughly $6 million in premiums. This total of $22 million from the total of premiums paid plus the benefit pool fell $13 million short of covering actual employee health care claims. LFUCG made up that shortfall. Projected into 2012, proceeding with no change would have resulted in a $16 million loss for LFUCG, money that in the present economic situation the city simply does not have.
You may have read an account in the Herald-Leader of the administration’s initial proposal to raise insurance premiums to cover the real costs of health care claims, and of subsequent work by the administration and council to find a way to lessen the negative impact of the proposed increase in premiums. The original proposed health plans can be found here. The result of that work was a decision to add a supplement to buy down the cost of health care insurance premiums for LFUCG employees, employee families, and retirees. You can watch the Council meeting where this decision was made here.
Public reaction to council’s decision falls into three categories: people believe either a) council “caved” to employee pressure and left the taxpayer on the hook; or b) council failed to listen and respond to the real and expressed needs of employees and is balancing the budget on the backs of the employees; or c) council listened and did the right thing by balancing the needs of employees and tax payers. From my biased perspective, I believe that council did the right thing. It is also worth noting that council took this action with a unanimous vote.
To help you make up your own mind, I offer a bit more information.
The initial premium calculation for 2012 included the true projected cost of health care, including the costs previously hidden by deficits. This meant substantial increases in the premiums to be paid by employees.
In the worst case scenarios, employees would face an increase in health care costs–either through significantly higher premiums in high-end plans in which they had been enrolled, or through additional out-of-pocket expenses in lower-end plans with lower premiums. Premiums for a family in the high-end plan would have gone from $745 a month to $1,330 a month, amounting to an annual increase for the employee of $7,020. For any employee such an increase would have significant impact, but for those earning in the $20,000 to $30,000 range, as many LFUCG employees do, this is an increase they simply could not absorb all at once.
The Council decided to provide up to an additional $1.9 million in this fiscal year as a supplement to buy down the cost of the premiums. Providing that supplement means that premiums for 2012 for the low-end health insurance can be kept comparable to what premiums were for the high-end plan in 2011. This still leaves employees with substantially higher costs for health care, and it still leaves LFUCG with a potential $1.9 million liability. Not a happy resolution for either employees or LFUCG, but a reasonable way forward while we work together to increase wellness and reduce overall health care costs. Other cost saving measures planned for 2012–including a wellness center available at no cost to employees, a program of wellness incentives, and reduced prescription costs–should also help to reduce overall costs for employees and for LFUCGcin 2012 and future years.
