Health-care plan changes ahead for city employees

With employee health insurance costs rising, the Homer City Council’s direction to City Manager Walt Wrede earlier this year was clear: Curb the increase.

The challenging task has resulted in two amended plans that keep the city’s per employee, per month contribution at $1,500, and raise the employee contribution. Under the current plan, a full-time employee pays $17.84 per pay period. The proposed core plan raises the premium to $46.15 per pay period. The proposed buy-up plan’s premiums are higher than the core plan, $51.65 per employee per pay period, but other costs to the employee are less. All plans offer a range of premiums that take into consideration additional coverage for a spouse and children.

The proposed plans are part of the city’s 2014 budget that will be finalized by the council when it meets Monday. In a memo to the council accompanying the two plans, Wrede said, “If implemented, this would be a significant reduction in employee benefits and real hit to their wallets. … The biggest impact will be disproportionately to employees in middle income brackets who have families.” 

At the council’s Nov. 25, meeting, council member Beau Burgess questioned whether increasing employee’s health insurance contributions risked the city’s ability to find qualified employees.

“The question to ask ourselves is, ‘Are we competitive?’” said Burgess.

Council member Barbara Howard kept the focus on the bottom line. “We’re down to a budget issue. How are we going to pay for it?” said Howard.

During calendar year 2012, the city budgeted $1,300 per employee per month, or $1.6 million for the year, and actually spent $1,912.82 per employee. The cost overrun to the city was $641,115. An average 98 participating employees contributed $117,930 in premiums for the year.

In 2013, the city’s budgeted amount for health insurance per employee per month was $1,500, or $1.8 million for the year. Through the end of May, the average actual cost to the city was $1,871.20 per employee per month, for a projected loss of $371,290 for the year. The participating employees’ premium contribution totaled $174,200 for the year.

Since June, Andrea Petersen, the city’s human resources director, Jeff Paxton, the city’s insurance broker, with support from Wrede and John Li, the city’s finance director, have been hard at work developing health insurance coverage plans that are comparable to those offered by other cities and organizations, while maintaining the city’s contribution at $1,500 per employee per month, protecting existing jobs and programs, and minimizing the financial impact to employees. Their effort involved the review of more than 80 plans. 

Under the current plan, premiums are offered for part- and full-time employees, as well as spouses and children. The proposed core and buy-up plans each offer premiums for the part- and full-time employees, as well as premiums that include the employee and spouse; employee and child; employee and children; employee, spouse and child; and employee, spouse and children.  

The draft 2014 budget, based on an average 99 eligible employees, includes a total employee premium contribution of $308,000, and an employer contribution of $1.8 million. 

In late September, city employees were told of the proposed changes.

“The reaction was what you might expect,” Wrede said in a memo to the council. “Employees in general were not very happy.”

At the city council’s Nov. 25 meeting, one suggestion was to give each employee $1,500 to find their own insurance. City Attorney Thomas Klinkner cautioned against that option, noting it was his belief employees would be taxed on that amount.

A year and a half ago, a joint meeting was held between the cities of Homer, Kenai, Seward, Soldotna, the Kenai Peninsula Borough, Kenai Peninsula Borough School District and both Central and South Peninsula Hospitals, to “discuss health insurance and what we could do to decrease overall expenses,” said Petersen.

The city of Kenai has 102 insurable employees, according to Terry Eubank, the city’s finance director. The city recently switched providers after finding a competing quote that saves the city approximately $150,000. For fiscal year 2014, the budgeted amount per employee is $17,270 per year.

Kenai reimburses employees for their deductible, a benefit that was in place prior to Eubank becoming the finance director.

“The employee pays first and the city reimburses,” said Eubank of what turns out to be a savings for the city since employees only utilize about 50 percent of the deductible.

The Kenai Peninsula Borough has 300 employees, 230 of which are represented by a union.

“So, when we go to the table for negotiation, we’re not necessarily going to apply the same benefits, although in practice we do,” said Stormy Brown, the borough’s human resources director.

The contract that went into effect July 1 has a “significant change for us,” said Brown, noting a contribution for health insurance from employees that was not made in the past. Under this plan, each employee now pays $50 per month, $80 more for coverage of a spouse, $30 more for up to two children and $60 more if there are three or more children. The rates increase during the remaining two years of the three-year contract.

“This is a big change for our employees, but we knew this was a direction we needed to go when we were bargaining,” said Brown. 

“Our goal was to have good coverage, but we had to have shared responsibility.” 

To help individuals make the change, each full-time employee received a lump sum of $500 “as part of negotiating on the compensation side, knowing fully we’re asking them to take more on, but this first time around, we’d help supplement that,” said Brown.

With regard to a perception that working for a governmental agency means great benefits, Brown said it’s important to consider both benefits and wages.

“We know it’s a total conversation,” said Brown. “You’re looking at what does it cost to have an employee, so it’s a combination of what you spend on benefits and what you spend on pay. If you’re going to budget at all, you end up looking at both.”

While the borough’s search for good coverage and shared responsibility resulted in increased costs to employees, Brown pointed to her own bottom line.  

 “They voted for the contract,” said Brown.

McKibben Jackinsky can be reached at