Tucson managers present FY26 five‑year forecast; council approves staff to proceed with recommended employee health‑benefit changes

City of Tucson staff on March 4 presented a five‑year financial forecast for fiscal 2026 and asked the mayor and council to provide guidance on employee health benefits ahead of open enrollment scheduled for May. After discussion, the council voted to proceed with the city manager’s recommendation for plan design and contribution changes.

The presentation, led by Angel Ozomalam, business services director, and City Manager Mike Rankin, showed the city had reduced the FY26 operating shortfall to about $13,000,000 from prior projections but still faces multi‑year negative balances if no further actions are taken. "We've brought the operating deficit for FY26 down to $13,000,000 deficit," Ozomalam said during the briefing. Ozomalam described assumptions in the five‑year forecast and cautioned it did not include risks such as an economic downturn or uncertainty in federal funding.

City staff said the gap between available funds and projected health‑plan costs required a combination of measures. The manager's recommendation includes approximately $4,830,000 in additional city contributions for FY26, increases in some employee premiums, and plan‑design changes across the city’s three medical plans (Network, HRA, and HSA). Rankin described the package as a mix of increased employer contributions, premium adjustments, and changes to deductibles, coinsurance, and prescription‑drug tiers.

Key features of the recommendation presented to council: an "at‑a‑glance" summary of plan design changes that include higher deductibles and the introduction of a fourth, specialty drug tier across plans; an employer contribution to the HSA plan maintained at the enhanced level ($1,500 individual / $3,000 family) for FY26; a reduction of employer contributions to the HRA reimbursement account (from $1,500/$3,000 to $500/$1,000) to contain costs; a plan to move the dental PPO to a self‑funded model (estimated annual savings $247,000); and a proposal to allow employees and their dependents free access to city recreation facilities starting July 1 to support wellness. Linda Kyle, the city’s health benefits administrator, described the new Tier 4 as "specialty medications" and cited Humira and certain GLP‑1 drugs (examples discussed included Ozempic) among high‑cost items driving prescription spending.

City staff told council that open enrollment will begin May 1 and that they have scheduled in‑person department meetings, virtual sessions, and one‑on‑one enrollment assistance throughout May. The manager and benefits staff stressed outreach to employees who have had low utilization under the Network plan as a primary strategy to encourage migration to the lower‑cost HSA plan; staff said more than 750 employees enrolled in the Network plan had not used medical benefits in the first six months of the plan year and could be candidates for migration.

The council asked for more detail on how projected premium increases break down between city and employee shares; staff said they would supply that analysis. Council members also discussed protections and notice for employees in the HRA plan if it is closed in a future year; Rankin said the benefits committee would study HRA closure feasibility for FY27 and that staff would encourage HRA enrollees to use reimbursement balances while the plan remains available.

Council action: A motion to proceed with the city manager’s recommendations for health benefits was offered, seconded and approved by voice vote. The vote directs staff to implement the outreach and enrollment steps and return proposed plan documents and premium tables as part of the FY26 budget process. Staff noted the total FY26 cost to the city for the recommended package is about $4,830,000 and that the overall recommendations are reflected in the city’s financial forecast.

What to expect next: Staff will finalize materials for employee open enrollment beginning May 1, report back with detailed premium‑share breakdowns and educational outreach plans, and continue to monitor plan savings to assess whether enhanced HSA contributions can be sustained in future years.