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Sierra Vista to move employees from PPO to EPO plan; council budgets to split insurance increase with reserves and employees
Summary
City staff told the council that all employees on the PPO will be switched to an EPO Blue Cross Blue Shield plan starting with the new fiscal year and that the budget absorbs roughly one-third of a planned insurance increase while a third will come from reserves and a third from employees.
City staff told the council the proposed FY2026 budget includes changes to employee health coverage and personnel costs. Kenzie (HR staff) said, “starting with the new fiscal year, all employees who are currently on the PPO will be changed to the EPO.” Kenzie further explained the EPO option remains on the Blue Cross Blue Shield network and will pay for in-state and out-of-state providers as in-network when those providers participate with Blue Cross Blue Shield.
Chuck (city manager) said the city engaged a benefits consultant from Gallagher after several catastrophic employee claims that significantly raised insurance costs. To limit the immediate effect on employees’ pay raises, Chuck said staff and consultants structured premium increases so about one-third of the increase is absorbed by the city budget, about one-third by the city’s insurance reserve, and about one-third by employees. “We came up with, basically a split of, about a third of the increase, being taken up by an increase in budget, from the city, a third coming from the reserve we have... and then only a third of the increase, was being borne by the employees,” he said.
Victoria (budget staff) said the FY26 personnel plan also includes a 2% step increase for all employees and reclassifications or market adjustments for several positions (police records clerks, IT system administrators, code enforcement officers, among others). She also noted an increase in the city’s PSPRS retirement contribution of about $87,000 for FY26 to a total contribution “just under $7,600,000.” Victoria emphasized that retirement contribution rates are set by PSPRS and ASRS and are outside the city’s direct control.
Council members asked clarifying questions about whether the change to an EPO would reduce providers available to employees in rural areas. Kenzie and Chuck said the EPO will operate on the Blue Cross Blue Shield network and should expand in- and out-of-state access compared with the prior plan, and staff reiterated the city kept the high-deductible design.
Staff said they will continue to monitor claims and plan performance and that they used reserves to moderate the employee share of the increase so employees still receive at least part of the planned pay adjustments.
