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Tucson examines health‑plan redesign as medical costs surge; city facing nearly $10 million funding gap in some plans
Summary
City staff outlined a near‑$10 million funding gap for two of the city’s three medical plans and asked the council to consider plan design changes, greater employee cost‑sharing and continued incentives for the HSA plan ahead of May open enrollment.
City staff presented a detailed briefing on employee and retiree health benefits on Feb. 19, saying medical cost growth — driven in part by rising prescription prices — has pushed projected plan expenses well above current premium and funding levels.
Staff reported the three plan structure — a Network plan, a Health Reimbursement Account (HRA) plan and a Health Savings Account (HSA) plan — are diverging in cost. The city’s analysis shows the Network and HRA plans together face an estimated $9,900,000 shortfall in projected costs for the coming year, while the HSA plan is projected to be in a surplus position (the presentation lists an estimated positive position of approximately $2,700,000 in the HSA plan).
The five‑year forecast used an assumed medical inflation rate of 8.5% year‑over‑year. For the Network plan staff estimated it would require roughly 20.1% more funding next year; the HRA plan showed a 22.9% increase. The city’s long‑term model shows approximately $4,800,000 of budgetary pressure that was planned for in the general model but still leaves a near‑$10 million gap to cover projected plan costs.
Options the employee benefits committee is considering include changes to plan design for the Network and HRA plans (higher deductibles, coinsurance changes, additional specialty‑drug tiers), moving the HRA prescription benefit from copays to coinsurance, and a suite of measures on the HSA incentive. Staff noted the employee benefits committee is “recommending that we retain the incentive for the HSA plan” and the city manager said he was leaning toward restoring the employer HSA contribution to prior incentive levels in order to encourage migration to the lower‑cost HSA plan; restoring that incentive would change the city’s near‑term cost profile but could encourage employee enrollment shifts.
Staff also highlighted retiree cost dynamics: retirees cost nearly twice the per‑member dollars of active employees in recent months, and the city has been charging combined (blended) premiums for actives and retirees; staff said “the mayor and council may want to consider decoupling this” so retirees are priced differently and more accurately reflect cost.
Council members pressed staff on specific drivers of the spike — especially specialty prescription medications and declining rebate streams — and asked for more detailed drug cost breakdowns, comparisons with peer employers and scenario modeling showing how many employees should move into the HSA for the city to reach budgetary balance.
Ending: Staff said it will present a city manager recommendation at the March 4 study session and requested a final indication before May’s open enrollment if any plan design or contribution changes are to take effect.
