Employee health trust update: claims spike drives funding concerns; trust to propose budget amendment

City staff, the benefits trust board and consultant Gallagher briefed the council on the Employee Health Benefits Trust’s financial status and next steps after larger‑than‑expected medical claims in 2023–24 eroded surplus reserves.

Overview and drivers: Staff said that by 2024 the plan experienced a significant increase in net claims (staff cited roughly $8.0 million in claims and $9.2 million including fees for the 2024 period), and that several large claims (including cancer, gastrointestinal and musculoskeletal disorders) accounted for the bulk of the increase. Staff and the actuarial consultant told council the claims trend is the main driver of a projected funding gap the trust is monitoring.

Proposed planning and market approach: The trust’s consultants and legal adviser recommended a “market check” (sometimes called a pulse check) rather than an immediate RFP run through the city’s procurement process. Analysts described the pulse check as a less‑formal market evaluation focused on administrative fees, stop‑loss pricing and access to provider networks; consultants said the approach is standard practice for self‑funded trusts because administration, network discounts and service access are key determinants of total program cost. Procurement staff and the trust’s attorney discussed tradeoffs and advised that the trust itself — with Gallagher’s assistance — pursue the market check and bring recommendations back to council in the next budget cycle.

Reserve and budget expectations: Staff said the trust previously used a 4 percent assumption to budget increases; actual claims have outpaced that assumption and staff now expect significantly higher trends. Staff and the trust’s actuarial analysis recommended that the trust anticipate and budget for higher medical costs and that the trust likely will bring a budget amendment request to council in the coming weeks to restore reserves to target levels. The presentation emphasized the distinction between administrative/stop‑loss fees (which account for a portion of plan expenses) and the program’s medical claims, with the latter responsible for most of the increase.

Plan features cited: Staff noted the trust uses a $225,000 specific stop‑loss attachment point (the amount the plan pays for an individual before reinsurance applies); consultants said that level was evaluated about two years ago and considered an appropriate “sweet spot” for this plan given the tradeoffs between reinsurance cost and plan exposure. Staff also emphasized the trust’s outreach and utilization tools (for example, a “Smart Shopper” program that rebates members for selecting lower‑cost providers) and encouraged increased member use of cost‑saving programs.

Costs to members and contributions: Staff reiterated the city’s current design: employees pay no employee premium for their own coverage, and dependent contribution levels have varied historically (staff noted earlier policy changes but said current dependent contribution details remain in effect). The presentation did not propose immediate changes to employee share of premiums; instead staff said the trust would focus initially on restoring reserves and testing the market for improved administrative and pricing options.

Council questions and next steps: Council asked for copies of contractual details on administrative fees and stop‑loss pricing and asked that Gallagher and procurement staff explain marketplace practices ahead of any trust recommendation. Trust staff agreed to supply more detailed information and return with a formal recommendation as part of a market evaluation that would be reported during the next budget discussions. Staff warned the trust could face a budget amendment request for fiscal year 2025 to maintain required reserves.

Quote: “The 17% that we're talking about is the cost for the program, not the grama that are is incurred by the members,” a trust representative said, explaining proposed planning percentages are tied to total program costs rather than member premiums.

Ending: The trust will proceed with a market evaluation with consultant support, provide the council requested contractual and fee details, and return with formal recommendations and any proposed budget amendment.