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Payson staff recommends mixed premium-sharing option for FY26 health plans, proposes modest employee premium increases
Summary
HR proposed three insurance scenarios for FY26 and recommended Option 3, which spreads premium increases across plan tiers and asks employees to share a small portion of cost increases; staff said Kairos pool premiums rose modestly for Payson while the pool average rose more sharply.
Human resources and benefits staff presented three options for employee health-benefit cost-sharing for fiscal year 2026 and recommended "Option 3," a plan that standardizes employee contributions across plan tiers and asks employees to take modest increases in premium-sharing on buy-up plans.
Background and pool status: - Payson is in the Kairos Health Arizona public-entity pool. Kairos reported average premium increases for pool members near 14% for FY26, with some members receiving increases as high as 25%. - Payson—s actual negotiated premium increases for FY26 were smaller: medical premiums increased about 5%, dental 3%, and vision had no increase. For that reason, staff said Payson is not facing the larger double-digit premium increases seen elsewhere in the pool this year.
Retiree benefits and OPEB: - The town continues to provide retiree health coverage to grandfathered employees hired before May 1997 (benefits for life) and to certain hires between May 1997 and January 1, 2010 (benefits to age 65). Staff said those retiree commitments are a material liability: the town—s most recent actuarial reporting places the present value of the OPEB unfunded liability at roughly $18.5 million. - To reduce costs, Payson adopted a retiree Health Reimbursement Arrangement (HRA) in FY21; staff said 12 retirees have elected that option so far, saving the town about $130,000 cumulatively; a new HRA participant is estimated to save the town roughly $5,600 (individual) or $10,800 (couple) annually.
The three options presented for FY26 (summary): - Option 1: Town absorbs premium increases across tiers and continues current share levels (no change for employees). This was the least disruptive to employees but the most costly to the town and the least sustainable if pool-wide large increases recur. - Option 2: Town pays employee-only coverage on all high-deductible plans and also covers 70% of dependent premiums; larger town cost and closer to market practice. - Option 3 (staff recommendation): Town covers employee-only premium for the $5,000 high-deductible plan and dental/vision; other plan tiers are aligned so employees share a portion of premium increases across tiers. Staff showed the estimated employee-only monthly increase under Option 3 as small (for example, roughly $6/month for the $1,650 high-deductible buy-up plan in one estimate) and said Option 3 is more equitable and more sustainable than Option 1.
Council direction and next steps: - Multiple council members indicated support for Option 3 at the work study. Staff will proceed with open-enrollment preparation based on that consensus and complete materials for employees ahead of the enrollment period. HR said it would notify Kairos of the town—s direction so plan documents and open-enrollment materials can be prepared.
Why it matters: health benefits are a significant element of total compensation and a frequent driver of personnel-cost inflation; Payson—s choice between absorbing increases and sharing costs with employees affects both retention and budget sustainability.
Staff follow-up: HR will finalize open-enrollment materials under Option 3, provide counts by plan tier on request, and include retiree-benefit liabilities in the town—s actuarial reporting and budget modeling.
