Paducah staff warn rising self-funded health plan costs; adviser recommends roughly $921,000 budget increase

TJ Story, benefit adviser with HUB International, told the Paducah Board of Commissioners on Oct. 21 that the city—s self-funded health plan is facing higher-than-expected claims and that the city should increase 2026 budget allocations to avoid drawing down its reserves.

Story said the city is responsible for the first $175,000 of any individual claim under the plan and that higher-frequency and higher-cost claims have pushed the city—s projected net cost for 2025 to roughly $2,750,000. "The city's health plan is self funded," Story said. "For the most part ... the majority of the cost come from the claims that the employees and their dependents actually have within the health plan." He recommended increasing the city's funding from about $3,000,000 to about $3,600,000 to better cover projected administrative, stop-loss and claim expenses.

Why it matters: Paducah funds the plan largely from city allocations and employee premiums; Story said the city—s net liability is roughly 75% of total plan cost, with employee premiums and stop-loss reimbursements reducing the net exposure. Without an increase in the budgeted allocation, Story warned, the city would draw down an existing health-plan escrow balance of about $2.5 million.

Details and recommendations

Story outlined drivers of rising costs, citing national trends in hospital labor costs, high-cost specialty medications and an increase in chronic and mental health claims. He said the city has seen a higher-than-normal number of large claims this year, estimating four to five claimants approaching the $175,000 stop-loss threshold. He projected that, before reimbursements, administrative, stop-loss and claims costs could track to roughly $3.6 million; current funding is about $3.0 million.

To avoid significant depletion of the escrow account, Story said the city should increase its budgeted allocation. "If we budgeted as we are today, we'd be severely underfunded, and we'd be eating into that escrow balance at a significant rate," he said.

Plan-design and employee impacts

Story said per-employee costs are projected at about $9,724 for 2025. He described proposed adjustments to employee premiums and certain plan design elements needed to meet 2026 IRS requirements for health savings account (HSA) plans. As required by the IRS, Story said the single-plan deductible for the city—s "investor" (HSA-eligible) plan must move from $3,300 to $3,400 for 2026; the city is keeping the family deductible at $6,600 and keeping out-of-pocket maximums aligned between plan tiers.

He said the net change for most employees would be modest: on the lower-cost employee-only option the change would amount to about $5 per pay period, while family coverage could rise by about $39 per pay period depending on participation in the wellness program. Story encouraged continued wellness participation, noting 88% of employees are on the wellness app and about 78.6% are active.

Contract and procurement items

Story recommended renewing service agreements with the plan administrator and vendors. He specifically recommended renewing agreements with Anthem (administration), Voya (stop-loss carrier), Delta Dental (dental), and the city—s existing advisory and administrative vendors; he also noted a municipal order on the consent agenda to contract with HUB for strategic health-risk and benefits-placement services at $81,900 for the 2026 plan year.

Discussion and next steps

Commissioners discussed whether to phase in increases incrementally versus taking a larger one-time adjustment to avoid repeatedly drawing on escrow. City staff said they would include the recommended funding increase in the proposed 2026 budget; several commissioners and the city manager discussed monitoring federal grant programs and other budget pressures. The municipal orders to renew vendor agreements and adopt 2026 premiums were placed on the consent agenda and approved in that vote.

Ending

City staff will include the recommended health-plan allocation changes for 2026 in the budget documents and proceed with renewing the service agreements placed on the consent agenda. No formal separate vote on the budget increase was taken during the presentation; the recommended agreements and premiums were approved as part of the consent agenda later in the meeting.