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City staff recommend retaining insurance model; health‑funds set aside to smooth premium spikes
Summary
Human Resources and finance staff briefed council on health‑insurance performance, recommended against switching to self‑funding now, and described reserves set aside to smooth premium increases. Risk management reserves are being increased to cover likely catastrophic exposures.
Human Resources and finance staff told the City Council at a work session that the city is not ready to switch to a self‑funded health plan and outlined reserves the city has set aside to reduce near‑term premium impacts.
The Human Resources director said a multi‑month review of insurance options showed that a full move to self‑funding would have left the city worse off over several recent years. "Based on this analysis, I think it would be unwise financially for us to try to move to a self funded module next year," the director said. Staff recommended continuing the current insured arrangement while using a dedicated reserve to dampen premium spikes.
Reserves and the funding plan: finance staff said the city’s health insurance reserves total about $6.3 million in one fund and $1.7 million in a separate stabilization fund; the larger balance includes a $4.6 million legacy deposit from a prior consolidated contract and interest earnings. Staff said those funds can be used, within policy limits, to smooth employer or employee cost increases in years when premiums spike.
Self‑funding analysis: HR showed a four‑year retrospective simulation of self‑funding that produced widely varying results — a $1 million hypothetical savings in a strong year but multi‑million‑dollar shortfalls in other years. Over several plan years the simulated self‑funding scenario would have led to a cumulative deficit of roughly $3.5 million compared with remaining fully insured. For that reason staff said self‑funding should not be pursued now; they said they would revisit the option only if multi‑year experience suggested sustained savings.
Loss ratios and near‑term outlook: HR reported a first‑quarter health plan loss ratio above target (staff said they want to see ~85% to avoid a rate increase) and that medical inflation trends of 8–12% make a mid‑single‑digit increase optimistic. The city’s total health insurance premium this year is about $14 million, staff said; they also said the contract includes a 9.9% rate‑lock scenario the city may face.
Risk management and workers' compensation: finance staff described the city’s risk fund (current cash reserves roughly $4.5 million) and said an actuarial review suggests a target reserve of roughly $6.1 million to cover outstanding workers'‑comp and liability exposure plus a buffer for catastrophic events. The city’s self‑insured workers'‑comp program has produced multi‑year savings compared with paying full-state rates; staff said they will continue quarterly reviews of department claims and trend factors.
What council asked: councilors asked whether wellness programs could materially change claims and whether reserve interest could be used to offset employee premium shares. Staff said wellness helps with chronic disease, but the larger drivers of the recent premium volatility are high‑cost individual claimants (for example, expensive specialty drugs and long‑term catastrophic care) that are not easily solved by education alone. Staff said interest from reserve funds could be used to smooth costs but cautioned against relying on volatile market returns as a recurring funding source.
Timing and next steps: staff offered to return with quarterly loss‑ratio updates and to include the stabilization plan details in the upcoming budget cycle. No ordinance or rate change was proposed at the meeting.
