Health care affects Kenai budget; City looking at increases to employees' insurance plan

Posted: Thursday, April 21, 2011

The City of Kenai's employee health care plan will probably look a little different next year. But so far, no one knows exactly what the changes will be.

A proposal from the city administration would create a new $50 monthly premium for employees, increase the premium for children, spouses and families added to the plan and increase deductibles. But at Tuesday's budget work session, which opened with a discussion of health care costs, Kenai's city council did not green light that plan.

"I would like to see a lesser increase," said Councilman Bob Molloy.

The council didn't provide specific direction for changing the plan, although it was clear that they wanted to see a revised version that asked employees to shoulder some -- but not as much -- of the increase.

Mayor Pat Porter said she thought it was appropriate for employees to chip in $50 a month for their own health insurance and help with the other increases, but she was willing to agree to a smaller increase to keep the discussion moving.

Increased health care costs were a late game-changer for the city.

While city administration was finishing building the budget, they received word that health care costs were going to increase substantially -- about 56 percent. Since then, the state has negotiated a slightly lower increase by agreeing to pay a lump sum to the plan operators, Aetna. The increase is still a substantial portion of the city's budget at more than $500,000.

"We had to reload and go back and look for ways to fill that budget hole," said City Manager Rick Koch.

To help fill the hole, city administration put together a proposal that would ask employees to share the city's cost of the increase.

Under the proposal, city employees were asked to chip in as much as $180,000.

Koch said that in meetings with employees, they understood the necessity of the increases. That doesn't mean they were excited.

"There's not anybody jumping up and down for joy over it," he said.

But the city and its employees don't actually know exactly what the new health care plan will look like, because it hasn't been finalized. Finance Director Terry Eubank said the state is still negotiating the plan details with Aetna, making it hard for the city to finalize its numbers.

In the past, city employees have paid nothing for their own insurance premiums, in part because the city requires that they participate in the plan. Adding children, spouses or families had a monthly premium of between $70 and $126. The administration's proposal adds a $50 monthly premium for employees, and doubles all other premiums. Deductibles would also increase. For a single employee, the amount would increase from $200 to $450, while a whole family would see an increase from $400 to $950.

The deductible is partially self-insured, Eubank said. That means that the city actually reimburses employees for some of their medical expenses, so that the effective deductible is lower than the one the health care plan actually contains. In the past, the city has refunded employees part of the difference between their possible reimbursements and the amount they were actually used. That would also end.

The change would come in two doses: the premiums would change July 1, while the deductible year changes Jan. 1.

Councilman Mike Boyle said that plan worked out to nearly $2,000 per employee, which could be a hardship for some, particularly those who are at the lower end of the pay scale.

"I personally couldn't do it without a lot of consideration," he said.

Koch said that the $2,000 figure was a worst-case scenario. Most employees only use about 60 percent of their possible deductible reimbursements, so they wouldn't pay the entire out of pocket increase.

Despite the possible increases, Kenai's health care plan remains at the low end of the cost spectrum.

Councilman Joe Moore, who did not express a problem with the plan, said that he pays significantly more to cover his son and himself.

"I pay over $6,000 a year for my share of health care coverage," he said.

Koch noted that Soldotna has the same state-sponsored plan, and also charges employees more for their coverage.

He described Kenai's plan -- both the old and new -- as a "smokin' deal."

And councilmen Ryan Marquis and Terry Bookey confirmed that the borough (and its employees) faces increases this year, too.

The increase is the result of multiple factors.

"It was just a horrible year for the pool," Koch said.

Eubank said the plan is managed by the State of Alaska for political subdivisions and operated by Aetna. Communities around the state -- including Nome, Soldotna and many small, rural towns -- participate.

The company expects about a 12- percent return to cover their costs and profits -- if the return is higher, the extra money goes back to a state fund to be held in reserve. If it is lower, the fund has to kick in to bump it up, or the plan has to get changed.

Eubank said that last year, Aetna paid out more than it received in premiums. In the last plan year, Aetna paid out $1.19 for every $1 of health care premiums it received. When things are working out financially, Aetna pays out about .88 for every $1 of collected premiums to make their margin.

Koch said that the disparity between what is being paid and what is ideal to provide the company's margin accounts for more than half of the increase.

The rest is made up in small chunks.

"There's a few percent in there for the new health care legislation," Koch said.

Mike Navarre also spoke to the council about what is driving the increases. He said it was probably related to the amount the plan reimburses providers.

"They're paying too much for health care," he said.

Molly Dischner can be reached at

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