City considering trust to manage health insurance

CNHI News Service
http://www.cnhins.com/

Annual costs have increased in double digits
By Carol Cole
Transcript Staff Writer

The City of Norman OK is considering establishing a health insurance trust to manage the burgeoning expense of employee health benefits.
Municipal employees' health insurance costs have increased in the double digits annually the past several years, with costs going up 18 percent for fiscal year 2005, and 13 percent the year before. The increases have strained the city budget, with salaries and benefits accounting for about 70 percent of the budget.
"At this rate, it's going to be double in five years," said Ward 1 councilmember Bob Thompson at the City Council's budget retreat Saturday morning.
A trust could be formed by the city manager on an administrative basis.
Union and non-union municipal employees would manage the proposed trust, choosing how best to spend trust funds for employee insurance.
"Unions don't trust the city to run it," said Mayor Harold Haralson. "Set up a trust and let them run it."
Ward 8 councilmember Doug Cubberley works with employees on their health insurance committee.
"Everybody recognizes that the train is coming quickly down the track and we are in the middle of the track," Cubberley said. "The benefit plan that we have in today's market is unrealistic."
The city is self-insured and legally obligated to pay all claims. In recent years, employees have begun to pay a portion of the costs of health insurance.
The health committee has proposed a three-tiered plan, with one of the plans being the current one.
Finance Director Anthony Francisco said the city is losing about $100,000 a month on insurance claims over what is budgeted.
"The health insurance is not enough to cover claims right now," he said.
If the trust were created, the city's $5 million reserve for self insurance would go in. Another $1.6 million would be required to further shore up the reserves.
"Just to get it on a firm footing," Francisco said.
Where that additional funding would come from is yet to be determined.
Benefit planners consulting the city have said if health insurance was managed well, increases could be held down to about 9 percent and some cities have brought increases down in the 7 to 8 percent range.
The trust would be set up similar to the Norman Employees Retirement System Board, Francisco said.
The big question is whether the three unions that represent the police, fire and many other municipal employees would agree to participate.
"I don't think we're being unreasonable to ask unions to step up to the plate and help find a solution," said Ward 2 councilmember Richard Stawicki.
The city has lost in arbitration twice in the past few years, including granting a 5.5 percent raise for salaries and related benefits for the firefighter's union, which was matched for all municipal employees.
"I think we have been fiscally responsible and the arbitrator ends up rewriting our budget," said Ward 6 councilmember David Hopper.
The city has a policy of holding 8 percent of its fund balances in reserve for unanticipated operational demands such as overtime needed in case of a natural disaster like a tornado or ice storm or below-target revenues. Reserves are not close to that amount, which keeps eroding as expenditures exceed the budget.
Ward 4 councilmember Cindy Rosenthal said the city has two options.
"We get cooperation from our employees to solve the problem or we cut people," Rosenthal said.
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