Should employees of the city of Homer shoulder some of the cost of their health insurance?

At the Nov. 23 city council meeting, the city's health plan was a main topic of discussion, as the council considered ways to avoid large cuts to programs or avoid dipping into general fund reserves in the 2010 budget.

Charging each employee $250 a month for coverage could save the city $189,000 a year in the general fund, according to a plan by council member Kevin Hogan. The city pays just under $1.7 million in claims and static costs each year.

There are on average 175 employees plus dependents on the city's health insurance plan.

City employees currently pay nothing for their health insurance, except for a deductible of $100 for an individual and $300 per family, no matter what its size.

For employees Homer has one of the best health insurance plans, and for the city, the self-insurance system has so far proven to be one of the most efficient in the region.

Kenai, Palmer and Soldotna all have plan's similar to Homer's but with a few subtle differences.

Like Homer, Palmer shoulders the monthly premium for its employees, and any number of eligible family members can enroll in the city health insurance program at no cost, said Kelli Veech, director of administration in Palmer.

And unlike Homer, Kenai's health insurance program is through the state.

In Kenai, there is no monthly premium for single employees, but once Kenai employees begin to insure spouses or children there are monthly premiums to cover those costs.

A couple or a parent and child will pay about $70-80 a month while a family will pay between $120 and $130, according to Kenai City Manager Rick Koch.

Kenai employees have deductibles about $100 more than Homer employees: $200 for an individual and up to $400 for a family.

Those numbers have not changed in the four years Koch has been Kenai's manager.

"If you've got $100 deductible with zero participation from employees that's some pretty great coverage. That's pretty expensive coverage, too," said Koch.

Kenai shares the same state funded organized plan as Soldotna, but Soldotna has gone beyond the plan to shoulder a little more of the cost of health insurance to employees, said City Manager Larry Semmens.

Soldotna's employees have noticed a substantial drop in their monthly premiums, and the city has saved on health insurance by switching state plans just this year.

According to the state plan, each employee is responsible for a $1500 deductible, or $3000 per family, but the City of Soldotna subsidizes that deductible, bringing the cost to each employee down to $100 or $200 for a family.

Koch pointed out that comparing plans across the board between communities is difficult, because each community's needs are as varied as the plans that cover them.

For example, one community could suffer more on-the-job injuries, employees having major surgeries, which would increase premiums, which would increase employees' contributions.

Shopping for insurance to reduce those premiums isn't easy, said Koch.

According to Koch, insurers are not obligated to give an individual or a city its loss history.

So a potential insurer has to make assumptions before estimating costs of coverage, and assumptions could hurt a city with little history of work-related injuries or health problems.

It's not unusual for the idea of reducing the city workers' health benefits to come up each year.

"That will always be out there in the budget process. This year the city manager wanted to keep benefits the same, but every year is a new year and we will need a new budget," said Veech.

According to Veech, the city makes efforts to educate employees about healthy living and safety. It also checks city-owned buildings for hazards. All of this may seem like the responsible thing to do, but when it comes time to evaluate for health coverage, simple prevention programs have helped reduced premiums.

This has helped Palmer keep premiums down in more difficult economic times.

Aside from keeping current employees healthy, a good health insurance program also can be an ace in the hole when it comes time to recruit new employees and can make the difference in a candidate's decision, said Veech.

Premiums paid by Palmer for each employee come to about $1400 per month.

At the last council meeting, Homer City Manager Walt Wrede said the flat premium rate of $250 per month per employee proposed by Hogan might not be the best route to take, particularly when each employee may be looking to insure different sized families

If Homer were to charge a $250 flat rate, it would be in line with the highest premium bracket in Soldotna, which has a tiered system.

The highest rate for an employee, a spouse and at least one child is $264 a month in Soldotna while the lowest rate for a single employee is just $27.74 a month.

That's down after Soldotna switched plans, Semmens said. In 2008, families were paying premiums of up to $346 a month.

Right now, each employee costs Soldotna $1,208 a month in premiums or about $503,000 a year. Employees do pay $104,000 of those premiums.

Despite the savings seen over previous years, Semmens still thinks that Homer's system may be better for Homer.

"Honestly, my opinion is that being self-insured is probably the most cost-efficient way to do it as long as you have the reserves to handle any large claims that come along or changes in premium that result in large claims," said Semmens.

Semmens pointed out that the argument over whether employees should have to pay more of the burden for health insurance remains unclear, and that it is a constant struggle, and sometimes a guessing game, as to whether a city will save money in the long run.

So, what makes Homer's program good for employees and good for Homer?

According to Sheri Hobbs, Homer's Personnel Director, it's both the quality of coverage and the cost of the coverage.

Each year Homer's self-insured plan has saved the city money over similar state-funded plans: usually to the tune of $200,000 a year.

Other services, like free testing at the annual health fair, are all set in place to help the city hedge its bets for the long-term cost of health care for city employees, explained Hobbs.

But what happens when you ask city employees to contribute to a plan that is already saving money?

Ryan, I got a little lost in the last part of the story. Sorry, but stop-loss insurance and aggregate claims make my eyes glaze over. Is there a way to shorten, clarify? Is the point: the great health insurance helps keep employees healthy which keeps the city's costs down? If so, can we say that?

Well, on the one hand it could reduce costs further, as Hogan pointed out, but the main danger in charging the flat rate for all employees comes in when employees can no longer afford coverage.

"The problem is our stop-loss insurance and our aggregate claims are affected by the number of employees we have," said Hobbs.

Both stop-loss insurance and aggregate insurance are plans the city has to basically insure its insurance and this insurance is bought at an annual premium from private insurance carriers.

Stop-loss insurance comes into action when large medical claims are made by city employees over and above your average medical care.

The City of Homer's stop-loss insurance deductible is $45,000, so if an employee needs heart surgery costing upwards of a few hundred thousand dollars, the insurance will cover all costs above that $45,000.

Aggregate insurance comes in handy when costs of health insurance claims exceed a set dollar amount in a year. Once that dollar amount is reached, aggregate insurance takes over to cover additional costs.

Because the premiums for these worst-case-scenario plans are based off of the number of employees covered if enough employees dropped out of the city's self-insurance plan, then the costs for both stop-loss insurance and aggregate insurance could go up, neither of those are things the city can do without, said Hobbs.

This issue will be brought up again at future meetings, and if it were to take affect in 2010 it would need to be included in the 2010 budget which is set for approval on Dec. 14.