Facing rising employee health care costs that could place a heavy burden on its budget in the near future, the City of Phoenix is looking for ways to cut costs.
Members of the Finance, Efficiency, Economy & Sustainability Subcommittee met Tuesday to discuss the future of the city’s health care plan for all current employees and retirees, and to hear what the city’s Health Care Task Force had found in their research.
“The issue here with city sponsored health care, is that we’ve increased our costs by $65 million in the last seven years,” said Mary Kyle, a member of the task force. “Many large employers are rethinking their role with their employee health care, checking costs, making sure things are affordable for both the employee and employer.”
The task force suggested to the committee that a switch to a private exchange would be beneficial for the city, decreasing costs and giving city employees more options. In a private exchange, city employees are given choices between multiple health insurance plans at rates subsidized by the city.
“If we can start making an impact in [health insurance costs], then it will help our city’s budget,” said Ed Zuercher, the city manager.
The city currently pays for 80 percent of the premium for health care costs, leaving the other 20 percent to be covered by employees.
An excise tax, commonly referred to as the “Cadillac Tax,” presents another possible issue for the city, Kyle said. It was created as part of the federal Affordable Care Act and calls for a 40 percent tax on benefits above a certain threshold. It would be paid by insurers and sponsors of health care plans and could impact the city as soon as 2018, Kyle said.
“It is very expensive, so what we have to look at is how we can reduce that cost for the plans,” he said.
Very few local or state governments have made the switch to a private exchange. Ohio will be the first when it switches over in July of this year.
“We might be pioneers if we decide to do this, but we aren’t pioneers from the perspective of the private sector. CenturyLink is on the exchange, Kellogg is on an exchange,” Kyle said. “There are some big employer groups who have done this already.”
The city has other options if they decide not to go into the private exchange, with many of these options shifting more of the cost onto the employee, including reducing coverage of pharmaceuticals and increasing copays and deductibles, Kyle said.
The task force also suggested engaging employees with wellness programs, making them reflect on their health and pursue a healthy lifestyle, both of which would potentially lower costs, Kyle said.
“At the end of the day we just need to look at ourselves and ask, ‘Are we providing the best possible service to our employees?’” said District 5 councilman Daniel Valenzuela. “Are they happy? Are they healthy? That’s what we should be focused on. I think we are close to figuring a lot of this stuff out.”
The task force will meet with the subcommittee in June at the latest to discuss what direction they should take.
Contact the reporter at Jzbuntin@asu.edu.
