If you’ve heard that the Common Council “cut” over $600,000 in spending from the mayor’s proposed budget, you might be getting the wrong impression. The single biggest change to an expense line in the budget was a $400,000 decrease to the city’s self-funded health insurance plan. That change hardly means that we will spend less on health insurance this coming year. Simply put, the city is obligated to pay its health insurance claims whether the total costs exceed the budgeted line or not. It’s for that reason that I believe the “cut” puts our city at serious risk.
The city has utilized a self-funded health insurance plan for its employees and retirees for two years now. So when health insurance claims are made, the city pays the bill. The cost to maintain this insurance is staggering. Every year, employees contribute just over $200,000 and retirees contribute approximately $60,000. However, the city’s share, the part the taxpayers pay for is over $4 million.
According to Controller Matt Agresta, the city’s cost to fund the health insurance system was $4.6 million for fiscal year 2014, and should come in around $4.1 million by the end of this fiscal year. Agresta said his recommendation to set the budget for fiscal year 2016 at $4.5 million was based on averaging the claims for the past two years, as well as accounting for an increase in prescription drug coverage.
The Common Council voted to reduce that line to $4.1 million. So if claims exceed this line, as they did in fiscal year 2014, what will happen? We’ll have to find funds in other lines, or use contingency funds. If that runs out, then we’ll be dipping into fund balance. The budget already calls for a $160,000 appropriation from the fund balance.
As Alderman Ron Barone – the one who championed these cuts – is fond of saying, the budget’s a “crapshoot” no matter what. Maybe we’ll get lucky this year and claims will be within the budget and everything will be fine. Or maybe they won’t. Agresta’s simple method of averaging the past two years seems a very reasonable way to estimate costs to me, but the council rejected that idea.
Here’s another reason to be concerned. Last May, Kevin Garvin, founder of the Garvin Group, which is the city’s insurance broker, told the council that after going through the city’s claims, he found the vast majority of the city’s health insurance claims are from retirees.
“You’re in a death spiral with your senior citizens,” said Garvin. “You’re never going to be able to maintain the dollars spent. You have an aging population. Your workforce is fine, your retirees are killing you guys.”
So the point is, unless we’re going to talk about slashing benefits to our retirees (which no one has), we’re going to have to come up with some way to pay for all this. Switching to a new plan, as Garvin has suggested, could cut the cost by about $100,000 per year. That’s a start, but it seems obvious that we’re also going to have to find new revenue streams to stay afloat.
The simple truth is that this year, the mayor looked at the financial realities, saw the gap, and proposed a practical solution to utilize our existing paid fire fighters to run a city ambulance service to bring in new revenue. The council ran the other way and instead made cuts and appropriations from the fund balance, all of which puts our city at greater risk.
The council made their point, they didn’t want the ambulance service shoved down their throats. But the way I see it, even after the budget process is done, it won’t really be done. The council still has their work cut out for them and they need to start seriously considering all options to increase revenue this year so we don’t end up short. Of course, that’s only if they hope to go into the election season being able to show the city’s finances are in better shape than when they began. But that’s why we elected them, right?
