Not even halfway into its budget year, the Fort Worth City Council has been warned the city may have to reach deep into reserve funds in a few months to cover rising costs of its employee healthcare plans.
Brian Dickerson, the city’s human resources director, said cost estimates suggest the city could go between $7 million and $22 million over budget, even after officials took “ an aggressive stance toward our budget this year.”
The amount the city goes over budget will depend on how effective changes made to the health plan this year will be, as well as what happens in the marketplace, he said.
This comes on the heels of the city twice dipping into reserves at the end of the last fiscal year for $11.8 million after going $15.2 million over budget because of rising healthcare costs. The $3.4 million shortfall was made up with revenues from premiums.
We paid out a lot more for healthcare than we thought. It was a very bad year.
Fort Worth’s human resources director
“We paid out a lot more for healthcare than we thought,” Dickerson said. “It was a very bad year. Prior to that we had surpluses in almost every year.”
It will be June before Dickerson will know how the numbers are going to work out, he said. But he said one thing is certain: He’s going to have to find about $15 million in savings through health plan changes in fiscal 2018.
“It’s not going to be pretty,” Dickerson said. “It’s a ton of money. The question is how much of the benefits do we slash to get there. I listen to every single idea out there.”
City Manager David Cooke said it’s crucial to find strategies to better manage healthcare costs.
“There’s only so much money available.” he said.
Taxpayers foot the bill for about 7,000 employees on the city’s healthcare plan and another 3,000 covered on Medicare. Healthcare costs are paid through the city’s general fund budget, which funded by property and sales tax revenues.
Expenses up sharply
In the two years following the economic downturn — fiscal 2010 and 2011 — the city averaged $5.5 million in surplus. That surplus fell to $2.7 million fiscal 2012 and the plan basically broke even in fiscal 2013 and 2014, city records show. The city’s fiscal year is Oct. 1 through Sept. 30.
From fiscal 2010 to fiscal 2016, the city’s healthcare-related expenses rose 49 percent, to $117.4 million from $73.9 million, figures show.
City staff continues to gather and sift through data to try and determine how to come to grips with the rising costs, in part looking at how employees and retirees are using the healthcare plans.
One of the chief reasons for the higher costs is that Fort Worth is in the third most-expensive healthcare market in the country, according to industry reports, said Dickerson, who serves on the executive board of the DFW Business Group on Health, a coalition of self-insured employers.
Just a few years ago, Dallas-Fort Worth was considered to be the sixth most expensive healthcare market, he said.
Healthcare is one of those expenses that you think you know how to manage, only to learn there are some variables you can’t control.
David Cooke, Fort Worth city manager
“Healthcare is one of those expenses that you think you know how to manage, only to learn there are some variables you can’t control,” Cooke said.
However, a chunk of the city’s increase comes from the cost of paying premiums for spouses of active employees, retirees and retirees’ spouses, which are not keeping up with expenses, Dickerson said.
Those groups are driving up costs so much that Dickerson said the City Council will need to consider changes in those coverage areas.
At the very least, they’ll need to decide whether to remove coverage for spouses of active employees who can obtain insurance at their own workplace. That could save $2 million to $4 million a year, Dickerson said.
Retirees not on Medicare represent 75 percent of the estimated funding gap for fiscal 2018, Dickerson said. Of that, nearly 90 percent of those retirees, or about 1,271 people, contribute no premiums toward their coverage, he said.
City employees went to the emergency room more, and they had more and longer hospital stays in the last fiscal year than before, Dickerson said.
Last year, the city for the first time had two $1 million healthcare claims, and the city had to front $2 million to an account with their provider, UnitedHealthcare Insurance Co., which the insurance company used to pay bills before the city can reimburse them, he said.
Moreover, the city had $1.7 million in unanticipated administration fees with UnitedHealthcare, Medicare costs rose and the city began paying for annual physicals and other preventive procedures previously not covered.
In addition to removing spousal coverage, cuts being considered include removing from the plan retirees who are employed elsewhere and have insurance available to them and moving many more eligible retirees to Medicare coverage.
There also could be additional restrictions on where employees and retirees go to get medical services, Dickerson said.