Anchorage Mayor Ethan Berkowitz on Friday described the city's health insurance program as "not a sustainable model," as he unveiled proposals aimed at minimizing higher out-of-pocket health care costs for city employees next year.
In a presentation to Anchorage Assembly members, Berkowitz and his deputies described two years of unusually high insurance payouts coming at the same time as the cost of health care is pinching employers nationally, particularly in Alaska.
Berkowitz said the city isn't immune to rising health care costs. He said his administration is examining new partnerships, health care models and ways to cut costs, like the re-launch of an employee wellness program.
"We have got to change how we deliver health care," Berkowitz said. "This is not a sustainable model for delivering health care."
Health care is the second-largest piece of the city budget, exceeded only by wages, Berkowitz said.
In the short term, Berkowitz is proposing benefit changes aimed at cutting costs for the city. If accepted by the Assembly, those benefit changes would include higher deductibles and out-of-pocket costs for prescription drugs, said Juna Penney, the city's director of employee benefits.
Only about 10 percent of city employees would be affected by the benefit changes, said city manager Mike Abbott.
But next year, all city employees enrolled in the health care plan will generally see higher premiums.
Berkowitz is also proposing to the Assembly a $2 million loan to the program from a reserve workers' compensation fund. He said the loan will be on a five-year term, though the city expects to pay it back sooner.
After two years of paying more for health care than what the city could afford, the city has dipped into its reserves, and it's time to replenish the account, Abbott told Assembly members Friday.
Without any action, the city's health care costs will increase by nearly 17 percent in 2017, officials said, to a total of $43 million.
The administration's proposals would bring that down to a roughly 6 percent increase, or an increase of $45 and $90 per month for employees.
As well as rising costs statewide, Anchorage saw a few anomalies in the past two years that have added to the expenses, officials said.
Most notably, there were an unusual number of individual claims that were higher than $500,000 in 2015 and 2016, Jennifer Bundy-Cobb, director of health and welfare for a health care consulting agency, told the Assembly.
Several employees had claims that exceeded $2 million in 2015, where it's unusual to even see a single such claim, Bundy-Cobb said.
Anchorage is self-insured, which means the city assumes the financial risk for providing health care benefits to employees. The city pays up to $500,000 in claim amounts, with the rest covered by Premera Blue Cross Blue Shield. But the city has to cover individual claims up to that amount.
Assembly member Pete Petersen asked whether the higher claim payouts were related to an aging workforce or "luck of the draw." Bundy-Cobb said she'd call it "luck of the draw."
In addition, the city firefighters union left the city health insurance plan at the end of last year, leading to a sudden rush of claims, Berkowitz said.
At this point, Berkowitz said the city is looking at expanding its coverage pool to include state employees and Anchorage School District employees.
Separate efforts are aimed at regulatory changes. Penney said she's a member of the Alaska Association of Health Underwriters, an advocacy group looking to change regulations on issues like Medicare reimbursement.
Karen Turner, city employee relations director, said her department is in the process of researching long-term ways of lowering costs.
"No stone will be left unturned," Turner said.