Over the last three years health care costs have increased annually by 5-6% out pacing inflation1. According to Price Waterhouse Coopers Health Research Institute the three primary drivers include increasing prescription drug prices, chronic disease, and greater utilization of mental health benefits1. Looking ahead to 2021 this trend was predicted to continue. However, COVID-19 impacts the forecast greatly as patients defer elective procedures, routine check-ups, and even care for chronic conditions, in an effort to avoid doctor offices and emergency rooms. Subsequently, health care cost increase estimates are closer to 4% for 20202. On the surface this appears to be an improvement. Unfortunately, when patients do seek the deferred care, costs could balloon by 10% above pre-Covid-19 levels resulting in the greatest medical cost inflation since 20072. These increases will be driven by a greater number of claims and high costs for acute conditions previously left untreated. Like many economic trends resulting from Covid-19, medical cost trends continue to be analyzed and are a challenge to pin down.
What does all this mean for Ashland? First some background that may prove helpful.
Beginning in July of 2018 the City of Ashland moved away from a self-funded plan in favor of City Insurance Services (CIS). The CIS plan is a collective made up of Oregon cities and counties with the goal of distributing employee health insurance risk over a larger pool of employees than a single city could facilitate on its’ own3. By moving to CIS, Ashland saved, through cost avoidance, $1.5M in premium expenses that otherwise would have been incurred under the self-funded plan4. Unfortunately, Ashland is not immune to the trend in health care costs. Within the current biennium budget health care premiums were projected to increase by 10%, for Police and Fire plans grandfathered under collective bargaining agreements, and 6% for all other employee plans4.
Group health insurance costs comprise approximately $12.8M5 of the total salary and benefit cost of $73.7M over the two-year biennium5. This expense constitutes about 17% of total personnel costs as outlined in the adopted budget. It is important to highlight the 2019/2021 biennium budget changed the health care plan structure. Specifically, employees assumed responsibility for higher deductibles, increased co-pays, and a greater cost share for service at a comparable premium rate. This shifted some of the cost away from the City of Ashland and onto the employee. As we look ahead to the spring 2021 budget season, the structure of the health care benefit must be evaluated to balance quality coverage for employees, advanced planning to compensate for the cost increases inherent in the health care industry, and ensuring future budget sustainability. The steps taken in this current budget were helpful and necessary. Looking forward there is more work to be done. Exploring provider networks, adjusting premium and cost sharing formulas, and investigating prescription drug discounts, specifically through pharmacy benefit managers, can help. The key is to start early and allow ample time to conduct plan analysis.
- Page 2-13 of the Adopted Budget http://www.ashland.or.us/SIB/files/Administrative%20Services/2019-21%20Budget%20Document/City_of_Ashland_2019-2021_Biennium_Budget.pdf
- Group Health Insurance cost line, by department, under “Fringe Benefits” by department beginning on page 3-4 to 3-106 of the 2019/2021 Adopted Budget http://www.ashland.or.us/SIB/files/Administrative%20Services/2019-21%20Budget%20Document/City_of_Ashland_2019-2021_Biennium_Budget.pdf
- Personnel Salary and Benefit cost data from 2019/2021 Adopted Budget Requirements page 1-37 http://www.ashland.or.us/SIB/files/Administrative%20Services/2019-21%20Budget%20Document/City_of_Ashland_2019-2021_Biennium_Budget.pdf