Urban County Government officials confirmed Tuesday they're facing a projected $7.2 million budget shortfall because of higher-than-anticipated costs in Lexington's employee health insurance program.
The news came a week after Vice Mayor Jim Gray beat incumbent Mayor Jim Newberry in the mayor's race. Gray said he was briefed last Thursday about the problem.
"It's a huge hole for our budget," said Gray, who added that he has contacted state personnel officials about advice to help control health-care expenses.
Budget documents show that the Urban County Government has historically subsidized the health-care plan. In 2010, the actual shortfall was $9.8 million, and in 2009, the city filled in a shortfall of $8.6 million.
However, in past years, the budget was able to deal with such shortfalls, said Gray, who will take office in January. In 2011, that won't happen, so Gray's new administration could be looking at budget cuts.
At a special meeting Tuesday, Urban County Council members decided against raising employee premiums for 2011 just before open enrollment begins this month. But they did discuss ways to control costs in the future, which could include ending the city's zero-deductible policy used by 90 percent of the city's 3,000 employees.
Acting human resources director Leslie Jarvis said Humana, which administers the city's self-insurance fund, indicated Lexington was its only large customer that still uses a plan in which employees don't have to meet a deductible before insurance pays.
"We can address this and fix it and put the band-aid on it, but it doesn't stop the problem long term," said council member Jay McChord, who also urged the council to look at ways to reduce the preventable illnesses that make up 70 percent of most workforce illnesses.
Other possible changes could include higher premiums for smokers or the obese, and a requirement that employees use generic, mail-order prescription drugs.
Council member George Myers said it was clear smoking and obesity bring high health-care costs and the city's health-care plan needs better wellness programs to help prevent those problems.
"We need to move in that direction and move in that direction now," Myers said.
The shortfall is projected because estimated health-care costs were higher then expected. City officials said they had expected costs to go down after Lexington stopped providing insurance to several related agencies, including the Lexington-Fayette County Health Department.
Instead, the $26.8 million budgeted for health care is well below the estimated $34 million it will cost in 2011 based on first quarter projections. City officials said several serious illnesses among employees in recent months had inflated costs.
Council members did not discuss ways to possibly fill the $7.2 million shortfall, but they did vote to invite state personnel officials to attend a future council meeting to discuss health care.