Lexington's leaders have little time to figure out how to wring $3.5 million in savings from the city's health insurance plan, which offers more generous benefits than 99 percent of all public and private insurance systems.
The discussion will begin at Tuesday evening's Urban County Council meeting, when analysts will discuss a three-year, $33 million shortfall in the health plan.
Council members hope to make changes by Sept. 1 so that a more frugal insurance plan can go into effect on Jan. 1. Starting at that point, council members have already budgeted $3.5 million in savings, which must be achieved by June 30.
"Employees have to understand that we have to change," councilman Kevin Stinnett said. "If we don't, we will bankrupt our government."
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Mayor Jim Gray, who found out about the shortfall the week after he was elected last fall, said the city must act quickly to remedy the problem.
"We've got work to do; we have to really get hold of the problem," he said.
No changes have been decided yet, but expect plenty of debate.
"They (employees) are going to be angry because the council is going to force the burden of expense to be on the back of civilian employees," said Pam Brandenburg, president of the Civil Service Employees Association, which represents about 600 city employees.
The city's insurance plan will end up costing $33 million more than was budgeted over the past three years. That's partly because city workers pay no deductible and very low premiums, and partly because no one was paying attention to how far costs were going beyond what was budgeted.
"Employees have not been exposed to the true costs of services," said Briggs Cochran, president of Benefit Insurance Marketing, which has been analyzing the city's health plan.
The analysis shows that the city's Platinum plan — chosen by 89 percent of the city's 3,000 employees — charges no deductible, compared to an average $500 deductible paid by employees in cities of similar size. The average state worker pays a $1,000 deductible.
City employees pay an average of $1,445 toward their health care each year, compared to $2,832 paid by workers in similar-sized cities and $2,885 paid by state workers.
Even though the number of covered employees declined from 3,538 in 2009 to 3,064 in 2011, the plan cost between $10 million and $13 million more than was budgeted each of those three years.
Last fall, when council members first learned of the problem, they declined to raise health insurance costs because city workers weren't receiving raises.
"It felt like we were pounding the employees by trying to fix both things at the same time, but over time, we were being very generous and we can't continue to do this," councilman Julian Beard said.
The analysts were not able to determine why there was a huge budgetary discrepancy.
"It wasn't being managed, not in the way it's being managed in the private and public sector," Gray said.
Council members are now on a tight schedule. They'll consider the insurance plan's overall financial picture Tuesday night. Then Cochran's company will present more analysis comparing Lexington to other cities, along with strategies to better control health insurance costs. For example, Chattanooga, Tenn. opened a health and wellness center in 2006 with an on-site doctor and pharmacy.
Council members will also start meeting with employees and retirees through the summer, but they have a Sept. 1 target date to start open enrollment of a new health insurance plan by the end of the year.
Chris Bartley, president of the Lexington Professional Firefighters Association, said he thinks employees understand that they're going to have to pay more for health insurance.
"There's got to be a balance between being a good plan and keeping some of the benefits comparable to other places," he said. "Hopefully, they're getting out and educating the employees."