Lexington's Urban County Government is dropping health insurance coverage for 556 employees of "outside agencies" — organizations that are affiliated with, but not directly run by, city government.
Based on 2008 spending, dropping employees of the 20 organizations from Lexington's insurance plan would save the cash-strapped city $506,218 a year, the difference between what it took in and what it had to pay out.
Among the organizations that will be making new health insurance arrangements are the Fayette County Health Department, Kentucky League of Cities, Lexington Housing Authority, Lexington Convention & Visitors Bureau, Lexington Parking Authority and the Lexington Urban League.
"The satellite agencies had been paying only their premiums," said Susan Straub, spokeswoman for Mayor Jim Newberry. "... They were not funding the full cost of their health care."
Over the past three years, the city has shelled out $2.2 million to supplement the insurance premiums paid by the employees of outside agencies.
In late November, Newberry said the city might consider layoffs, pay cuts, furloughs and the elimination of city programs to stem an estimated shortfall of $12 million to $13 million. City government division directors were asked to propose ways to cut expenses by 5 percent.
The council approved cutting health insurance for outside groups on Dec. 8. In all, the city offers health insurance to 3,622 workers and retirees, whose health claims outpaced revenue by $8.5 million last year.
Most of the agencies will have until Dec. 31, 2010, to finish their new health care plans, but some — such as the Fayette County Health Department — will switch to new insurers within the next month.
Health Department Commissioner Melinda Rowe said city officials told her the agency should be covered by the state's health insurance program. Instead, the department chose a plan offered by Bluegrass Family Health.
Still, the cost of premiums paid by the department could go up by more than $600,000 over two years, Rowe said.
Not providing health insurance to employees was never considered, she said.
"Obviously, we're the health department; we have got to concentrate on our own employees and their wellness," Rowe said.
P.G. Peeples, president of Lexington's Urban League, said his organization's insurance options are limited because it has only six employees. He hopes to band with United Way agencies or other Urban League offices to build the number of employees needed for a large bargaining pool.
"I'm disappointed they're going to remove this option," Peeples said. "I understand that they're trying to do cost savings."
How did the city wind up providing insurance benefits for agencies outside city government?
"For the most part, we don't really know," Straub said. "We inherited this situation, and the arrangements have apparently been in place for a number of years."
Jan Isenhour, director of the Carnegie Center for Literacy, said the center's budget initially came from the city, so its inclusion in the health pool seemed logical.
In 2003, the center became an "outside agency" and started taking over its own finances but remained in the city insurance group. The Carnegie Center hasn't started pricing outside health policies; it has another year on the city's plan.
Meanwhile, the city continues to look for other ways to shift expenses to outside agencies.
Ed Lane, councilman for Lexington's 12th district, said the city might soon consider asking outside agencies to contribute money toward the upkeep of city office space they occupy.
"The recession puts a lot of strain on government to provide all the services necessary for the taxpayers, but it also gives us an opportunity to look at what are essential services and what are non-essential services ... to try to maximize the efficiency of government as much as we can," Lane said.