The company that currently insures our city employees notified the city manager that our premium would go up by 59%. An alternate bid came in with a 36% increase, thus raising the cost by about $375,000/year that was not previously accounted for in the budget. Why is this happening?



I have been hesitant to jump into this issue because I don’t want to, inadvertently, do more harm than good. However, after contemplation and research, I want to try delving into this hard topic. As a disclaimer, I assert no expertise in this area. While I have previously worked in the medical field at a children’s hospital and my husband is a practicing physician, I have no insurance specialty.

Health insurance is a tricky topic in our country right now. The Affordable Care Act (ACA) was passed in 2010, upheld by the Supreme Court in 2012 and most changes took effect on January 1st, 2014. Part of the ACA provided for the federal government to subsidized the cost of premiums that low and middle income families would pay to obtain insurance. In 2016, this amounted to about $7 billion of federal money being given to individuals to help cover the cost of premiums. However, with a new administration in the White House, repeal of the ACA has come to the forefront. If a repeal were to be put in place with no provisions to continue the subsidies, insurance companies could be left holding the bill for billions of dollars in medical claims.

The insurance industry functions through a form of wager. Most insurance companies are for-profit, meaning, making money is a primary goal. In order to accomplish this goal, they gather a group of people who want to avoid financial liability in case of costly incidents. Each individual in this group then pays into a collective pot to create a fail safe in case (heaven forbid) they face a costly incident. The wager on the part of the insurer comes in making sure that they ask enough from each individual to cover the whole cost of a claim while still leaving enough at the end to make a profit. Since this is a risk, mathematicians (actuaries) are employed to run probabilities. Looking at any available data, the actuary measures the risk that is taken and projects the amount that will need to be charged in order to cover the risk.

On June 30th of this year, the city’s current insurance policy will expire. Over the last few years we have had a pretty consistent (and low) increase in our premium. However, this year brought the perfect storm and with it came a change to this pattern. The company that currently insures our employees notified the city manager that our premium would go up by 59%. This seems alarming, no matter how you look at it. Even combining the industries projections regarding the subsidies and an increased risk being assessed by the actuaries, this seems like a staggering number. Accordingly, our city manager sought out alternate bids. While this did yield some more favorable bids (UofU premium came in with a 36% increase), this raise in cost amounts to about $375,000 that was not previously accounted for in the budget. In previous posts I have written about the amount of needs facing our city. As you can imagine, this increase adds another layer of complexity to budget concerns.

When the bid for coverage came back, a decision was made to keep the discussions about how to meet the need in house. There was conflict that came as a result of this process. While all of the council members had the information about the increase before the last city council meeting, this information was not disseminated at the same time. I have had many conversations over the last week about how and why this was done. At the end of it, I do not have a concrete thought on the appropriateness of the decision. Thus following, I will acknowledge that there was conflict and move on to saying that regardless of this, the budget realities still exist.

The prevailing question is whether there is anything we can do to change the numbers we have been given. The short answer is no. While most will acknowledge that there are flaws in both our insurance and medical industries, we do not stand at a vantage point to take on these massive industries… at least not without it coming with heavy penalties and at the cost of our city employees. The increase is not ideal and it might never go back down. For now, the prevailing plan is to cut funding for a few added positions within the fire and police departments in order to balance the budget. In years to come the city will have to continue evolving and seeking new solutions to this problem. And hopefully our country will continue evolving to find long term solutions to the bigger problems.