Santa Fe City Council dips into reserves to pay higher health insurance costs

May 28--A vast majority of Santa Fe city employees will face higher out-of-pocket costs for certain doctor visits starting July 1, but their biweekly payroll deductions for health insurance will remain flat under a proposal unanimously approved by Mayor Alan Webber and city councilors Wednesday.

In a move that several city officials and a consultant called risky, the governing body decided to tap into reserves from the city's medical fund to offset a projected $1.56 million increase in medical insurance benefits in the upcoming fiscal year.

The decision to use reserves minimizes the financial impact on employees, many of whom have taken pay cuts in the form of furloughs in the current fiscal year, but it leaves less than $1 million in the rainy day fund, raising concerns about a shortfall.

"We've drained this fund down to a very risky level, and some day we will have to pay to build it back up," City Councilor Signe Lindell said. "I see these options -- I know they're what people want today -- but we are clearly kicking the can down the road, and I think fiscally, it's very, very risky."

Though the city plans to monitor trends and provide monthly reports, it runs the risk of depleting the fund if it has another year of high claims as it has over the past two years.

"This option is not without an element of financial risk, which is why we will monitor its performance on a monthly basis," Bernadette Salazar, the city's human resources director, told the City Council. "If the city were to experience another year of high claims -- claims in excess of the revenues brought in -- the city will need to consider other funding sources or new plan changes to fund the plan and pay claims."

Total medical costs for the upcoming fiscal year are projected at $21.5 million, a 7.8 percent increase over the current year. Minus increases to copays and other changes that shaved about $310,000 from the increase, the employee contribution grew by about $368,000 while the employer contribution increased by nearly $1.2 million.

City Councilor Chris Rivera said the option approved by the council will have the least impact on employees. He also said the growing costs of the city's health insurance plans have been a topic of concern for years and is unrelated to the novel coronavirus pandemic.

"This is not an easy decision for any of us," he said. "This is not something any of us wanted to do, but it would've come up whether COVID or the pandemic was here or not."

City Councilor Carol Romero-Wirth agreed that "there have been issues" in the past with the health insurance plan used by most city employees, which she called "very generous" and "basically unsustainable." She also said "design changes" will be necessary.

"I agree, right now in this health crisis, I think we need to be minimalist in what we do to that," she said. "But going forward, it really does concern me what we're doing to the medical fund [reserve] balance because ... if we're in a fiscal crisis, we may not have the general fund necessary to lean on if we don't have this medical fund."

Salazar, the HR director, said the city plans to pursue a number of possible changes, including exploring a salary-based structure, such as the one used by the state, and looking at another open enrollment as early as mid-October "if the city concludes that plan changes are necessary."

"We can initiate monthly meetings of the Benefits Committee, with monthly updates to the governing body, as we monitor the trends in claims," she said. "If the trends are headed in a way that threatens the financial integrity of the fund, we can bring recommendations for changes to the governing body."

The decision to use reserve funds to offset the higher health insurance costs came after the council declared for the first time a fiscal emergency as part of a resolution extending the city's state of emergency by 60 days.

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