Increased healthcare cost, mainly in prescription health benefits, has forced the city to take on $4 million in debt. City officials on Tuesday evening approved measures to borrow $4.39 million to pay to plug a budget shortfall in the health care line item.
“The driving force for the shortfall is both in health benefits and predominantly prescription drug portion of our health benefits,” said acting finance director James Ten Hoeve. Two-thirds of the shortfall has to do with increasing drug costs, said the director.
City officials said the increasing is mostly as a result of city employees opting to use brand name drugs instead of less expensive generic brands. “We don’t have control over the prescription and medical health care,” said Pou. “Those things are cost drivers.”
She said the city’s third party health insurance administrator looked at the items that were increasing the city’s health cost. “There were a lot of brand name drugs that were being issued to many of the public employees because they insisted on having that,” she said.
Pou said there is a state law that requires them to use the generic brand before moving to anything different. She said the city has put in policies to inform employees about the law since January of this year.
Andre Sayegh, 6th Ward councilman, asked about the $2 million in savings the city obtained from a change in the way it awarded health insurance contracts. “We had anticipated up $2 million in cost savings. Can you explain why we haven’t seen that cost savings?” asked Sayegh.
Ten Hoeve said he has viewed a report that showed there was a $2.2 million savings. USI, the city’s health consultant, completed an analysis that showed last year the city was paying less than it would pay if it were on the state’s health benefit plan. City officials said a new analysis will be performed to determine if that’s still the case.
The borrowing also covers a budget error.
Ten Hoeve said he committed a “budgeting error” during last year’s budget. He assumed an emergency debt the city took on was for five years when the local finance board approved for only three years. That resulted in a debt service shortfall of $440,000, he said.
The $4.39 million covers both increased healthcare costs and the newly discovered budget error on debt service. The emergency appropriation is usually covered under next year’s budget, said the director, but the city will issue a refunding bond that will be paid over the next three to five years.
Funding the shortfall through borrowing money will result in the city incurring additional interests that will have to be paid by taxpayers.
The term will be determined by the state’s local finance board. The city has to obtain approval from the board before taking on the debt. The city council approved the administration to seek board approval.
In 2014, the city appropriated $42.14 million for health insurance; the next year, 2015, it appropriated 42.41 million, according to city records, even though the city expended $44.27 million in 2014.