WORCESTER - Municipal employees and retirees could be in line for a one-month health insurance "premium holiday" this spring.
That's because the city's Health Claims Trust Fund, used to pay medical and prescription drug claims for municipal employees and retirees, has built up a reserve surplus of about $10.8 million.
The trust is funded 75 percent by the city, including the Worcester public schools, through annual appropriations to cover health insurance premiums, and 25 percent by employees and retirees.
Because the $10.8 million that is now in reserve far exceeds the two months’ worth of reserves the city wants to have in the fund, a policy has been developed for dealing with surplus reserves when they occur.
City Manager Edward M. Augustus Jr. said the policy takes a conservative, multi-year approach to using the money, as has been requested by Mayor Joseph M. Petty and the City Council.
He said the policy, which goes before the City Council Tuesday night, would initially be implemented in May as a one-month premium holiday for all Worcester employees enrolled in a conventional health insurance plan.
No paycheck deductions would be made for their health insurance premiums during that month. The amount of the "premium holiday" would reflect what employees and retirees paid in health insurance premiums that ended up to be in excess of what was needed.
The typical savings for an employee in the city's most popular health plan, Fallon Advantage, would be $165 for an individual plan and $408 for a family plan, according to the city manager.
For retirees, meanwhile, the city would issue a refund equivalent to one month's premium, he said.
Mr. Augustus said the premium holiday would reduce the health trust fund balance by $7.5 million because the city and public schools also would not have to make their health insurance contributions during that period.
The $7.5 million reduction would provide a budgetary savings of $2.1 million for the city-side of the municipal government, $3.4 million for the schools and $2 million in retiree costs.
Mr. Augustus said he would like to use the remaining surplus, roughly $3.3 million, to reduce health insurance premiums for fiscal 2019, which begins July 1.
He said that would allow further savings that the City Council could put toward tax relief for next fiscal year – a suggestion that has been made by Mr. Petty and other city councilors.
Of the $2.1 million budgetary savings the city side would realize, Mr. Augustus wants to use $385,000 to purchase property owned by St. Vincent Hospital adjacent to the Senior Center on Providence Street, including the parking lot for the senior center and the adjacent Anderson Building at 12 Winthrop St.
He wants to spend another $215,000 for improvements to the senior center parking lot and $1.3 million for additional legal settlements this fiscal year.
"This is a responsible use of these one-time nonrecurring funds for these investments and unforeseen expenses that were not known at the time we were building the fiscal year 2018 budget," Mr. Augustus said.
The manager said he has also discussed the critical needs of the public schools with School Superintendent Maureen Binienda, to determine the most significant one-time items that were not addressed in this year's budget process,and how the school system would like to use its $3.4 million share of the health insurance savings.
He said the priorities that will be recommended to the School Committee will include more than $2.8 million for the purchase of K-2 and Grade 3-6 literacy textbooks, Grade 8 science textbooks, high school chemistry and math textbooks, and special education materials.
The last significant investment of this type in systemwide textbook purchases by the public was 10 years ago.
Mr. Augustus said the remaining funds would be used for timely and necessary critical investments in technology and long overdue maintenance and security at school buildings.
The Health Insurance Claims Trust Fund was established to self-insure health insurance plans administered by the city for its employees and retirees.
By self-insuring, Mr. Augustus said, the city pays the actual claims and other expenses, as opposed to paying estimated insurance premiums to health insurance carriers.
"The result is lower health insurance costs and greater flexibility to implement cost-savings plans and programs," the manager said.
In turn, self-funding places the responsibility and financial risk on the city to ensure that health insurance expenses are paid in a timely manner and that there are reserves to cover all related liabilities, Mr. Augustus said.
He added that the financial stability of the city’s self-insured health benefit program is dependent on setting the appropriate funding rates and maintaining an adequate level of reserves.
"By adopting the guiding principles of the Health Claims Trust Fund Policy, the city recognizes that stability and predictability are important to its participants, and that maintaining an appropriate fund balance in the fund provides for financial stability, reduced risk and stable premium rates," Mr. Augustus said.