After years of escalation, the Kenai Peninsula Borough saw a decrease in its employee health care costs in 2016.

Across all departments, the borough is looking at saving thousands on personnel costs over the previous fiscal year, the majority of which is due to decreases in health care expenditures. The Kenai Peninsula Borough Assembly launched into its annual budget process with a worksession Monday, looking at Borough Mayor Mike Navarre’s proposed $83.1 million fiscal year 2018 general fund budget.

Health care is a strangling cost for many organizations, especially in Alaska, which has the highest average health care costs in the country. The borough is a self-insured public agency, which means the checks for employee health care claims are cut directly out of the borough budget rather than through a third-party insurer. As the costs of services have risen, the cost of insurance has increased dramatically, making personnel the top expense for the borough, at a proposed $39.4 million for FY18.

Last year, to try to get some control on costs, the borough worked with its employee union to implement a new high-deductible health plan intended to shift some of the cost to employees in exchange for lower premiums as compared to a traditional insurance plan. It appears to have worked — almost every department saw a decrease in the cost of health care, said Borough Finance Director Craig Chapman during budget presentation to the assembly.

“With the new negotiated agreement along with the optional type of coverage that we had, we are estimating that health care will decrease for all departments during the year,” he said.

For instance, in the borough’s finance department, personnel costs dropped by about $30,000, almost half of which was in health care. In the assessing department, health care costs fell about $17,000 last year.

Under the new contract, which went into effect Jan. 1, employees have the option of either a high-deductible health plan, which quadruples the annual deductible for covered employees and families and increases the out-of-pocket maximums, or a traditional plan. The traditional plan also costs nearly double what the high-deductible plan does — $120 per month for an individual for a traditional plan versus $75 per month for a high-deductible plan, which increases in steps over the three years of the contract’s life, according to a contract change document provided to the assembly in April 2016.

Costs of services are still rising, Navarre clarified. It’s just that the borough has had to shoulder less of that cost under the new plan.

“Health care costs are still going up, yes, but our employee costs have trended down a little bit in part because of less of the bigger claims but also in part because we are transitioning to a higher-deductible plan,” he said.

Part of the decrease is also that the borough’s high-cost cases have declined. A few years ago, the borough had about 14 major claims that cost more than $200,000 per year, Chapman said. Last year, there were only two.

“It had a tremendous impact on what our costs were,” he said.

The borough is keeping a careful eye on federal health care revisions, especially the excise tax on luxury health plans, nicknamed “the Cadillac tax.” The tax was proposed as another funding method for the revisions made by the Affordable Care Act, also known as Obamacare, which would implement a 40 percent tax on insurers on annual premiums greater than $10,800 for individuals or $29,500 for families. Congress has not yet authorized the tax, but it could affect the borough in the future, said borough Human Resources Director Stormy Brown in a presentation to the assembly.

Health care reform also entered the spotlight in February when freshly-inaugurated President Donald Trump introduced a bill to undo many of the changes made by Obamacare. The bill ultimately died, but the Trump administration has promised other changes to repeal or change the law. Brown said no matter what the federal laws are, the borough has a contract with its union employees that requires certain services to be provided.

“As long as the contract is legal, we will continue as it is,” she said.

Worker’s compensation claims and the health care costs associated with them are still a concern for the borough, though. The costs of settling workers compensation claims have been increasing steadily, driven by the escalating costs of health care services, Chapman said. In the past, doctors have been given free rein to charge what they want for worker’s compensation services. Recently, the state began setting guidelines on what doctors may charge for worker’s compensation treatment, the effect of which remains to be seen, he said.

The borough also made an adjustment to how it charges employees for worker’s compensation premiums. In the past, everything has been level, although some departments have many more claims than others, Chapman said. Last year, the borough administration started separating departments and lowering fees for those that had fewer claims and raising them for those who had more, an sort of incentive system to be safer, he said.

“Essentially, what we’ve done is reward departments with low claim costs and incentivize departments with high claim costs,” he said.

The assembly will take up budget hearings again Tuesday at 10 a.m., beginning with the mayor’s office, and will continue into the afternoon with regular committees and followed by the regular assembly meeting at 6 p.m.

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.