Laredo leaders weigh 10% or 15% employee contribution increases and plan redesign to close $12.4M health‑care gap

City staff told the Laredo City Council at a May 21 workshop that the city faces an estimated $12.4 million health‑care funding gap for FY26‑27 unless corrective action is taken.

“Health care costs are projected to increase by approximately 12,400,000 over the current budget baseline if we take no corrective action,” the benefits presenter said while describing drivers like national medical inflation, rising prescription and specialty drug costs, higher utilization and several catastrophic claims.

To narrow the gap, staff proposed two primary mitigation packages: a 10% employee contribution increase paired with a plan‑design update, and a 15% contribution with more moderate plan changes. Under the first option staff presented, a 10% contribution plus aggressive plan‑design changes (higher deductibles, higher out‑of‑pocket maximums, revised prescription tiers) was estimated to yield roughly $8,000,000 in plan‑design savings and leave an approximate $780,000 deficit. The second option—15% contribution with milder benefit changes—was estimated to save about $6,600,000 and leave an estimated $199,000 deficit.

Staff displayed illustration slides comparing contributions and projected biweekly employee rates for the city’s three active plans (high‑deductible/HSA, HMO and PPO) and for retiree cohorts. Presenters emphasized that the high‑deductible plan currently receives a city HSA incentive ($750 this year) and proposed tiered HSA contributions for next year (smaller incentive for employee‑only, larger for employee plus dependents).

Council members pressed on several specifics: why deductible and out‑of‑pocket limits for PPO retirees would jump sharply in the proposed designs; whether retirees, who largely live on fixed incomes, could be protected; and whether switching more employees to an HMO or the high‑deductible plan would deliver savings while maintaining access. The consultant from Gallagher and the city’s insurance administrator supplied utilization data on claims and deductibles, noting that a minority of members drive most costs: “Out of the 6,363 members… 2,950 have spent less than $2,000 so far this year; 714 members have spent over $5,000,” a consultant said.

Councilmembers asked staff to model additional options before a decision: (a) targeted incentives to encourage voluntary migration to HMO or HSA/HDHP plans, (b) conversion illustrations that show what a primarily‑HMO enrollment would look like, including the net savings and any additional contribution percentage needed to close the gap, and (c) retiree‑specific scenarios and bargaining implications for police and fire retiree contributions. Staff said they will return with further modeling and noted vendor/enrollment deadlines tied to the city’s benefits platform; staff requested a tentative policy direction by early June so enrollment system changes can be implemented on time.

What’s next: Staff will return with detailed scenarios including retiree impacts, HMO conversion illustrations and PBM options ahead of the FY27 enrollment deadlines. Council did not take final action at the workshop.