When the St. Joseph City Council voted in May 1997 to accept a three-year contract for employee health insurance, the ordinance capped rate increases at 5 percent the second and third years.
Documents presented at that time appeared to give the insurance company, Community Health Plan, no out — despite the fact the group had been told several times it grossly underbid the contract.
But in late 1997, CHP added new language to its standard forms that allowed it to cancel policies with 31 days’ written notice, CHP director Randa Anderson Stice said.
City Personnel Director Harold Johnson said he was aware of the new language, but can’t remember if he discussed it with City Manager Stet Schanze.
Mr. Schanze signed the form renewing the insurance in September.
Now CHP is threatening to cancel the city’s health benefits unless it gets a rate hike almost four times what the council thought it agreed to.
The city pays 100 percent of the premiums for its employees. That amounts to about $1 million in the 1998-99 budget. The CHP proposal would increase the premium to $1.2 million.
Attempts to reach Mr. Schanze, who is out of town, were unsuccessful Wednesday.
Councilman John Shea was furious about the turn of events.
“We will just have to delve into it and find out what the hell is going on,” Mr. Shea said. “CHP has the community by the neck.”
Another councilman, David Jones, said the city manager was given the authority to negotiate the final agreement with CHP. He suspects that because Mr. Schanze signed the renewal form, the city is stuck with the deal.
Ms. Stice said the new forms were sent to the city’s health consultants in Kansas City last year. She didn’t know if the consultants, Robert D. O’Byrne & Associates Inc., made the city aware of the changes.
The city’s previous health insurance policy was with Humana. But when the package was rebid in 1997, Humana proposed a 50 percent premium increase. It was the second-lowest bid.
The problem, Mr. Johnson said, is unusually high claims by city employees, in part because of poor health habits and in part because of inappropriate use of health-care services. He cited going to the emergency room for ailments because it’s more convenient than making a doctor’s appointment.
For whatever reason, of 26 carriers contacted by the city in 1997, 13 declined to bid, four didn’t respond, one offered only excess coverage and one bid was late. Of the other seven, five were higher than Humana.
CHP was the low bidder. But consistent with Humana’s experience, claims are running $500,000 higher than the $1 million premium the city is paying.
The package CHP is offering the city now includes lower coverage, higher copays and an exacting referral process that consultants at O’Byrne say “requires intense communication with physicians and member.”
“However,” the memorandum continues, “while the process may be cumbersome at first, it should provide substantial cost savings to the plan.”
O’Byrne has recommended the city take the deal with CHP.
“We are trying to be sensitive to their position,” said Mr. Johnson of the situation with CHP. “We don’t want to do battle with them. We want to cooperate and get control of the costs.”
The health plan is on the agenda for the council’s personnel committee meeting May 4.