City of Houston Saves $42 Million in Healthcare Costs by Implementing New Benefits Strategy

HOUSTON--()--The City of Houston is one of Houston’s largest employers, with over 21,000 employees and about 54,000 health plan members. In 2010, the City was faced with an unsustainable 10 percent annual increase in healthcare costs and projected to spend $330 million the following year. To address this unsustainable cost, the City implemented an innovative benefits strategy that focused on value over volume; prevention and wellness; and delivering positive healthcare outcomes for their employees.

Since implementing the new strategy four years ago, the City has been able to reverse its healthcare spend trend, an estimated savings of $42 million in healthcare costs over the last three years and lowering the average annual healthcare trend increase to 1.1 percent, down from a 10 percent increase.

The City took four critical steps to implement a new strategy:

1. Moved from a fully insured benefits structure to self-funded.

2. A limited network Accountable Care Organization model was added to the benefits menu which also included an open access plan and a high deductible plan. Seventy-five percent of members enrolled in the limited network plan. The majority of members selected the Cigna KelseyCare ACO network, affiliated with Kelsey-Seybold Clinic. Additional physician organizations in the limited network option include Renaissance Physician Organization and Mayor Healthcare Group.

3. A robust wellness program was initiated which included biometric screenings, a requirement to complete the Health Risk Assessment and other wellness activities. A surcharge was added to employee monthly premiums for those who chose not to participate; and premium discounts were given to those who did participate.

4. The City used actionable data to identify clusters of employees with various chronic conditions to develop and provide wellness programs.

“When we made the announcement about the benefit changes to employees, it was not well received,” said Omar Reid, Director of Human Resources, City of Houston. “However, in that first year we were able to uncover undiagnosed chronic diseases like hypertension, diabetes and even undiagnosed stage IV cancer. I’m convinced that our implementation of the new benefits strategy saved lives. Fast forward to today – four years later – and employees are ecstatic about the plan. They have affordable, quality health care; they are healthier and they are taking a more proactive role in their health.”

In the first year, healthcare costs increased because the HRA screenings identified individuals who had chronic conditions that had gone untreated.

“Approximately nine percent of our members have diabetes. The HRA gave us valuable data on how and what to focus on through our revamped benefits strategy – no one realized how prevalent diabetes or high cholesterol was in our workforce. People began receiving the appropriate care to help them manage their chronic diseases,” Reid added.

In the 2012/2013 and 2013/2014 benefits years, the City began to reap some of the financial rewards from the investments made in the new healthcare strategy and saw substantial savings in healthcare costs.

Other factors that have aided the overall savings include a generic drug utilization rate of 87 percent and the implementation of disease management programs that focus on keeping those with chronic diseases healthy through medication adherence and compliance. Since the initiation of these disease management programs – which include providing some medications at $0 copay to those with certain chronic diseases, and intervention of nurses who regularly follow up with patients to improve adherence and compliance – the City of Houston has experienced cost savings in their hospital ER costs.

Since the new benefit program was implemented, the City’s total healthcare costs are currently comparable to 2010 results. There have also been no cost increases passed to members in the last two years.

“Most business leaders may not look to a City government for innovative strategies in healthcare cost management and there are many organizations that are struggling with the same issues we faced four years ago. I’ve found that there are several key factors that helped us achieve the success we are seeing today – leadership commitment, a clear focus, strong communication campaign and a long-term perspective,” said Reid. “Our vision of lowering the cost of healthcare at the City of Houston while improving the health of our members would not have been possible without the right team, which includes all of our external partners like Cigna and Kelsey-Seybold, as well as the right data to help direct our mission.”

Other Key Statistics

  • In the 2015 benefits year (which begins in May), the City of Houston will offer some medications at $0 copay to individuals with asthma, hypertension and cardiovascular disease. It is estimated that the cost of the drugs for asthma (about $240,000/year) will help lower emergency room and urgent care visits which cost the City more than $8.7 million in 2014. The City has been offering $0 copay for generic mail order medications for diabetes and cholesterol over the last two years.
  • The generic drug utilization rate increased from 72 percent to 87 percent over the last four years.
  • Implementing a monthly surcharge to encourage completion of HRA helped increase engagement from five percent to 93 percent in the first year.
  • In the last three years, ER admissions have decreased by nine percent.
  • In the last four years, the average patient bed days have decreased by 29 percent.

About the City of Houston Human Resources Wellness Program

Started in 2010, the city’s employee wellness initiative, Discover Health with the Wellness Connection, has been an integral part of the city’s overall employee benefits strategy. In the short time of its existence, the program has garnered several national accolades, including the WELCOA Well Workplace Gold Award and earning a top five position in the Houston Business Journal’s Healthiest Employer Award two years in a row.


City of Houston
Janice Evans, 832-393-0800
Norma Lemon-Pearson, 832-393-6057

Release Summary

The City has been able to reverse its healthcare spend trend by implementing a new benefits strategy, saving $42 million in healthcare costs over the last three years.


City of Houston
Janice Evans, 832-393-0800
Norma Lemon-Pearson, 832-393-6057