City Hall employees will face an average increase of 17 percent in the cost of health insurance effective Jan. 1, with significant new limits on coverage for retiring workers, according to a report to City Council.

Lincoln Saunders, the city’s chief administrative officer, provided the report on changes to coverage that do not require City Council approval. City employees also have no say on the changes.

Mr. Saunders described the proposals as enabling the city to deal with an unexpected increase in 2022 of nearly 10 percent in health insurance costs and to bring the city “more in line” with the previously less robust health benefits that Chesterfield and Henrico counties offer employees.

The increased costs for employees would be the first in seven years, Mr. Saunders noted.

To make up for an inability to provide annual raises, the city since 2015 has absorbed increases in the cost of health insurance, according to the report, which have run about 4 percent a year.

The city reported providing health insurance in 2021 to 3,827 active and retired workers at a cost totaling $52.1 million. Those enrolled paid about 20.5 percent of that cost, or nearly $10.7 million, with the city picking the rest of the tab, about $41.4 million. (The employee share is only for the cost of the insurance and does not include outlays for co-payments, deductibles and other expenses that grow out of using the policy.)

In 2022, the cost of the health insurance will rise to $57.2 million, a $5 million increase, the report stated, noting that is largely due to higher claims experienced, particularly catastrophic events involving a few of those insured.

Despite reporting a $9 million surplus for the 2021 fiscal year that ended June 30, Mr. Saunders said that Mayor Levar M. Stoney’s administration has made the decision that the city will not fully absorb the insurance cost increase. According to the report, the city would pick up about 5 percent, around $2.1 million.

Employees who will face the biggest increase are those enrolled in the city’s best plan, one of three options offered through Cigna, according to the report from USI One Advantage, an insurance consulting and brokerage firm the city employed to review the health benefit packages.

The cost for an employee’s coverage in the top plan will jump from $84.36 monthly to $125.70 a month, or 49 percent, effective Jan. 1, according to the report. Far smaller increases are expected for those selecting the Classic or High-Deductible alternatives, the report stated.

Family coverage under the city health plans also will cost more. For example, the cost for family coverage will rise from the current $701 a month to $800 a month for the top plan, a 14 percent increase.

According to the report, the hike in the cost for the top plan is to be phased in over two years.

For retirees, the new limits are based on a city effort to dramatically shrink its growing $118 million obligation for providing health insurance to those who are below the Medicare qualifying age of 65.

As of Jan. 1, the city no will longer provide health insurance for those who retire before age 55, the report noted. That change would primarily impact police and firefighters who can qualify for a pension after 20 to 25 years of service, instead of the 30 years that other employees must work.

The city also will reduce the amount it provides as its share of the cost of insurance and limit inclusion of family members on a policy only to those who do have insurance of their own.

In addition, retirees no longer will be able to choose the city’s best coverage plan, but instead will be limited to the Classic or High-Deductible plans.

The report noted that retirees would be encouraged to consider their options through Obamacare or the Affordable Care Act’s marketplace, adding that many likely would qualify for better and less expensive insurance.

As a result of those changes, the city’s future health insurance obligation to retirees should shrink in 2022 to $60 million, a $58 million decline, the report stated.

The changes to the retiree program grow out of a 2020 internal audit that sounded the alarm over the city’s failure to make adequate contributions to a state fund to support its retiree health insurance obligations, known as Other Post-Employment Benefits.