After layoffs, furloughs, Dallas looks to cut employee healthcare

After employee medical costs drove a $51 million budget shortfall, the city of Dallas is preparing to tighten its belt in ways that could significantly alter employee health plans.

On Wednesday, the Dallas City Council reviewed a proposed change to how the city provides medical benefits to its employees. The proposal would eliminate the copay insurance plan, strip GLP-1 coverage for employees using the medication for weight loss and, as city manager Kimberly Bizor Tolbert reiterated time and again during the briefing, save the city money.

Dallas is currently in the midst of a difficult budgetary season that officials have warned will lead to tough choices before the final draft goes into effect on Oct. 1. Property and sales tax revenues aren’t keeping pace with costs, and employees have been asked to bear the brunt of many preliminary proposals as council members push back on cuts elsewhere. 

As reported by the Observer, the Dallas Public Library is eliminating over 70 positions as part of a reduction in force, and Tolbert’s proposed $5.65 billion budget calls for 100 total layoffs and the elimination of 300 positions. Cuts are expected at Emergency Management and Crisis Response, Office of Environmental Quality and Sustainability and Municipal Courts and Detention Services. Staff were also forced to take furlough days earlier this summer.

With the budget’s impact already felt with a hiring freeze and a day of closed recreation centers, employee healthcare has come under scrutiny. That’s largely because, when the shortfall was announced, city officials cited a $13-17 million overrun in employee medical costs past initial projections, partly driven by increased expenses tied to GLP-1 weight-loss drugs. The total overage is forecast at $17.69 million, according to the briefing, and the city’s contribution for the current fiscal year is projected to total $146 million.

Rising costs

Human resources staff and representatives from the city’s insurance broker told council members that healthcare costs have grown across the board in recent years, mirroring wider national trends. The average employer healthcare cost grew 7.9% in 2026, the largest annual increase in more than a decade, according to the Milliman Medical Index, which also found that pharmacy costs are the fastest-growing cost component, rising 14.8% year over year on average.

The city’s pharmacy expense is projected to reach $54 million this year, up $14 million from the past fiscal year. Of that total, $8.8 million in costs are tied to employee purchases of GLP-1 drugs like Wegovy, which have been cited as a major driver of pharmacy costs nationwide. Staff told the council that stopgaps were put in place to curb use this year, but instead, demand grew. In April, the Dallas Morning News reported that the city’s costs associated with the drug have grown by 69% in the previous 12 months.

Under the proposed plan, city health plans will cover only clinical use of GLP-1s for conditions like diabetes and fatty liver disease, leaving those looking to shed weight to pay the full cost. Fort Worth has also announced plans to cut coverage after costs grew to more than 40% of the city’s pharmacy budget. If the Dallas council approves the plan, the move is expected to save the city $9.4 million next year.

Staff told the council that employees will still have access to other weight-loss drugs through the benefits plan. According to a recent Gallup poll, 11% of Americans used GLP-1s in 2026, a marked increase from 3% in 2024.

Another major driver of pharmacy costs was high-cost claims by single members. So far, 25 city employees have made claims exceeding $100,000, costing the city $25 million.

Because the health plans are self-funded, the city pays member claims directly for the 24,212 current employees, retirees and dependents enrolled. Dallas Fire-Rescue and the Dallas Police Department are also covered under the plan.

The plan

Cutting the city’s current preferred provider organization (PPO) plan is expected to save the city roughly $10 million, staff said Wednesday. If council members choose to keep the plan while minimizing the city’s contribution, employee premiums could rise by approximately 60%.

The proposed approach would see the city eliminate its copay plan. It’s expensive and, as city staff said Wednesday, can make it hard to manage costs because members can consult specialists and access other services without a referral from a primary care provider. Around 53% of employees are currently enrolled in the PPO plan.

“We need to change the way we’re doing business when it comes to employee health benefits; it is not structurally sound for us to keep going in this direction,” Jack Ireland, the city’s chief financial officer, told the council. This was a very, very difficult decision to make.”

Dallas contributes to two other healthcare coverage options, a health savings account and a primary care provider plan. An HSA allows an employee to put money into a tax-free account for healthcare costs, while — as several council members pointed out Wednesday — a PCP plan essentially functions as an HMO. 

Under the HMO, employees transitioning from the PPO plan will pay lower monthly premiums, while existing members will see higher premiums. The premium hikes will also be income-based to defray the cost impact and protect employability, with employees making more than $75,000 annually expected to pay the largest contribution.

Shifting employees to a PCP plan means the city can more easily manage and predict costs, as employees are largely restricted to in-network providers and must get a referral from their primary care physician to see a specialist.

Staff told the council that requiring a relationship with a primary care provider could lead to better preventive care, although some council members questioned whether making it harder to see a specialist would accomplish that.

“You might be several months out and have a small cell lung cancer that you already knew from your cough, from your own maybe smoking history that you could have immediately gone to seek help, and this is where HMOs can sometimes fail,” council member Cara Mendelsohn, who said she had heard from a large number of concerned employees, said.

Mendelsohn also questioned how long the waiting lists would be to see a primary care doctor and get a referral under the HMO, but staff said they couldn’t answer. She also said the city should look at other benefits, such as paid time off, and that cutting healthcare could affect hiring.

Around 94% of providers in the copay plan would be available with the HMO, according to the briefing. Some council members pushed back on the assertion that access to care will not be disrupted, especially in the event of an urgent – but not ER-worthy – situation or when outside of Dallas. Adam Bazaldua, a District 7 council member, recalled a time when he broke a bone while in Austin.

“It was extremely difficult for me to get any of my services after going to the ER without getting to pass through my PCP, and that was even just getting my cast on, because I couldn’t see a specialist down there,” Bazaldua said.

A representative from the city’s insurance broker said employees could contact the Blue Benefit Administrators of Texas when traveling or in urgent situations that don’t require an emergency visit.

The city will engage employees in education efforts and question-and-answer sessions before making any changes, Tolbert said.

‘At whose expense’

Even with the cuts to the current plans, the city still expects to contribute $175.4 million toward employee healthcare costs next fiscal year, up from the $152 million staff projected last year. If they do not move forward with cutting the copay plan and do not pass the cost onto employees, Tolbert told council members she will likely have to lay off even more employees.

Council member Zarin Gracey questioned whether or not the contract negotiating the city’s cost had been properly scrutinized.

“We have to make some decisions, and they have to be tough decisions,” Gracey said. “But at whose expense, and who’s going to be held accountable to it?”

Many of the council members who spoke on the briefing item said they needed more information on how it would actually affect employees.

“Employees deserve to be able to look at that information and understand in real dollars what this change could mean for them and their families,” Deputy Mayor Pro Tem Maxie Johnson said.

The council will have to decide on a plan by the time it adopts the budget in September to realize savings, staff said. Tolbert said staff would return with additional information on cost impact and access to care.