CHARLESTON, W.Va. -- In 2005, "Charleston's insurance plan was going bust," said City Manager David Molgaard.

Employees had filed a million dollars more in claims than the city's insurance company had predicted. The next year, employees got a raise, but also got hit by an insurance premium hike that almost wiped out their raise.

"We analyzed the claims," Molgaard said. "Most were connected to preventable illnesses, such as diabetes and heart disease, so we knew we had to move to prevention."

They decided to get creative: start their own employee clinic and pair it with an aggressive wellness program. They dropped Wells Fargo, became self-funded and contracted with Healthstat, a company that provides workplace clinics.

They started requiring employees to get checkups. "The first year we required risk assessments, we found six people who didn't know they had diabetes," Molgaard said. In 2009, they added lower-cost pharmacy and mental health benefits.

They cancelled the city's $400,000-per-year stop-loss insurance and put the money in a medical reserve fund instead. They limited claims to $750,000. "We've never had one that big," Molgaard said.

By 2010, their claims were below the national average. Claims and administration costs per employee decreased 2 percent in Charleston while the national average increased 24 percent, according to Aon-Hewitt, employee benefits consultant.

"But we know it would only take a small transplant to blow our numbers out of the water," Molgaard told the Gazette in 2011. In 2012, it happened. Nineteen employees filed large claims, mainly for cancer, of over $100,000.

"Any plan will hit a spike in claims," Molgaard said. "The question is, how prepared are you? We got through this year without having to dip into our medical reserves. That's good. Over time, we'll still beat the national average."

With the big claims, Charleston is over the national average per employee for 2012. But without them, the city is still below the national average. "The underlying basics are working," Molgaard said. "In the long haul, we'll pay less."

"Our pharmaceuticals went up just 4 percent. You want an increase. That means people are taking their insulin and medicine. It costs a lot less than the alternative."

Since 2010:

• Employees are given a steep discount (24 percent) if they visit the clinic as often as required. "That's a real incentive," Molgaard said.

• They can schedule consults with a pharmacist through the University of Charleston's PharmUC Patient Care Clinic.

• The city offers options such as gym, yoga, zumba, and Weight Watchers.

• Unnecessary ER visits are now slapped with a co-pay.

Construction manager George Farley likes the emphasis on fitness. "This is the first place I've ever worked where the management cared whether I was in shape or not," he said.

"I spent a lot of years in the coal industry, which has good insurance, but they'll give you a pill and send you down the road. They don't do a lot of assessment of how good a shape you're in. They don't talk to you about what you can do for yourself. And that's important to me now."

Reach Kate Long at 304-348-1798 or katel...@wvgazette.com.