Rising costs are compelling Salem to re-evaluate the health benefits it has long provided city and school system employees and retirees.

Its current health care system --which covers 100 percent of the monthly premiums for about 1,275 individuals -- costs the city $8.7 million a year, according to Finance Director Frank Turk.

"It really has reached a breaking point for the city," City Manager Kevin Boggess said. "This is about striking a balance between providing for our employees and looking out for our taxpayers who pay those costs."

A city-appointed panel is in the process of reviewing options and is due to submit its recommendations by February or March. The new plan is scheduled to be in place by July.

Boggess said it was too early to say what the specific changes would be but in an e-mail wrote they "will be done in the spirit of keeping Salem on a sustainable course."

He said the money potentially saved through the insurance revisions could pay for salary increases, education and capital improvements.

Salem Human Resources Director Carolyn Barrett said the city is consulting with its leadership development program to focus on four areas -- evaluating health insurance premiums, coverage for retirees, future coverage options and ways to explain the new plan once it is selected. She said those consulted would include a cross-section of retired employees.

"There will be a group of retirees to help with the process," Boggess said. "We're not making the decision without giving them an opportunity for input."