To the Editor:
Last week I sent a letter to the Newtown first selectman and the Newtown superintendent of schools conveying a recommendation to increase contributions to the health insurance reserve fund during the current budget cycle, to account for increases in program costs projected for the coming year.
On 2/10/14, the Employee Medical Benefits Board voted to provide a recommendation for this $400,000 increase. Why? During the last few years, health care cost inflation, referred to as “trend,” has been at 25-year lows. I do not currently wish to debate why that is so. But I do wish to convey that industry experts are projecting that cost increases in 2014 will increase more in the neighborhood of 6 percent. On a program with 800 employees, and over 2,000 members, that is a substantial increase.
The ordinance that governs the actions of the board, requires the reserve fund not exceed three months of claims. Over the past 24 months, the claim costs have been approximately $23.4 million, or an average of $975,000 per month. On top of claims, the annual administrative costs of the program are nearing $1 Million. Why do you need a reserve? First, the month the Town/BOE began the self-funded arrangement, the claims were $700,000 below the average month of claims. If the decision makers wish to have the ability to change the program to fully-insured, at some point in the future, that decision will require approximately $1 million, to pay “run out” claims the first month they are also paying premiums to an insurance carrier.
It is in the best interests of the Town/BOE to be able to make that choice. Second, you hold reserves for increased costs, over the plan year, when you work with an annual budget cycle for allocating funds. And lastly, there are unexpected costs. On 2/10/14, the insurance consultant was able to quantify the cost of the “affordable” care act for 2014-2015 plan year. It will cost $131,481, based on the 2,087 members enrolled at $5.25 per member per month. Sound affordable?
Well, I'm not writing to dispute the merits of that legislation either, but to quantify the impact to our health insurance program. That is roughly a 1 percent increase all by itself. If the current plan year comes in at the projected $12.8 million in claims, every 1 percent increase next year represents $128,000. If the increase is 6 percent, that’s $768,000 more than the current year. It is prudent to adjust the reserves, to account for these increased costs. Newtown taxpayers will have to shoulder the vast majority that cost. Please consider this, as the budget evolves, and votes are taken.
Newtown Employee Medical Benefits Board
67 Great Ring Road, Sandy Hook February 19, 2014