For Health Benefits—

Town

Moves To

Self-Insurance

By John Voket

What started out just a few months ago as a 2,800-pound gorilla — a December projection of a 28 percent increase in health care costs for town and school employees — will be substantially reduced to approximately eight percent through a combination of negotiations between providers, and the town moving from a premium-based system of health benefits management to a self-funded, or self-insured program.

First Selectman Pat Llodra said that between the time of the astronomical December quote and mid-February, when the town’s current providers reviewed additional claims history and fine-tuned anticipated rate increases, the premium-based increase dwindled to about 15 percent.

But in “working together to vigorously challenge [providers],” Mrs Llodra explained, “and looking for all additional savings, that original conversation with our consultant and that 28 percent increase in December is now 8.1 percent.”

The 8.1 percent represents a blended rate based on separate estimates tied to current experience between the town and school district, with the added factor of the substantial difference in participants on the school side. As a result, the breakdown of current rate increases to be applied to the town-side of the 2010-2011 budget is about 10.2 percent, and about 7.3 percent on the school side.

Town Finance Director Bob Tait said that the final calculations of savings might even improve slightly, or may increase slightly in the coming year based on how well the town performed with its claims experience as the fiscal year closes out on June 30, 2010.

He said the current savings are based on a projection of claims through the end of the current fiscal year based on year-to-date claims through the end of February. But he further clarified that the year-end history is what the provider will use to finalize 2010-2011 rates.

“If the next few months’ experience continues to be good, this will either be the final number, or it may be a little better,” Mr Tait said.

The finance director said that according to Newtown’s benefits consultant, the community was among the last few in Connecticut to switch to a self-funded program, versus premium based, and that both towns he worked in previously — Meriden and Fairfield — were self-insured. Mr Tait added that the savings was driven mainly by the elimination of profits a carrier typically charges to handle all aspects of the health benefit plans.

“Blue Cross-Blue Shield will still administer the plan, and employees will still have the same plan that was already negotiated with all town labor units,” Mr Tait said. “But in a premium-based plan, all the town did was pay the premium and we would get regular reports on expenditures for the record.”

But in a self-insured program, the finance director said the town would establish an “internal service fund” from which the carrier will draw actual daily claims costs. Those withdrawals will be reported to the town daily, with a full actuarial accounting of activities provided to the town monthly so it can track history and project that the service fund is fully underwritten.

“With the premium plan, we budget what we are billed,” Mr Tait added. “Now our consultant will create a projection of per person cost for each employee.”

Mr Tait said that even before the town determined it would move to a self-insured plan, his budget projection was based on a 10 percent increase, but the school district was maintaining a budget earmark of 15 percent, which if experience prevails, will drop to 7.3 percent in the 2010-2011 cycle.