Newtown Finance Director Robert Tait began a recent presentation to the Legislative Council about the town employee self-insured medical plan with an apology.

"I'm sorry - I wish I could make this exciting and interesting," Mr Tait said. "It's a very hard subject, but huge - it's ten percent of our total budget. And it's volatile - you don't need a volatile thing in your budget."

The presentation by the finance director, who was joined by a municipal consultant and members of an advisory board tasked with overseeing the multimillion-dollar self-insured benefits plan, was the next in a series of informational opportunities to orient newly elected council members, as well as providing a refresher to council veterans, about some of the more important and costly aspects of local government.

Council Chair Mary Ann Jacob said the discussion was timely, as well, in light of the Board of Finance sending the council a 2016-17 budget proposal with a recommended $80,000 reduction to the school district's self-insured health plan line.

During an appearance by Finance Board Chairman James Gaston, Sr, earlier in the March 9 meeting, he said in hindsight that his panel should have consulted with the town's Medical Benefits Board before deliberating and making that reduction. But in lieu of such a meeting, the finance board made the reduction based on an anticipated increase in claims that is less than what was originally recommended by the benefits board.

Mr Gaston said that the district was looking for an eight percent increase, while the history of claims justified a seven percent hike in the minds of supporting finance board members, which equated to the $80,000.

Moving into his presentation, Mr Tait projected a timeline illustrating Newtown's benefit landscape before and after the town codified its self-insurance program in the 2010-11 fiscal year. Prior to that, the town simply paid the bill that was due from its health insurance carrier.

Mr Tait said there was little room for negotiation with the carrier because rates were based on claims experience, with the add-on of premium costs and administrative fees. In 2010, however, the town faced a jump in rates of close to 15 percent - from $12.8 million to more than $15 million.

"Once we were told this, it really got our attention," Mr Tait said. "We thought now is the time to do it - with self-insurance [the cost] is always going to be less because you don't have the insurance company's profit margin in there."

The finance director said the decision was sound, and produced added opportunities to save money since two separate taxes that subsequently went into effect that would increase the bottom line cost by another five percent above the profit-inflated premiums Newtown would otherwise be paying on a retail health plan.

While Newtown still pays Anthem Blue Cross-Blue Shield a nominal, negotiable administrative fee, it is the town that pays claims. The finance director said annual self-insured premiums should be enough to cover claims plus an added amount to contribute to a medical plan fund balance to cover transitional claims.

At the same time, Mr Tait said a set of rules in the form of an ordinance, and a mechanism for review should be created. That resulted in a council-generated ordinance and the appointment of the Medical Benefits Board that meets quarterly to discuss claims, trends, and to set the correct amount of contributions required for the next year's funds.

First Selectman Pat Llodra said that the 2010 prospect of that 15 percent increase got the conversation "pretty far down the road." But school district officials wanted to be sure that the integrity of the fund balance was maintained in light of a previous experience where that fund was utilized for other purposes - which precipitated the end of Newtown's previous foray into self-insured health benefits about a decade earlier.

In that first year, low claims experience helped fortify the original fund balance, which started out at $1.7 million, which Mr Tait said would have reverted to added profit if the health plan was still being carried by a retail provider.

"We budget contributions to the fund to cover claims, so in year one, instead of a 17 percent increase, we saw a seven percent increase," Mr Tait said. He said typical claims increase the contributions by as much as ten percent every year, and Newtown has never dropped below a six percent anticipated claims increase.

He is already anticipating, along with the self-insurance board and consultant, an eight percent claims increase for 2016-17, and budgeted for that between the town participants, and those employed by the school district.

"The challenge always is to estimate what claims are going to be this year," he said, "and then apply an inflation rate to that amount."

The finance director explained a complex formula he uses to aim for a middle of the road estimate on claims costs, armed with the knowledge of how much in consulting and administrative fees are expected. Mr Tait said he applies a 6.5 percent increase to last year's estimate to back in to the budget numbers.

"We charge the school and town budget and those amounts are transferred into the medical self-insurance fund as revenues and used to pay claims - and hopefully we have a fund balance," he said. Currently the fund balance is 20 percent of the overall fund, but he is estimating claims experience to reduce that fund to about 18 percent.

Medical Board Chairman Mark Mattioli added that the town should not hold a fund balance greater than 25 percent. Consultant Joe Spurgeon said ironically, that the retail cost proposed for that high price tag 2010 medical benefits policy equals roughly what the self-insured claims are estimated to be in 2017.

"Bob's projections have been spot on," Mr Spurgeon said of Mr Tait's estimates.