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Self-insurance working for city

(Oct. 24, 2014) The self-insurance model adopted by the city last year appears to have worked out fine, according to an update given to  the City Council this week in anticipation of the city’s 2015 employee health insurance renewal.

“With the move to self-funding, you are building a margin over time should we not have a good year,” said Roseanne Calzetta of Bolton Partners, the city’s insurance consultant. “Based on the experience so far, it looks like you’ll be in a surplus position at year-end.”

Under a self-insured system, the city pays the costs of its employees’ medical claims directly out of funds set aside at the beginning of the year.

If the year’s claims turn out to be less than was set aside – as looks to be the case for 2014 – then the leftover funds can be accrued in an account for later years.

If the claims turn out to be in excess, the city’s annual costs will be capped at 105 percent of the original projection, with CareFirst – the city’s insurer – rolling over any additional liability to subsequent years’ payments.

This is as opposed to a fully insured plan, where the city pays CareFirst a flat rate regardless of the actual claims cost, thus having CareFirst assume all the risk and reward.

Moving to self-insurance saved the city $522,460, Calzetta said. This is due partly to a reduction in administrative fees from CareFirst, the city’s insurer, as well as the city being able to avoid the 1.5 percent tax placed on fully insured plans by Obamacare.

Calzetta recommended, and the council approved, keeping the city’s surplus in a separate fund until the fund is equal to 10 percent of the city’ estimated annual claims payout.

This would give the city a two-year buffer of the maximum 105 percent liability under CareFirst’s self-insured model.

Health costs for 2015 are projected to increase four percent nationwide, with Calzetta recommending the city budget a 3.6 percent rise for the 2015 plan year, given that the town has fared better than average historically.

With ten weeks to go, the city’s claims are projected to go up around 6.1 percent, although the national average is currently eight percent.

This is due to a number of factors, including the town’s heavy incentives for prescription drug usage. The city also re-vamped its health plans for the 2012 calendar year, adding a high-deductible health plan with a health savings account (HSA).

Under that plan, the city puts an amount of money annually into employees’ accounts, equal to the deducible on their health plans. If the employees do not use up that deductible, they can keep accruing money for health expenses in the future.

The federal government sets a minimum level or plans to count as “high-deductible” and qualify for associated tax breaks. This year, that number increased from $1,250 for individuals and $2,500 for families to $1,300 and $2,600 respectively.

Calzetta recommended, and the council accepted, the suggestion to increase the plan’s deductible as well as the city’s HSA subsidy to the current federal levels.

The HSA is typically the least-costly plan for the city, but has been well-received by younger employees whose medical expenses typically do not exceed the deductible. Currently, 38 individuals and 45 families are on the plan.

Critically, city Human Resources Director Wayne Evans said, “the high-deductible plan is the default plan for all new employees coming into the system.”

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