---
One of the creative aspects of 2012-2013 Oro Valley Budget is self insurance of the town's medical plan for its employees. This is something that Saharita, did. It is a means of reducing employee benefit costs while providing the same level of benefit.
The town Council will be discussing this program at Wednesday's Town Council Meeting. The item is included on the Council's consent agenda. As it has been barely discussed in public, we are hopeful that the item will be "pulled" from the consent agenda and added as a regular discussion item.
We asked our top Financial Advisor, John Musolf, to take a look at self-insurance and give us his insight on how it would work and what it might mean for Valley. John prepared the following "tutorial" to bring us all "up to speed."
---
Health Insurance is similar to Life Insurance, but the risk of the insurer obtaining profits is greater. Insurers set higher premiums for health coverage from the employer. The insurers still expect to make a profit. If the health claims of the clients exceed the premiums collected it will result in losses for the insurer.
When a private company or government entity wants to self-fund health insurance it is betting that it will be able to control the difference between the money (fund) set aside from the general fund (in the case of Oro Valley) and claims actually submitted by employees. It is not trying to make a profit but break-even and thereby lower its cost.
However, a private company or government entity that wants to self-insure must protect itself totally from any losses.
Here's what Oro Valley plans to do:
• The Town is considering buying Third Party Administration
(TPA) called Administrative Only Services (ASO) from a subsidiary of
United Healthcare called UMR so that it will not have to incur new budget costs in setting up its own internal administrative services.
• The Town plans to contract with United Healthcare in the form of a plan called High Deductible Health Plan (HDHP). In this way, the employees will still have access to a provider Network for basic health insurance protection
• The Town will "lay-off "some of the risk of excess or catastrophic health claim problems by buying stop/loss insurance. This is called re-insurance. The Town is considering buying that service from United Healthcare.
• The Town will also continue to provide prescription or drug coverage, by considering buying that Pharmacy Benefit from a subsidiary of United Healthcare called Optum.
Arizona has a state law that allows someone to directly sue an insurer (Town of Oro Valley) for errors and omissions in claims problems. The Town of Oro Valley may already have liability insurance that covers this potential problem. The Town may have to purchase liability insurance to protect itself if it does not.
John Musolf
---
4 comments:
The risk will transfer from the insurance company to the taxpayers of OV.
I'm hopeful serious actuarial studies were completed providing meaningful projections for a least a five year period going forward.
If the town blows through the stop-loss who picks up the bill....well we do.
Is the risk worth the reward???
Board of Trustees
One thing I missed in my “self-funded insurance tutorial” was the fiduciary responsibility for the fund itself. Of course the town itself is ultimately responsible for the cost of the fund.
However, many self-funded insurance programs usually set up a board of trustees to give oversight to the fund. This could be a combination of internal staff, employees, citizens, and outside experts and a liaison person from Council.
The responsibilities of the Health Plan Trustees are to make policy decisions for the Health Plan and provide oversight of Plan activities, including
• determining the third party administrator and other vendors that will work for or support the Plan on a fee for service basis
• approving contracts with vendors as a Health Plan Trustee
• assuring that the Health Plan Director and other persons hired for administrative purposes carry out their duties in a professional manner
• approving any changes in benefits or rates proposed by the Health Plan Director
• undertaking periodic reviews of the Plan's financial performance, funding safeguards, and stop-loss insurance protection
• providing timely reports to the Council on the numbers of enrollees, claims experience, and the financial condition of the Plan
• authorizing a claims review committee (which may include Plan Trustees) for purposes of reviewing and authorizing or denying payment of claims that have been initially denied by the third party administrator
authorizing reimbursement from the Plan for expenses which may incur in administering the Plan including but not limited to payroll and expenses of the Director and/or other staff whose work is dedicated to Plan activities
Recent news is replete with tales of cities going bankrupt due to unfunded employee benefit costs. Public employee pensions and health costs were out of control in the cases I have read about.
Is Oro Valley going to keep these costs under control?
As for "board of trustee" oversight. Ask both the state of California and the country of Greenland how that worked out.
Well the town council approved the self-funded plan 6-0 last night.
It is obvious complex items such as this should not be treated so lightly by many members of this council, watching this plan unravel will be painful to watch, and the medication to fix this could come in the form of a property tax.
I'm really surprised that the town's legal department did not weigh in on this matter.
Post a Comment