Budget Primer: Self Insurance Fund

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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 and use any gain if it occurs elsewhere in the budget.

• The Town of Oro Valley did not want to incur new budget costs in setting up its own internal administrative services for this self-insurance. The Town of Oro Valley is considering buying Third Party Administration (TPA) called Administrative Only Services (ASO) from a subsidiary of United Healthcare called UMR.

• The Town of Oro Valley will need a Provider Network for basic health insurance protection (doctors, hospitals, etc.). The Town of Oro Valley is considering buying that service from United Healthcare in the form of a plan called High Deductible Health Plan (HDHP).

• The Town of Oro Valley has to lay-off some of the risk of excess or catastrophic health claim problems (like cancer clusters or significant long term health problems) by buying stop/loss insurance (which is commonly called re-insurance). The Town of Oro Valley is considering buying that service from United Healthcare.

• The Town of Oro Valley will also continue to provide prescription or drug coverage. The Town of Oro Valley is 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.

• Most self-funded approaches have someone that has the fiduciary responsibility for the program. Many government entities create an advisory board to perform that function. The Town has not yet announced the creation of an advisory board.

This is first year Oro Valley has self-insured health program.  This fund will manage costs related to the Town’s self-funding of health insurance.  The budget includes establishing the Self Insurance Benefit Fund was started with a base of $300,000 contributed from General Fund contingency reserves.  The budget for this year is $2.1 million, sourced from premiums that the town would have  paid to the health insurers.
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This is the last of our "informational pieces" on the budget. Monday, we will begin posting our analysis.
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