City continues to be self-insured despite risks

May 06--SANFORD -- Christy Pickens brought the news to Tuesday's Sanford City Council meeting and it started a discussion.

Council members, City Manager Hal Hegwer, Mayor Chet Mann and Pickens talked about the projected shortfall in this year's budget on health insurance. The city self-insures its employees and dependents, meaning it sets aside a certain amount of funds for the fiscal year to pay health claims.

Pickens, the city's human resources and risk management director, informed the council in the final months of the current fiscal year she projects the total amount of claims to reach $3.9 million. The current budget for claims is close to $3.3 million. The city has currently spent $2.5 million.

"We're not sure if the claims will come in $650,000 over ... we're estimating that just based on what has happened over the last 12 months," she said. "We had some pretty high claimants this year. You can never expect what your claims are going to be for the year. You can do your best by looking historically at the last 12 months and 24 months. Sometimes it is just a guessing game."

Pickens added some that expected deficit might be re-cooped with the city's stop-loss rate.

"We currently pay up to $135,000 on claims so any of these persons who may be getting close to that, we could get some reimbursements backs from Blue Cross if we tap over that," Pickens said. "That's a possibility and we still could come in somewhere below where I'm expecting us to be."

Hegwer chimed in and said there is a chance the final period of the fiscal year won't be as dire as projected.

"We budget so much," Hegwer said. "Some of those months we spent more than what we budgeted. However, we still have three months left and we could be under-budget the next three months and we could break even or be ahead. Right now, we are kind of behind and it's a little alarming.

"It's a deficit at this point in time and that could change in three months where it swings back the other way. "We are going through a surge of higher claims right now. We need to make sure we are budgeting enough moving forward so we aren't caught behind."

As a self-insured entity, the City of Sanford deposits money into a fund each month to cover the projected medical costs of the people it covers in its plan. Both Beth Kelly, the city's finance director, and Pickens said the fund cannot show negative cash in it when the fiscal year concludes on June 30.

Kelly said there will be changes to the current health care plan offered to city employees. One of the changes being made is increasing the co-pay for doctor visits. Pickens said the co-pay will go up $30 to $40 for primary care visits, while an appointment with a specialist will also increase $10 to $70.

Kelly acknowledged the possibility of continued shortfalls in the fund because of the unknown factor of the number of claims being submitted each year. In an attempt to avoid additional shortages, the city and its employees worked on a solution to the problem.

"We addressed the plan first. We had to have give and take on both sides," Kelly said. "We increased what the city budgets into that fund on behalf of each employee for employee coverage ... trying to get more (money) into the fund."

Hegwer said it was the best resolution -- have the city do a little more and the employees do a little more as well.

"First thing we realized that employees needed to share in this burden, so it wouldn't just be the city," he said. "We changed the deductibles, the co-pays. The employees shared in that amount going forward, they are going to pay more ... the people who are using the system. We didn't change what employees may pay for the plan, we changed the plan designed. ... It's a shared risk, a shared responsibility."

City employees started to be notified of the change in the plan Wednesday. Pickens said she needed to get approval from the City Council before informing the employees. She added that employees will until the end of May to make any changes to their plans, which will go into effect July 1.

Hegwer and Kelly acknowledged if there ends up being a shortage in the fund, it could cause a ripple effect. If the city is forced to move money to guarantee the fund doesn't show negative cash, it could cause other programs to be scaled back.

"There's less funds ... if everyone's priorities can be met and it can be done within the funds ... it all depends on what everyone wants and what they are willing to life with," he said. "We don't quite know yet (what might be cut) but we are working towards that."

All three said there are discussions about returning to being a full-insured entity. However, they all said it was better financially to remain self-insured.

"Every year we ask is it time to change," Pickens said.

Hegwer added: "Every broker we have ever had has advised us to stay self-funded. We had direction from the council to look at being fully insured and we will. If it will save us money and they can do it, I will move tomorrow."

Reach Editor Shawn Stinson at 919-718-1227.

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