City of Superior wrestles with high health care costs

March 05-- Mar. 5--The cost of providing health care to Superior city employees in 2018 has city officials concerned and looking for solutions.

Last year, the city spent $7.2 million on claims through its self-insurance fund, which cost the plan $6.3 million after its stop loss insurance covered about $900,000 of the total cost.

The net level accounts for 9.4 percent of the city's total spending.

"It is an understatement to say I think this is problematic," said Jean Vito, finance director and senior administrator.

But it's only part of the problem that prompted the city's Finance Committee to meet in special session last week to consider creating a pilot incentive program for medical travel.

The Bureau of Labor Statistics publishes averages for health insurance costs as a percent of cost for salaries. Comparing the city of Superior to other state and local governments in the Midwest, the city's health insurance costs run at 17.9 percent of total salaries, while the average for state and local governments run at 11.9 percent, Vito said.

Discovered during a wage study in 2013, city officials to implemented a high-deductible plan and contributed to health savings accounts in 2015.

The goal behind the plan was to make city employees health care consumers, said Sherry Freeman, the city's health plan administrator with HealthPartners and an employee benefits specialist with Holden Insurance.

"Our costs did decrease in 2015," Vito said. "They stayed pretty much at that same level for 2016, also for 2017, and then we got hit really hard in 2018."

No simple solutions

The idea for medical travel to reduce costs to the city's self-funded health insurance plan isn't new, but it did gain steam after City Councilor Craig Sutherland traveled to Mexico for medical care earlier this year.

Superior's plan wouldn't include international travel, but could include places like the Twin Cities, Eau Claire and other domestic destinations.

Sutherland said if an average knee replacement in Duluth costs $38,000 and the same procedure can be done in the Twin Cities for $26,000, that's a significant savings.

"You cannot compare the ... costs for just the hospital and just the surgery versus the Duluth option locally," said Dr. Maria Todd, an independent health care consultant and former health care clinician and administrator. "You have to compare the local option, the cost of the ... procedure, the surgeon, the assistant surgeon and the anesthesiologist, plus the driving or flying, and the hotel and the per diem. That's the real apples-to-apples comparison. And it's not going to be for one person. It's going to be travel for two people."

Todd said the city's first step should be negotiating with local health care administrators about getting a better price, and should include discussion of provider "pain points" and solutions the city could offer.

"What the payer side doesn't always understand is the health care side," Todd said. "Many hospitals spend 28 percent of revenue to collect the money that they've already earned. So if we can reduce some of that percentage, that's money to them, whether they're getting it on the invoice or whether their saving it on ... the expense to collect."

Councilor Brent Fennessey said he's not convinced the city has the bargaining power when its plan covers 770 people in a metro area of almost 200,000.

Sutherland disagreed.

"If someone else sees us do this, like the city Duluth for example ... it will be a domino effect," Sutherland said. "I think in the long run it would make someone like Essentia or St. Luke's drop their pricing to try to lure us back."

Creating consumers

"If you want to fix health care, culture comes first," Todd said, recommending first steps such as surveying employees and learning more about how health care dollars are spent.

Without a predictive tool, you don't know what's going to happen in 2019 or 2020, Todd said. She said a data-driven solution is needed to determine whether 2018 is an anomaly or the start of a trend.

Having a better understanding of how employees use their health insurance would determine what options are available to help reduce costs.

Todd said some of the reports she's seen hint the city could be successful in containing costs, but more data is needed.

"Medical travel may not be the first thing on the page," Todd said. "It might be ... looking at the data deeper so I know what question I want to ask the hospital administrator and know what answer I'm looking for before he gives it to me ... I want to see in the data from HealthPartners that we have something to ask for over there, something very specific."

Todd said many employers that went to high-deductible plans with health savings accounts are not renewing those plans because they did not get lower costs. Just like Superior, they had a "honeymoon" period, then claims shot up with higher medical acuity driving higher costs, she said.

"Traditionally, what we've done with health insurance is hash out the details of what it's going to look like and make a recommendation," said Lee Sandok-Baker, code compliance officer and city health insurance committee member. She said while the health insurance committee has been discussing creating an incentive program for medical travel, the committee never even thought about negotiating with local hospitals.

"We're at a crossroads that we know there is a lot that we don't know," Sandok-Baker said.

"I learned a lot of what I don't know," Councilor Jack Sweeney said. "And that always scares me -- what I don't know."

Next steps

"Ultimately, I do have the responsibility for this plan and cost containment," Vito said. "That is my fiduciary responsibility for this plan. If there is a message I give to the committee, it is that I don't know what to do to change that and I need help."

Council President Keith Kern said he would like to see a survey of the employees and have further discussion about hiring a consultant to develop a plan.

Fennessey said he wasn't comfortable making a decision last week and would like to explore more options.

"We have a responsibility to the taxpayer to look at this," Sweeney said. "It's a two-edged sword ... we're serving more than one master here."

Superior's Finance Committee plans to continue the discussion when it meets March 14.

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