City policy needed to fine-tune insurance plan, council told

June 07--Now that the city of Joplin has had six years to see how a self-insurance plan is working to provide employee health benefits, it's due for a yearly checkup.

Leslie Haase, the city's finance director, told the Joplin City Council on Monday night the plan has been building a funding surplus to cover swings in annual claims but that was more by chance than design. The next step is to develop a policy on how to further accumulate reserve funding to cover the plan when there are years of high claims or other adverse factors and to try to smooth out those costs, she said.

Providing insurance benefits is a large expense for the city, as it is with most businesses, the council was told. Joplin's requires about 5 percent of the city's operating budget, said Dan Arntzen, an actuary with the city's health plan adviser, Segal Consulting.

Claims of more than $4.3 million were paid last year, down about $200,000 from a year earlier. Employee premiums amounted to slightly more than $1 million. The city paid slightly more than $4 million. The city started the fund in 2011 with a $1 million deposit and about $1 million in reserves have accumulated since then, when contributions to the plan exceeded total claims.

City officials opted in 2010 to establish a self-insurance plan after experiencing several years of double-digit increases to buy traditional insurance by taking bids. At that time, the city's expense was $3.8 million for the year's medical, dental, vision and life benefits.

Asked Tuesday if that means the city has managed to change the trend on those annual increases, Haase said, "The true savings you have is that you are not paying the profit to the company of the (insurance) carrier and fees. But the real savings in being self-insured is that it gives us the ability to make changes to our plan to help contain costs."

Individual provisions in the medical coverage, based on the experience with how employees use the insurance and market changes, can be reviewed each year to determine if changes should be made, Haase said.

For instance, the council was told that one of the market drivers in cost has been prescription medicines, which had been on a decline between 2001 and 2013, but then took a sharp rise that more than doubled what it cost to provide prescriptions.

By reviewing the coverage and how employees are using the insurance regularly, the plan managers can make changes that could save costs or trim increases, Haase said.

There also may need to be changes in how much is paid into the fund.

While the actuary can analyze what he expects the claims experience to be in the future, no one knows for sure.

For instance, claims cost about $3.7 million in 2012 and then dropped to $3.3 million the next year. But in 2015 there were more than average large claims that cost more than $4.5 million. The city's coverage includes stop-loss insurance that pays claims above $150,000 to protect the self-insurance fund from catastrophic claims, but still the fund pays claims up to that amount for its more than 400 employees.

Arntzen told the council that the fund's 2016 year-end balance was $2.47 million. Based on his calculations, he recommends a reserve balance of $2.82 million based on the variance and amounts of annual claims and other factors. He said that by his calculations, that leaves a shortfall in reserves of about $740,000. That amount does not need to be deposited all in one year. The consultants said the city could increase reserves in smaller increments and that even the amount needed in reserve could change.

Haase told the council that the details provided by the Segal consultants needed to be developed into a policy on how and when changes need to be made.

"The policy will have to be a very fluid policy that will be reviewed, and more than likely I will be discussing it with you annually," Haase said.

Cost factors

Increases in health care costs are driven by a number of factors, the Joplin City Council was told.

Those include:

--New treatments, therapies and technologies.

--Increased demand as the result of aging and obesity.

--Medicaid and Medicare changes.

--Government and regulation changes, such as those in the Affordable Care Act.

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