County to self-insure

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Insurance: Council decides that potential benefits outweigh risks

By Arin McKenna

Faced with a potential rate hike of 14.4 percent, the Los Alamos County council voted to adopt a self-funded insurance plan instead.

The county’s contract with Blue Cross Blue Shield is renegotiated yearly. BCBS had originally proposed a 16.4 rate hike for next year. The county’s benefits consultant, Gallagher Benefit Services (GBS), entered into negotiations with BCBS to secure the lower rate. The county’s budget allowed for a 12-percent increase.

The rate increase would significantly increase premiums for both the county (which pays 80 percent for full-time employees) and employees. Employees would also have higher out-of-pocket expenses.

Staff identified eight options to reduce the rate hike, but seven of those had only minimal impact. Self-funding would increase rates by only 3.5 percent, without a change in benefits for the first year.

County Administrator Harry Burgess said that if the self-funded plan was adopted, the county could take several steps to stabilize or reduce rates in upcoming years. These include:

Forming an employee advisory committee composed of staff with a range of job titles and pay grades to evaluate what the insurance needs are and to formulate options for reducing costs.

Use the committee’s input to create insurance plans tailored to the county’s needs.

Find ways to educate and incentivize employees to reduce costs.

Burgess detailed how these options were used effectively in Carlsbad, which adopted self-funded insurance while he was city administrator.

“We had a bad first year, but then we reorganized the plan, so the next three years we had zero and even negative rate increases in response to lower costs,” Burgess said. “We did that by educating employees about health care options and reorganizing the plan to be more consistent with the employee’s needs as well as introducing some cost savings.”

Some of those cost savings involved incentives, such as increasing the co-pay for emergency room services (which was originally $50) to encourage employees to seek other medical services first. The insurance plan was also changed to include a wellness program, which included training sessions and subsidies for options such as gym membership.

Burgess said that one option for encouraging employees to shop around and reduce costs is offering a rebate on a portion of the unexpended premium.

“The potential for a check coming back at the end of the year is a very strong incentive,” Burgess said

The risk in self-insuring is that the county would be liable if claims exceed the estimate the premiums are based on. The county will purchase individual stop loss and aggregate stop loss coverage through BCBS, which covers any claims exceeding 125 percent of projected claims, which still leaves the county with a liability of up to 25 percent in a worst-case scenario.

The county must set up and manage a claims reserve for projected claims payments. To cover all potential liability up to 125 percent of current claims experience and fluctuation requires a fund of approximately $1.64 million.

Those funds are available through reserves in the county’s Risk Management Fund. When the county switched from a self-funded Retiree Health Care Plan to a state RHCP, a residual reserve fund balance of $2.5 million was transferred to the Risk Management Fund.That reserve is available to cover the projected claims without affecting other Risk Management Fund functions.

The implementation of the plan would not increase the burden on the staff. The county would add approximately $10,000 to its contract with GBS in exchange for increased responsibilities, a considerably lower cost than the rate increase with the current plan. Much of that could also be recouped by savings in subsequent years.

Councilor Vincent Chiravalle focused on the worst-case scenario, asking where the funds would come from if the $1.64 million reserve were depleted in the first year. He advocated for issuing another RFP in the hopes of finding lower rates with another insurer or pressuring BCBS to reduce its rates.

Burgess replied that staff would be looking for ways to balance increasing rates with reducing services and increasing co-pays, as well as other options to sustain the system.

Burgess also pointed out that insurers will often offer a lower rate in the first year and then significantly increase rates afterward, so there is no effective cost savings.

He noted that when counties change insurance plans to reduce costs, other insurers expect them to “jump ship” again and charge higher rates to compensate.

Chiravalle cast the only vote against adopting self-funded insurance on the grounds that the liability risks were too high.

Vice Chair Geoff Rodgers made the motion to adopt the plan.

“There is obviously some risk involved, but perhaps we will save money instead,” Rodgers said. One of the selling points for Rodgers as well as other councilors was that the county could switch back to a more traditional insurance option without difficulty.

“I like the creativity and flexibility in encouraging employee participation, as well as the rebate idea,” Councilor David Izraelevitz said.

County Councilor Rick Reiss could not see any point in letting the remaining RHCP funds remain fallow when they could help fund this option.

“Instead of developing scenarios about how bad this could be, we have an equal opportunity for equal or lower costs than we have now. We won’t know unless we try this.”

Reiss also pointed out that BCBS is likely to continue asking for large rate increases every year.

The self-insure option passed by a 5-1 vote.

Follow the Los Alamos Monitor for more on Tuesday’s council meeting.

Very bad move as the risk is

Very bad move as the risk is too great for such a small population of employees. Carlsbad is not Los Alamos.