Town Wants Insurance Advice
(2/21/2008) With health insurance costs for its municipal employees continually rising, East Hampton Town Board members met again last week with Alan Kaplan of Island Group Administration, the company that oversees the town’s existing self-insurance plan, to hash out how to provide adequate benefits while curtailing costs.
Self-insurance provides that the town pay for claims directly, without paying premiums to an insurance company. The town spent $9.5 million on claims and ancillary insurance policies last year.
The cost of health insurance was cited in the recently released 2006 audit as a contributor to the town’s having a deficit of $2.4 million that year. The amount spent was $880,000 more than what was budgeted. Such overruns have been common in recent years. To avoid future deficits, Town Councilman Pete Hammerle is urging the board to look at ways to do a better job of predicting what the maximum health-care costs might be in a coming year.
Town Supervisor Bill McGintee had proposed, and is holding to his recommendation, that the town drop self insurance and instead insure employees through the New York State Health Insurance Program’s Empire Plan. He has said the town could save $2 million by doing so, albeit by changing, and in some cases reducing, the benefits provided.
The town’s right to change the policy has been challenged by the town’s Civil Service Employees Association, which claims change are prohibited in its contract. Mr. McGintee disagrees. The union has filed a formal grievance to preclude the change, and the matter is in arbitration.
At the meeting with Mr. Kaplan, on Feb. 12, Mr. Hammerle was concerned about finding a way for the town to budget more accurately. “My end result is not to save $2 million. My end result is to get a little more stability from year to year,” he said.
“Quite frankly, I feel that if you make employees pay more as co-pays or whatever, you’re going to end up paying them more, and you will not be saving this fictional $2 million,” Mr. Hammerle said.
“Because we have growing budgets in a lot of other areas, if you want stabilization you buy an insurance plan so you know what your costs are,” Mr. McGintee said. Agreeing that stabilization was important, Mr. McGintee reiterated other priorities. “I just want to save money and still provide our employees with good coverage — maybe not the same, but good coverage,” Mr. McGintee said.
“The cost savings can only come from reduced benefits,” Mr. Kaplan said. He said that might mean higher co-payments, a requirement that policy holders use generic prescription drugs, or the elimination of coverage for some drugs.
“I think maybe the board needs to think about which way it wants to go here, because I’m not necessarily on the cutting-costs side here,” Mr. Hammerle said.
One way that the town limits its insurance costs now is by buying “aggregate,” or “stop-loss,” insurance. This sets a maximum on the overall cost of health insurance as well as its out-of-pocket expenses for each claimant. If costs go beyond the set limits, the insurance company pays the difference.
At present, Mr. Kaplan said, the town pays $27,000 a year to set its aggregate insurance limit at just over $9 million. The town also pays $21,624 a month for a per-person limit of $140,000. But, according to Mr. Hammerle, the town has not been reaching the limits. Last year, with 1,210 people covered — employees as well as town board members, their families, and retirees — claims cost the town $7.5 million.
If the aggregate insurance level was dropped to $7 million, Mr. Kaplan said, the premium would be $500,000. Premiums become more costly the closer the limit is to actual costs, he said, because the likelihood increases that the insurance carrier will be obliged to cover some of them.
“As long as medical costs keep pushing, pushing, pushing,” Mr. McGintee said, the town would end up paying more for higher aggregate insurance limits. The limits, he said, would rise anyway, and “the budget numbers will have to grow.”
Mr. Hammerle asked for Mr. Kaplan’s advice on better yearly budgeting. With regard to aggregate insurance, Mr. Hammerle said, “Go back and analyze our history and come up with specific recommendations.”
“The problem with being self-insured is that even if you estimate your exposure, you can easily go way over your budgeted amount with one or two catastrophic claims,” Mr. McGintee said. And Mr. Kaplan warned the board: “If Empire gets nailed in one year, they’ll raise your rates.”
Mr. McGintee asked Mr. Kaplan to provide the board, which at previous meetings had heard presentations about various insurance plans, for more information so members could study the costs of a change to the Empire Plan or an equivalent policy that Island Group might provide.
Mr. Kaplan recommended that the town set up an “overage” fund. If the town doesn’t spend the amount it budgets in a certain year for health claims, state law allows it to be set aside. He also suggested the town could look into a procedure used by municipalities across the country, whereby bonds are issued to cover projected insurance liabilities. The money would be deposited in a fund where it could earn interest before it was used.