City council votes to switch to partially self-insured health plan

City officials say they could potentially reap significant savings ranging from switching

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Mayor David McCauley and councilman CJ Rylands

BUCKHANNON – In an effort to control the rising cost of health care for its employees, the City of Buckhannon on Thursday voted to switch from a fully funded health insurance plan to a partially self-funded plan.

City officials say the new plan through Tawney Insurance & Consulting in Lewisburg, W.Va., has the potential to save Buckhannon somewhere between $115,000 and $200,000 annually.

Following more than an hour and 40 minutes of debate, council ultimately voted to switch from a traditional health insurance plan – in which a fixed premium is paid on a monthly basis – through Highmark Blue Cross Blue Shield West Virginia carried by Loudin Insurance Agency to a partially self-funded health insurance plan through Tawney Insurance & Consulting and Roundstone.

The move came after Loudin Insurance, the city’s longtime agent of 32 years, initially offered a plan through Highmark BCBS WV, that included a 9 percent increase. (Loudin later offered a plan with no increase except a $14,000 cost to consolidate the city’s gap coverage through Morgan White Insurance Group with Highmark BCBS WV.)

At the beginning of Thursday’s meeting, mayor David McCauley noted the city has seen the amount it pays out in health insurance premiums spike by about $300,000 over the past seven years.

McCauley appointed a council insurance committee to evaluate the situation, which included himself, councilman Robbie Skinner, councilman David Thomas, city finance and administrative director Amberle Jenkins and city employee Barb Hinkle.

Kris Tawney, Tawney Insurance president and CEO, attended the meeting and told council he couldn’t predict the exact amount that would be paid out in claims. However, the municipality should expect to shell out a “target” of somewhere between $900,000 and $940,000 with a $1,000 deductible per employee.

The maximum amount the city could spend per year under the semi-self-insured plan with a $1,000 deductible is $1,129,000, Tawney added.

Last year, the City of Buckhannon spent $1,118,000 on health insurance through Highmark BCBS West Virginia, according to Skinner, who is an insurance agent with Mountain Lakes Insurance agency and a member of the city’s insurance committee.

Partially self-funded health insurance means the City of Buckhannon will assume some financial responsibility and pay its claims out-of-pocket up to a certain cap per employee per year.

Once that cap has been surpassed a “reinsurance” kicks in and pays the remainder of the claims. The city has about 85 employees.

Utilizing a partially self-funded plan, the city will be able to access some claims data.

The meeting got underway with McCauley sharing a six-prong proposal that involved the city staying with Loudin Insurance Agency and its carrier, Highmark BCBS WV, but dropping gap coverage through Morgan White.

Among other elements, the mayor’s proposal included a measure to implement spousal carve-outs for newly hired employees who join the city’s workforce after Oct. 1, 2019, meaning if a new employee’s spouse had health insurance available at her or his own job, she or he would be required to accept that insurance instead of opting to be insured through the city.

While Skinner said he agreed with many facets of McCauley’s proposal, he said the city had a fiscal responsibility to the taxpayers to choose Tawney.

“We have consistently accepted increase after increase after increase in health insurance premiums since myself and many other council members have sat at these desks preparing for our budget,” Skinner said. “This would allow us to join other groups of clients, of cities and government bodies, maybe some private companies as well at the tune of 9,000 individuals. It’s not just based on the City of Buckhannon, it’s based on a large group of ppl that can help us when it comes to premium.

“To me, it’s a clear choice that we accept the proposal as given by Tawney Insurance.”

Skinner said the potential for savings was about $200,000.

“That’s a very large savings, and if we do not accept that proposal, I do not believe that we are acting in the most responsible and the most fiscally conservative way … for the taxpayers, for the businesses,” he said.

Thomas, also a member of the insurance committee, said comparing proposals from Tawney and Loudin over the past several weeks had been “a very frustrating exercise.”

“The thing that really bothers me the most is that Highmark came in with a quote and not until we were saying that we were going to take a look at other opportunities out there did they come in at $100,000 less than what they originally said,” he said. “The fiduciary responsibility we have as elected officials … is very important, and we do have the potential for saving anywhere from $100,000 to $250,000. That is a significant amount of money.”

McCauley said council members should understand the city wasn’t just changing health insurance providers – it was switching up the entire way employees’ health claims are paid.

“We are not changing providers; we are changing the entire mechanism,” he said. “If we go to partial of full self-funded insurance … with that comes some other risks that we currently don’t have as you just pay that definite monthly premium.”

McCauley said he’d consulted with the cities of Bridgeport and Clarksburg, both of which had recently opted out of self-insurance health plans. He also said the Upshur County Commission, “is trying to figure out a way of getting out of a self-funded (insurance) program.”

“They said the first two years they committed the money they got back to a reserve account because they wanted see how years three, four and five went, and now the reserve is all but gone and they’ve had a couple of employees that have been lasered, that is, they’ve been kicked out of the plan, and the county commission is responsible for the claims that are being asserted by the providers [for the individuals] that have been excluded from the insurance coverage and that is what has eaten at their reserve.”

Tawney said he would “never in million years” advise the city to fully self-fund health claims. He explained that with partially self-funded insurance, a maximum amount the city is liable for per employee – for example, $35,000 – is set.

After the $35,000 mark is met, reinsurance kicks in.

“Reinsurance protects you on any one employee,” Tawney said. “Aggregate reinsurance – that number is $520,000 – [means] when the total expenses for all employees hit half a million dollars, anything above that amount ($520,000) is covered.”

“The product we showed has no additional risk,” Tawney said. “It has a maximum exposure so there is no, ‘Hey, we might have a million extra in out-of-pocket expenses.’”

Tawney said the upside of partial self-insurance is that if the city has a “good claims year,” there could be $150,000 to $170,000 left over the city could reallocate as it chooses.

“With your current scenario, once your money goes out the door (through the payment of a fixed monthly premium), it’s gone. You have no control over, ‘Do we get it back?’”

Skinner said with about 85 employees on its payroll, an employer the size of the City of Buckhannon is bound to spend about $1 million annually on health insurance.

“Regardless, this entity is going to spend roughly $1 million on health insurance no matter how you cut it, no matter where we go, because of the size of the group and what we have inside of it.

“Our choice is, do we spend $1 million blindly and never get it back or do we spend $1 million with the very high potential to get $150,000 to $200,000 back of our money that we can use for claims funding next year or capital improvement projects or pay raises or adding more staff?”

City attorney Tom O’Neill asked about how Jenkins, the city’s finance director, would allocate money not spent on claims; the City of Buckhannon is comprised of four different enterprise funds, and money in those funds can’t be intermixed.

“The City of Buckhannon is actually four different employers – the general fund, the Waste Board, the Water Board and the Sanitary Sewer Board,” O’Neill said. “How, then, if employees are allotted to each of those boards, which by law, are separate corporate entities … and their funds cannot comingle … how does this plan interface with our statutory requirements to segregate funds between enterprise boards?”

Tawney said the amount could be split evenly or some other arrangement could be worked out, but that was “not a reason not to do the plan.”

McCauley’s six-prong proposal to stay with Loudin Insurance/Highmark BCBS West Virginia failed by a vote of 4-0, with councilwoman Pam Bucklew, councilman CJ Rylands, Skinner and Thomas voting against it.

Councilwoman Mary Albaugh was absent.

Skinner suggested council take up four parts of McCauley’s proposal – including spousal carve-outs – at its regular June 6 meeting.

“Although I agree with 3-6, why don’t we keep it simple this evening,” he suggested. “June 6 is not that far away. Why don’t we make a motion that we accept Tawney and Roundstone’s proposal as presented and the partially self-funded mechanism and why don’t we come back to the drawing board with this and a fresh, clean sheet of paper?”

Thomas made a motion that council eliminate gap coverage through Morgan White, as suggested by McCauley, but switch to the semi-self-funded health plan through Tawney Insurance and take up the rest of the items in the mayor’s proposal June 6.

Skinner seconded Thomas’s motion, which passed with Skinner, Bucklew, Thomas and Rylands voting in favor of switching.

McCauley said the mayor is not obligated to vote unless it’s to break a tie.

Following Thursday’s meeting, Jenkins said she plans to consult the with West Virginia State Auditor’s office about how to divvy up the funds.

“Since we will know where the claims are coming from, I think we must to track that accordingly unlike what we are doing now which is a contracted amount per employee per month,” she said. “I am making inquiries to the State Auditor and our account to insure this will be done correctly.”