Audit Reflects Town’s Efforts To Stabilize Health Insurance Costs

By John Voket

The recently delivered Newtown municipal audit shows the town is aggressively working toward maintaining the recommended buffer against unusually high health claims in its self-funded coverage for town workers. And the plan is only entering its second year.

The audit was reviewed during the Board of Selectmen’s meeting with Finance Director Bob Tait December 19.

Mr Tait already reviewed a number of other positive points that came to light in the latest examination of town financial records and practices conducted by the firm of Kostin & Ruffkiss, which included recognizing initiatives to improve Newtown’s municipal fund balance, as well as progress toward fully funding the municipal pension plans.

The finance director explained that every year, the town’s self-insurance program consultant provides the expected amount required to cover claims for the approximately 2,080 staff and family members on the plan. The audit shows the town has already amassed about $2 million to apply in the event of extraordinary claims above and beyond what participant premiums cover.

The finance director told The Bee that town carries stop-loss insurance that kicks in to cover all the costs after claims exceed 125 percent of the claims budget in any given year. And that 25 percent gap between the amount budgeted and the stop-loss activation is the responsibility of the town to cover, Mr Tait said.

So to ensure that the town is not suddenly faced with a significant cash liability due to extraordinary claims, it is aiming to maintain a balance of $3 million to pay up to 125 percent of budgeted claims if required.

That $3 million gap is based on the 2012 expected claims of $11.8 million, according to the consultant. In addition, the town maintains a fund to cover incurred but unreported claims.

“We reserve eight percent for that — for claims not reported at June 30 that are going into new year,” Mr Tait said.

There is also a stabilization fund of five percent in case of an unusually bad claim year.

“This fund helps smooth out contributions to the claims fund,” Mr Tait said. “Instead of making extra contributions or taking an unanticipated hit in the current budget, it’s used to buffer that bad year’s exposure.”

 While he did not mention it in his presentation, the town is also covered if any single claimant goes over a $175,000 cap in any policy year. Mr Tait told selectmen that the final decision on exactly how much the town will budget to cover extraordinary claims will be made in concert with the town’s Employee Medical Benefits Board

This conversation dovetailed into a discussion among the selectmen about a plan to go out to bid for the health insurance plan administrator, which currently costs $780,000. First Selectman Pat Llodra said it was always part of the plan to “test the market” after the town had one year of experience with a self-funded employee health program.

Mr Tait said requests for proposal (RFPs) are due January 6, and that all potential bidders who successfully completed a prequalifying criteria planned to bid. Once the low bidder is identified, all the town bargaining units that participate in the plan will have a 45-day period to review the new potential plan criteria, and decide if its union members will participate.

“I think we’re all interested in reducing cost,” Mrs Llodra said. Currently town employee health coverage exceeds $13 million

Mr Tait added that some possible changes depending on the lowest cost qualifying bidder might be the same number of providers, but some different doctors as on the current plan.