School district charts jump in health-insurance costs
Published 10:46 am, Thursday, January 24, 2013
After several years that beat national averages, Westport's health-insurance costs have begun to rise more substantially over the last year and one-half. But education officials and a health-insurance consultant maintain that trend does not signal a new period of steep increases in health-care expenditures for the local school district.
The school district paid a total of approximately $14.1 million in medical, prescription drug and dental claims for about 900 education employees during the 2011-12 fiscal year -- 9.2 percent more than the school district paid the previous year for those claims. That uptick compares to an 8 percent "blended national trend average" for health-insurance claim increases calculated by the school district's health-insurance consulting firm, the Segal Co.
Education employees' health-insurance costs have climbed substantially during the current fiscal year as well. The school district paid approximately $7.8 million in medical, prescription drug and dental claims for its employees from last July through December, 12 percent more than it paid for claims filed by roughly the same number of employees during the same period in 2011, according to claim totals released by Segal at this week's Board of Education meeting.
Those recent increases contrast the much smaller growth in annual claims the school district recorded in other recent years. From the start of the 2009 fiscal year through the 2011 fiscal year, the school district's health-insurance claim increases averaged about 3 percent compared to a blended national trend average of approximately 8 percent.
Robert Pernicka, the Segal Co. senior vice president, attributed the growth in claims during the last 18 months to the school district's health-care expenditures tracking back to national rates.
"The fear I always have when you have a year of 2 percent or 1 percent, where the trend is four or five times greater, it will catch up to you," Pernicka said. "You've made plan changes in negotiations and also changed carriers and become more effective, but you can't continue over time to really be substantially less than trend."
Assistant Superintendent for Business Nancy Harris agreed with Pernicka's assessment, arguing that the recent rate of higher claims increases does not indicate that the school district would soon face unsustainable health-care spending.
"You cannot expect that the positive claims experience would continue indefinitely," Harris said Wednesday in an interview with the Westport News. "If you look at the statistics, every year you have a different pool with a different claims experience."
After salaries, employee health-care benefits constitute the largest expenditure block in the school district's annual operating budgets. For the current fiscal year, the school district has allocated approximately $12.6 million for health-insurance costs, about 13 percent of the operating budget. But health-insurance spending is now projected by Harris to overrun its budgeted amount by about $800,000, which will require the school district to tap into its approximately $2.5 million health-insurance reserve to cover the difference. In a worst-case scenario calculated by Harris, this year's health-insurance spending would run about $3.8 million over budget and require education officials to seek approval from the Board of Finance and Representative Town Meeting for additional funding to bolster the reserve.
The school district's budgeted health-insurance spending is projected by Harris to rise to about $13.2 million, about 5 percent more than this year.
Education officials have moved aggressively in recent years to try to tamp down health-insurance costs. In 2010, it switched the administration of its self-insured health-insurance program from Anthem Blue Cross Blue Shield to Cigna, which education officials have said has generated substantial savings for the school district through the discounts Cigna negotiates with health-care providers and pharmaceutical companies.
Last month, the Board of Education approved a new three-year contract for the school district's teacher union, which will move teachers from a preferred-provider organization plan to health-savings accounts, unless teachers opt to cover the difference of staying with a more expensive PPO option. The change to health-savings accounts will save the school district about $400,000 during the 2013-14 fiscal year and about $890,000 the following year, according to Pernicka.
The school district's health-care spending is also being closed watched by other town officials, including the Board of Finance, which will vote in March on next year's education budget. Board of Finance Chairman Avi Kaner suggested that school officials consider putting the district's "stop-loss" health-insurance plan out to bid to find a less costly policy. The school district's current stop-loss health-insurance policy caps its liability at $225,000 for each individual claim. This year, the district is paying Cigna a projected $528,000 premium for that policy; the outlay for a $225,000 stop-loss limit would rise to about $606,000 next year, according to Superintendent of Schools Elliott Landon's proposed budget.
"The reason we're asking these sort of radical questions like putting out to bid stop-loss insurance because as some [finance board members] have said, every $100,000 or $200,000 does make a difference," Kaner said.
While acknowledging that the district pays a high rate for its stop-loss insurance, Pernicka recommended against the school district pursuing Kaner's proposal.
"We can go out to the marketplace and shop that, the problem is I don't think it's a good idea for the management of what needs to be done to separate your stop-loss insurance," Pernicka added.
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