District 281 Schools’ Self-Funded Insurance Program Causes Big Hike in Premiums

This plan was supposed to “combat skyrocketing health care costs,” according to the MN Sun-Post 11/29/07 edition:

In an attempt to combat skyrocketing health-care costs, the District 281 School Board voted in October 2006 to implement self-funded insurance beginning in 2007.

After one year, however, the future of the self-funded insurance program appears to be in question, as employees complaining about 125-percent increases in health care premiums, and at least one employee union threatening to strike over the issue.

District administrators justified the switch to self-funded insurance in 2006, saying fully insured health plans had quoted rate hikes of 33 to 36 percent for 2007. They said a self-funded plan would result in no noticeable change for employees.

Superintendent Stan Mack and Assistant Superintendent Nancy Rajanen were unavailable for comment last week.

Jeff Dehler, District 281’s community relations program director, said the huge premium increases were expected for the first two years of the self-funded insurance program.

“Being self-funded will offer major stability in the future, but there is nothing we can do now for 2008,” Dehler said. “We can’t get anyone else to bid on our business.”

Under conventional, fully insured health plans, the employer pays a premium to an insurance company for employee health coverage. The insurance premium is due in advance to cover anticipated claim costs and the insurance company’s overhead.

A self-funded – or self-insurance – health plan is one in which the employer assumes some, or all, of the risk for providing health-care benefits to employees, by taking control of the plan’s assets and investing them to the company’s advantage, eliminating insurance company charges.

The plan, which is administrated by Preferred One, is not designed to save money, officials said last year, but to help the district gain control and appropriately fund its health care plan.

It offers three plans for employees: Open-access choice (a co-pay plan); open-access choice with a $750 deductible; and open-access choice with a $2,000 to $4,000 deductible. Employees may choose single coverage, single plus one, or family coverage.

The district’s contribution for each employee’s health care costs in 2008, over and above the employee’s portion, will range from $411 to $615.

According to a news release from the district, insurance rates are increasing due to a variety of factors. In previous years, premium rates were kept artificially low as providers competed for district business, losing money in the first year of a plan to get the district’s business with the hope of profits in future years, according to the district.

“In addition, compared to other employers our size, our employees use health care more frequently, resulting in higher cost coverage,” the district said in the release. “Now, health insurance companies will not bid on the district’s business without significant premium increases to catch up to the marketplace and to cover the higher risk of district employees. ”

District 281’s total anticipated claims for 2007 are approximately $12.4 million, with premiums of $12.6 million collected from district employees, according to the release. For 2008, the district expects $15.6 million in claims and $15.7 million in premiums.

In order for the fund to remain solvent, according to the release, rates must be increased for 2008 to meet the anticipated claims, and to have sufficient additional funds to pay higher-than-expected claims.

Changes to the health insurance program, Dehler said, would require approval from district’s insurance committee, which comprises representatives from each of District 281’s bargaining units.

“Presumably, they have looked at every opportunity,” he said. “They have done the best they could, given very difficult solutions.”

He acknowledged that “there will be some real hardship stories.”

“We don’t want that for our employees,” Dehler said. “We needed to do a better job of communicating that it was coming, and we’re sorry we didn’t do that. We needed to give people time to find other options.”

“Now that we are self-funded, it is much clearer how rates are impacted by higher costs,” Dehler said. “Our employees said last week they need help from us to understand the impact when they don’t comparison-shop. We need to provide them with information about how best to save money.”

Dehler said the district would continue to accept late submission of health insurance forms, beyond the Nov. 30 deadline.

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