Transcript Presentation of a Feasibility Study

Can an Employee
Health Insurance
Cooperative Benefit
Your Organization?
Presentation of a Feasibility Study: A Self-Funded
Health Insurance Cooperative
February 28, 2007
Presentation Overview
 Why This Study? The Current Situation: Ever Increasing Small
Group Health Insurance Premiums and Pricing Volatility
Threaten the Sustainability of Health Benefit Programs
 An Alternative: Spreading Risk and Maximizing Economies of
Scale Through a Self-Funded Health Insurance Cooperative
 Benefits of a Cooperative
 Estimated Costs
 Potential Obstacles
 Next Steps
The Study
 Initiated at the Request of McHenry County Municipalities to
Research Joint Purchasing Programs for Health Insurance Benefits
 Set Out to Answer the Question: Would a Cooperative Health Plan
Provide Better Value and Stabilized Pricing for Municipalities
Versus Their Current Individual Health Plans?
 Conducted by MCCG Ad Hoc Committee on Health Insurance
from September 2005 to October 2006
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Art Osten, Village of Fox River Grove
Dorothy Pfeuffer, Village of Lakewood
Claudett Peters, Village of Johnsburg
Janelle Crowley, City of Woodstock
Robert Ivetic, McHenry County
Roberta Rogers, Village of Lake in the Hills
Anna Bicanic Moeller, MCCG
The Study
 Consultants Assisting with the Study and Providing Cost Estimates for a
Self-Funded Health Insurance Cooperative:
 Mike Wojcik, Dennis Bautista and Bonnie Cochrane from the Horton
Group
 Catherine Loney from GCG Financial
 These Consultants Were Asked to Assist With the Process Because of Their
Experience with Public Health Insurance Cooperatives
 Utilized demographic and health plan information from 13 municipalities
and McHenry County (1,700 Employee Lives in Study and Cost Estimates)
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Village of Cary
Village of Fox River Grove
City of Harvard
Village of Lakewood
City of Marengo
Village of Prairie Grove
City of Woodstock
Village of Barrington Hills
Village of Johnsburg
Village of Huntley
Village of Lake in the Hills
City of McHenry
Village of Spring Grove
The Study
 Final report for McHenry County and the thirteen
McHenry County municipalities was distributed in
November 2006, presented to the study group
January 17, 2007 and presented to approximately 40
municipalities outside of McHenry County on
February 26, 2007
 Process opened to municipalities outside of
McHenry County to increase economies of scale
and maximize purchasing power
The Situation: Ever Increasing Small Group
Premiums and Pricing Volatility
 Many organizations face double-digit increases for premiums and fluctuating
costs from year to year making budgeting for health insurance difficult
 Costs are increasingly shifted to employees or benefits are reduced to cut
costs
 According the Kaiser Foundation: Healthcare premiums for family coverage
rose 87% in last 6 years
 Average premium increase was 7.7% in 2006*
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8.8% for small firms
7% for large firms
8.7% for fully-insured
6.8% for self-funded
 2006 average cost (PEPY) per employee per year = $8,447**
 MCCG Study average cost PEPY= $11,288
 5 year forecast (2012) assuming trend of 11.9%***
average cost PEPY = $19,805
* Kaiser Foundation **
Milliman Study *** PricewaterhouseCoopers
Spreading Risk and Maximizing Economies of Scale
Through a Self-Funded Health Insurance Cooperative
 Cooperatives Have Been Used by Local Governments for Years
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Several local government health insurance cooperatives have been in
existence for over a decade in N. Illinois
Other cooperative arrangements such as IRMA and McMRMA have
been effective in spreading risk and containing costs for members
 Premiums pooled to cover claims up to a specific amount
example: pool covers all claims up to $100,000 per individual and
$1,000,000 aggregate. Any claims above these amounts are
covered by stop loss reinsurance
 Premiums are determined by the participating municipalities each
year and are based on three factors:
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Community rate
Individual organization’s risk level
Types of plans offered to employees
 All participants share in fixed costs such as administrative fees,
network access fees and stop loss insurance
Spreading Risk and Maximizing Economies of Scale
Through a Self-Funded Health Insurance Cooperative
 The cooperative is formalized through bylaws, which are
created and approved by the participating municipalities
 The tighter the rules and the group, the better the rates (ie a
3-year minimum for participation).
 Stability is important for long-term success
 20% to 25% reserve policy recommended
Expected Benefits of a Self-Insured
Health Insurance Cooperative
 It’s Better to be Bigger
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Larger groups have a larger population to spread
risk
Larger groups have greater leverage in negotiating
fixed costs such as administration and reinsurance
expenses
Larger employers historically have lower increases
when compared to small group plans
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According to American College of Physicians- Small
employers pay the highest premiums for health care
coverage and experience the largest annual premium
increases and their employees pay higher deductibles than
large employers
Expected Benefits of a Self-Insured
Health Insurance Cooperative
 Municipalities share administrative expenses that minimize
these costs to individual organizations
 In an individual fully-insured plan, 22% to 32% of
premiums are embedded administrative fees and fixed
costs- source Congressional Budget Office and the Horton Group
 Brokers charge at least 3% of premiums in fees- sourceBlue-Cross / Blue Shield Group Markets Producer Agreement
Compensation Schedule- January 1, 2003
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Large employers pay closer to 12% in fixed costs and
administrative fees- source American College of Physicians- “Small
Business Pooling Arrangements and Association Health Plans 2003”
Expected Benefits of a Self-Insured
Health Insurance Cooperative
 Smaller communities have access to services and plans
otherwise not available to them
 Greater reporting
 Bigger discounts
 Incentives to use wellness and preventative care
programs to keep claims down, thus keeping
employees healthier
 Greater control, oversight and transparency in how
premium dollars are allocated. Less guessing when
budgeting for health insurance costs.
Estimated Costs for a Health Insurance Cooperative
for McHenry County and Municipalities
 2007 Cost estimates provided by the Horton Group
 Cost Estimates Based on 1700 Employee Lives
 Rates determined by the three factors of community rate,
risk level of the individual organization and type of plan
(HMO, rich PPO or moderate PPO)
 Premium Allocation:
 74% for Expected Claims
 15% for Reserves
 11% for Fixed Costs and Administrative Fees
Allocation of Premium
$2,505,729.64
15%
Expected Claims
Fixed Cost Expenses
Contribution to Reserves
$1,852,881.36
11%
$12,528,648.21
74%
Estimated Costs for a Health Insurance
Cooperative for McHenry County and
Municipalities
 Cost Estimates Show a 7.81% Decrease in Overall
Premiums from 2005 to 2007
 $16,887,259.21 for 2007 versus $18,317,104.92 in
2005 ($1,429,845.71 less than organizations paid as a
whole in 2005)
 Savings achieved through maximizing economies of
scale and shared administrative expenses among a
large group
 Long-term savings can be achieved by focusing on
disease prevention and wellness programs
Potential Obstacles
 Blue Cross / Blue Shield will not lease access to
their network to cooperatives with organizations
that have fewer than 151 employees
 Fear of Change- Employees Resistant to Change
 How to Deal with Union Contracts
 Concept may be viewed as a vehicle to permanent
decreases or zero increases in premium costs, which
may or may not be true
Next Steps
 March 21, 2007 at 10 am at the
Village of Fox River Grove
 Develop Strategy for Creating the
Cooperative
 Determine Timeline and Steps for
Cooperative
 Gather Demographics
 Draft Intergovernmental Agreements
 Create By-Laws
 Select Providers
 Launch Program
Thank You