By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
When news broke that the city of Philadelphia was moving toward self-insurance for the healthcare benefits for many of its 27,000+ employees, Risk & Insurance®
put out a call to the city's risk manager, Barry Scott, only to be informed that human resources was in charge of it.
In many municipalities, it seems, human resources deals with employee benefits, not the risk management department. Yet in the last 12 to 24 months, that is changing, according to Mary Beth Bullen, the Bingham Farms, Mich.-based national practice leader for Gallagher Benefit Services' public entity and scholastic group.
It seems that cities are coming on-line with a private-sector trend, the notion that employee benefits is all about the "risk management of your population," said Bullen. And so risk managers are getting more involved in engaging municipal workers and their unions in terms of health education, wellness programs, disease management and the like.
Not to pick on Philadelphia, but as explained by James Startare, its deputy director of HR, the city considers employee benefits more a "professional service." Scott, though, does have input in some benefits decisions, such as the city's choice of stop-loss carriers.
"Barry was instrumental in aiding the city's Human Resources Department in the selection of the stop-loss carrier under the new self-insured arrangement," explained Startare.
Speaking of self-insurance, Philadelphia is far from alone. Over the last 10 years, Bullen has seen more momentum with municipalities moving toward self-insurance, especially for entities with more than 1,000 covered lives. (Smaller municipalities tend toward using risk pools as an alternative risk mechanism for benefits.)
Mike Ferguson, chief operating officer of the Simpsonville, S.C.-based Self-Insurance Institute of America Inc. (SIIA), agreed that self-insurance is more common than not with midsize to larger municipalities, though he wouldn't venture a guess about exact percentages.
For a city of Philadelphia's size, is it surprising that it's taken this long to move toward self-insurance?
"At that size, absolutely it makes sense to be self-insured," said Bullen.
Perhaps a reason that Philadelphia took so long to catch up can be found in the unique way it's handled its employee healthcare benefits. It largely hands them off. The city has been different in that it's paid a negotiated rate per employee to four union-run funds, which then administer the benefit plans, according to a June 2009 report from the Pew Charitable Trusts.
By the end of this year, as many as two-thirds of its employees will be under self-insured plans, according to a news report.
Startare oversees benefits for about 7,000 employees--nonrepresented and exempted employees and those who choose not to be represented by two of the unions.
For the self-insured program for these 7,000 employees, Startare said, the city projects a savings in 2010 of $10.5 million for the benefits program as a whole (an $80 program), and a $8.4 million savings on medical alone (a $61 million program). Previously, these employees had been in a fully insured plan.
That illuminates why businesses and public entities have been doing self-insurance for years, and why as many as 55 percent of all U.S. workers with health insurance are covered by a self-insured plan.
In traditional insurance, employers pay a premium to insurance companies, which includes not just the cost of potential future claims, but also the carrier's marketing, administration and other overhead costs. With self-insurance, employers basically just pay for claims as they come in.
"Over time, generally it's a more cost-effective answer," said Ferguson.
What's more, employers get to hold onto their money and invest it, instead of prepaying those premiums to insurers. That's a major cash-flow bonus to the budget.
Self-insuring also frees employers from state benefit mandates under ERISA, allowing for more flexible and customized benefits plan design, added Bullen.
Nor are employers flying totally solo. Bullen sees many municipalities retaining the services of large insurers as third-party administrators to help oversee claims and care management. Other municipalities are relying on consultants to measure the efficacy of a plan's design or to help with some of the actuarial and reserving calculations.
As for Philadelphia, Startare said that it will work with its former insurer, Independence Blue Cross, as a third-party administrator for claims-processing and provider networks.
February 23, 2010
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