Medford schools seek self-insurance savings

The Medford Area Public School District inched closer to a switch to self-insurance for heath care coverage for employees and their families.

Members of the district’s finance committee met Monday afternoon with the district’s insurance advisors from M3 Insurance to talk about options the district has going forward.

As part of the switch to M3 Insurance last spring, school board members had wanted additional exploration into selfinsurance models in addition to traditional premium-based models through providers such as Security Health Plan. Under traditional models, employers are told by the insurance provider what the premiums are for coverage based on what the provider believes usage will be. If usage is low, the provider benefits from not having to pay additional claims, but if the claims are high the provider assumes the risk of those additional claims.

In self-insurance models, such as those being proposed for Medford Area Public Schools, the district keeps the money that would have been spent on premiums and pays claims authorized by a third party administrator. In addition, they would pick a pharmacy benefit manager to handle the prescription drug portion of the coverage, and direct pay clinics such as Taylored Family Care, which can reduce out of pocket expenses.

At the same time, there is more risk for the employer in a self-insurance model, there is also a great incentive to reduce claims since any savings would be retained by the employer with the goal of providing more long-term stability in costs and coverage.

Self-insurance risks are mitigated in part through stoploss coverage which addresses high claims through secondary insurance.

Representatives from M3 Insurance noted that the usage rate, which drives most premium increases, was at 110% for the district overall last year. Historically, the usage rate is often skewed by a relatively small handful of very high claims. Regardless, the overall usage rate is taken into account by insurance carriers when setting rates. Based on the usage, M3 Insurance advised the district to expect a 15% increase in premiums from Security Health Plan (SHP). SHP has told M3 it would not give the renewal rate for the district until September 15.

At 15% the district would go from paying $8,112,568.56 in premiums to paying $9,329,453.84 in premiums. M3 projected that depending on which third party administrator the district went with, the actual cost of going with self-insurance could range from a decrease of 5.7% to an increase of 51.1% The recommendation from M3 Insurance is that unless SHP’s renewal comes in at less than 5%, the district should move to a self-funded model using Prairie States or Point C at the third party administrator, using the Alliance Network of providers, use TrueScripts as the transparent pharmacy benefit manager and use Everlong as the captive manager for stop loss.

They also recommended the district have an implementation strategy for direct primary care provider and noted the plan design would allow the district to go from six plan designs down to two.

They noted that in order to remain compliant with having and HSA (Health Savings Account) eligible plan, the employee deductibles would have to increase from $1,650 for individuals and $3,300 for families to $1,700 for individuals and $3,400 for families. A benefit of the self-insurance model would be to allow the district to lower the higher-deductible offering from $5,500 per individual and $11,000 per family to $3,500 per individual and $7,000 per family to encourage additional participation in that plan.

The school board will have to make a decision in September if they want to go with a self-insurance model in order for insurance to change on January 1. If the board votes to make the switch, the M3 Insurance will work with the school and the third party administrators and pharmacy benefit manager companies to set up plans with enrollment in early December.

The finance committee has scheduled a meeting with M3 Insurance for 1 p.m. on Tuesday, September 16 to review SHP’s renewal rate and determine a recommendation to be brought to the full school board at the September school board meeting scheduled for September 22.