By Ken Denney – The Times-Georgian
Last year, the City of Villa Rica stepped out on an actuarial limb and did something few other towns have done: it severed ties with behemoth insurance companies to directly provide health insurance for its employees.
The move was forecast to save the city — and her taxpayers — thousands per month, and the reality has lived up to the hype. In the past seven months, the city has pocketed nearly a quarter of a million dollars in savings — $224,317 — a cash haul that shows no sign of ending soon.
The success of the partial self-insurance plan has gotten attention. Mayor Jeff Reese regularly says at council meetings that he has heard from other mayors in other Georgia cities, all of whom want to emulate the success.
But while the financial windfall is impressive, it’s only part of the story. The city’s move may make Villa Rica far more attractive to potential employees, allowing the city to hire an elite corps of experienced staff, just as the city is experiencing rapid growth.
Last year, the city was faced with the decision that many towns across the country confront each year: renewing its health insurance policy.
Villa Rica is like your own employer, in that it provides insurance to its employees as a benefit. And like all employers, it pays a monthly premium, which is based on a rate set annually.
Most cities across Georgia sign up with large insurance providers — companies like Aetna, Cigna, etc. — and when it comes time to renew that coverage, the company sets a rate based on claims filed the previous year.
A “bad claim year,” in euphemistic insurance terms, is a year in which one or more employee’s catastrophic injury or illness represents an expense to the provider. That expense is passed on to the city through a huge rate hike that must be absorbed into a city’s budget. The higher the premium, the less money is available to the city for services to citizens; things like police protection, street maintenance, etc.
Many cities try various strategies to lower their premiums, such as instituting “wellness programs” that encourage employees to hit the gym and become healthier. Nevertheless, when it comes time to renew, insurance providers often want a higher premium than it did the previous year.
That leaves cities with the decision of accepting a higher rate, or to shop around for another policy from another company that offers similar coverage at a cheaper rate. But continuously switching insurance providers leaves the employee dealing with co-pays and deductibles that are always fluctuating. They may also have to switch doctors to stay within the network of approved healthcare providers.
Many experts consider this an unsustainable system for cities. Eventually, they fear, the annual demand for premium increases will make insurance too expensive a benefit for small cities to provide. And to grow, cities need
to be able to compete for qualified, experienced staff, all of whom want insurance.
Breaking the Cycle
When Villa Rica was considering renewing its insurance policy last year, its previous insurance provider, United Healthcare, wanted a $200,000 annual increase in its premium.
Wendell Strickland, who owns an Atlanta company called StrongSide Solutions, proposed to city officials that the city break the cycle of annual rate increases and go with a new program of self-insurance. The proposal was met with skepticism.
Self-insurance is a time-tested means of providing insurance coverage for employees, but it is often something large companies do, not municipalities. Most of these are actually considered “partially self-insured plans,” in that the companies assume most of the risk, but contract with other companies called re-insurers to provide a layer of protection in case of an expensive claim.
This is what Strickland proposed to the City Council, a model that his company has also provided to a small number of other Georgia towns.
The city would take the check it had been sending United Healthcare every month and put the money instead into a reserve fund. From that account, the city would pay employees’ healthcare bills, plus several outside companies that provide health-related services; things like claims processing, prescription drug services, and “stop-loss” coverage in case of a major claim.
But the big selling point to the city council was the potential savings.
Previously, the city had not saved anything by instituting wellness programs. The insurance companies may have saved money because healthier employees file fewer claims, but the city never saw any of those savings. It still had to pay whatever its insurance provider demanded, often a higher premium, year after year, regardless of what the city did.
The first month that the self-insurance program went into effect, October 2017, the city saved nearly $50,000 over what it had paid United Healthcare the previous October. Those savings have since increased and remained steady over the past seven months.
A Financial Bright Spot
Each month, during their regular meeting, the City Council hears a report on the town’s economic health from the city’s Chief Financial Officer, Sarah Hefty. There are always some points of concern in those reports, but the mood of the council visibly brightens when Hefty comes to the self-insurance part of her presentation.
It is a bright spot for a city that has faced tough decisions the past year as it gets its financial house in order.
Since October of last year, the city has paid 28 percent less for healthcare than it did for a comparable period between 2016-2017.
From October 2016 until April 2017, the city paid United Healthcare $792,000 in premiums. Between October 2017 and April 2018, the city paid $568,000 in administrative costs and claims paid on behalf of its employees. That represents a cumulative, seven-month savings of over $224,000, money that is resting comfortably in the city’s piggy bank, waiting to be spent.
City officials stress that no compromise has been made on the coverage offered to employees. The current healthcare package mirrors what United Healthcare was offering in terms of coverage, deductibles, and co-pays.
The city also contracts with a stop-loss, or reinsurance, company that kicks in should an employee or dependent become catastrophically injured or ill. That outside company covers thousands of other employees, which is a risk pool that can more easily absorb an expensive medical claim.
But the primary goal of the program, the city says, is to encourage employees to better take care of themselves. A fitter workforce, they say, is better all around.
Controlled healthcare costs should encourage employees to actively manage their health. Higher deductibles mean workers are less likely to put off minor medical issues until they become acute – and more expensive to treat.
The city plans to continue to accrue savings in its healthcare account for at least a year, giving the program a full year of road testing.
After that, the money (which could be $500,000 based on current trends) can be spent on anything the city needs.
It is possible that the city could even build a gym for its employees to further encourage healthy living, something that has been done in other cities that have tried self-insurance.
And while the money is nice, the best benefit to the city may be in personnel the city is able to recruit and to keep.
A growing city needs experienced staffers. That means it needs to keep the staff it has already trained and to recruit new employees already seasoned in municipal work. Such new recruits already have no shortage of job offers.
A competitive healthcare program, one that requires less taken from a paycheck – and with fast, no-hassle claims processing – will, the city hopes, prove an irresistible lure. That’s something one of the fastest growing towns in the state will need in the long future ahead.