In an effort to eliminate two costly health insurance taxes — one from the state, another from the Affordable Care Act, the school district is considering a switch from its commercial insurance toward self-insurance.
“Essentially, the Board of Education would become the insurance company ” explained Rob Fitzpatrick, the district’s consultant for health benefits. “We continually investigate the best possible practices for health insurance costs, and a self-insurance model may be the best practice for the district.
“It’s is so far off at this point — we’re still in the preliminary phase of discussion — that we’re not anywhere close to making a decision,” he continued. “And I’m not sure we’ll ever do it, but it’s my job to look into ways to control cost, and this is one of them.”
Mr. Fitzpatrick, who said he wasn’t speaking on behalf of the school board, presented the educators with a health benefits update at their meeting on Dec. 9. He recommended the shift away from the current system, in which the board pays a premium to an insurance company for a certain package of health benefits.
The change comes with an inherent risk — if the cost of care ends up higher than predicted, the district would have to cover the remaining cost. There would be a need for a reserve fund that would be based on the number of claims the district filed over the last five to 10 years.
Despite the uncertainty, the potential savings are substantial, enough to entice board members to evaluate the change, Mr. Fitzpatrick said.
He added that if the district were to become self-insured, it would avoid having to pay the annual 1.75% state tax on health insurance as well as the 2.4% health insurance industry fee that stems from the Affordable Care Act.
These would be the “minimum savings” from the switch, with the rest depending on the district’s size.
“We’re looking at the claims experience to determine whether or not it’s even viable to make a change and what the savings would look like for a town of this size — we don’t have a dollar estimate yet,” he said. “We also don’t know what the size of the reserve fund would be, because the investigation has only just begun.
“A lot of it depends on school enrollment and the amount of claims,” he continued. “That stuff changes year to year.”
Paul Hendrickson, the district’s business manager, added that he and Mr. Fitzpatrick had not yet “put any concrete steps into place,” and that they would be looking into all the possible ramifications — positive and negative — the switch would create.
“There’s a lot of discussions to be held before this really takes off and goes somewhere, if anywhere,” he said. “We’re in the midst of the budgeting process for 2014-15 right now, so I’d imagine we’ll be meeting with Rob to go over our health benefits before we have any additional discussions about self-insurance.”
The risk of self-insurance is something town officials are familiar with, after switching to self-funded dental insurance about eight years ago.
First Selectman Rudy Marconi said the town’s switch has reaped $1-million-plus in savings, but said its success may have come as a product of the times.
“Switching to self-insurance was easier back then, due to some archaic software that created a 60- to 90-day delay that allowed us to collect the first three months of premiums and put them in the bank before any costs were incurred,” he said. “Now, money is absolutely necessary to any self-insurance model and that money has to be up front at the very beginning — that’s why there’s a discussion about needing a reserve fund. …
“The shift to self-insurance doesn’t happen all the time — the timing has to be correct,” he continued. “We lucked out when we did ours.”
William Jaegar, the chairman of the town’s insurance and risk management committee, added that Ridgefield’s school district may be too small to self-fund its health care costs.
“One of the risks of self-insurance is that it’s not 100%, there’s a stop-loss component that kicks in for self-insured employers to protect themselves against gigantic claims,” he said. “In this case, the schools would be the ones insured under the stop-loss policy and the insurance company would act as the administrator, but not the entity who is paying for the coverage — this leaves a lot of potential costs for the employer. …
“This is not a criticism by any means toward the Board of Education, or the town, but this is a substantial risk that makes me wonder how sustainable a model like this could be,” he said. “With that said, it’s never bad to explore options.”
He concluded that self-insurance policies are “generally applied to a population that is fairly large.”
Mr. Marconi added that the school district once had a self-insured plan under former superintendent Ralph Wallace in the late 1990s and early 2000s.
When Ken Freeston took over the job from 2003 to 2007, he was reluctant to keep the plan. Eventually, after one person had a huge medical expense after a severe accident, the schools switched to commercial insurance, Mr. Marconi said.
“The risks weren’t worth it and there was a ton of opposition,” he said. “There were also different people on the board back then, so now things may have progressed to the point where we look at it again as a viable model to increase our health benefits savings.
Mr. Marconi said he was reluctant to favor the plan because it is “very trend-oriented” and difficult to predict.
“You don’t want to switch to self-insurance when your claims are at the bottom of a five-year trend; you want to switch when you’re at your peak and claims are on a downward trend; then you ride the reduction of claims you have to pay,” he said. “However, you never know the number of claims you are going to get in a given year, and that’s why it’s risky.
“Whatever ends up happening, the town will want to review it before it goes anywhere,” he said.