Utility district renews self-insurance
Despite an unusually high cost of medical claims in the first year, the South Tahoe Public Utility District board of directors agreed Thursday to self-insure the district’s medical costs for a second year.
“It’s basically a bet,” said Director Duane Wallace, who serves on the district’s finance committee. “We’re betting that we’re not going to have these experiences again.”
The district’s 108 covered employees filed a total of $820,000 in claims in the district’s first year of self-insurance, said Rhonda McFarlane, the district’s financial officer.
“We had an exceptionally tough year,” McFarlane said.
Yet, the district still came out ahead, because it carried excess insurance coverage through Gerber that paid individual claims above $50,000 and aggregate claims above $490,000. McFarlane estimated the district saved $75,000 in insurance costs because of the favorable excess coverage.
This year, however, the eight companies that bid on the district’s excess coverage all offered aggregate thresholds more than double the size of last year’s. The winning bidder, Transamerica, set its aggregate threshold at $1.06 million, giving the district significantly greater financial exposure in its 1998 plan.
The district’s monthly employee premium was $500 this year, but will increase to $650 in 1998.
District officials said they hope medical costs will be lower, and said only a three-year trial program will prove whether self-insurance is beneficial.
“In terms of serious illness, this year was the toughest that old-timers can remember,” said Chris Strohm, the board vice president. “In the long run, the idea is we’ll save money.”
McFarlane said two employees had medical costs that exceeded the district’s $50,000 liability, and that a number had claims that approached that amount.
The district joins an increasing number of private and public agencies that have tried to trim the costs of medical coverage through self-insurance.
According to LeAnne Kankel, director of personnel for the Lake Tahoe Unified School District, the larger the company, the easier it is to self-insure.
Yet, while the school district insures 490 people in its plan, it suffered through three tough years before turning it around the last four years, Kankel said.
The school district trimmed costs, she said, by dropping benefits that were not essential but generated high usage, an education program to discourage claims and joining preferred provider organizations.
As a result, the school district has saved $1.2 million in premiums over the last four years, Kankel said. The district pays an average premium of $445 an employee per month.
“There’s no great mystery in saving money on health insurance,” she said. “You have the cost of the claims plus the cost to pay the claims. With self-insurance, you knock out marketing and other costs.”
The city of South Lake Tahoe insures 186 employees and their dependents, according to Dick Anderson, the city’s general services director. The city pays a monthly premium of $424 for employees with dependents, and $189 for single employees, but the amount may have to be adjusted, he said.
“We also had a high number of claims this year,” Anderson said. “I’ve talked to a majority of my colleagues around the state, and this last year has been horrendous. And it’s not just medical inflation; I don’t know what it was.”
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