MORGANTOWN — Morgantown Finance Director Jonathan Fergison said the next six months or so will likely determine the fate of the city’s self-funded insurance plan.
A historically high number of claims sustained over the last six months have depleted the plan’s cash reserves and forced the city to begin shifting money around.
If this trend doesn’t change significantly by the June 30 end of the fiscal year, “then we start exploring other options,” Fergison told Morgantown City Council.
Under the current system, the city acts as its own insurance company, assuming the financial risk of providing health care benefits to city employees.
Basically, employees contribute to the plan, as does their employer – the city, BOPARC, the Morgantown Parking Authority and the Morgantown Public Library.Then, depending on the particulars of the plan, once employee deductibles are met, it’s the city that receives the bills, not an insurance company. The city plan is backed by a stop-loss insurer that kicks in once the city pays out $100,000 for a covered individual (employee or dependent) in a year. However, that insurer has the ability to carve specific people out each year due to extreme chronic illness or high claims the year prior.
This setup cuts two ways.
Because of the small risk pool, or number of participants, the influx of claims against the plan has historically been cyclical and somewhat predictable, allowing an ebb and flow of funds into and out of the city’s Life and Health Insurance Plan.
“That also comes with a potential risk of, yes, we can have higher than normal claims and we can run out of money, which is where we are right now,” Fergison said. “So, it does have its upsides and it does have its downsides, and we are currently looking at a downside.”
To remedy the situation in the short term, council approved the transfer of $3,315,040 out of its Financial Stabilization Fund to repay $1.45 million already borrowed from the city’s general fund to cover costs. The remainder is going into the insurance plan to cover IBNR, meaning the costs have been incurred but the bill hasn’t arrived.
“IBNR is an estimated liability of approximately three months worth of claims,” Fergison said, noting the minimum cash reserves needed to cover claims for three months is about $1.8 million.
The move depletes the city’s financial stabilization fund by just under 60%, leaving $2,276,609 in emergency reserves.
“This is an emergency, and this is why I’m so hesitant to utilize it any other time, but we’re talking about half of our current fund for the next six months, maybe, we hope,” Councilor Danielle Trumble said. “What will be the plan moving forward?”
Fergison said he’s put together a three-step process that will start with drilling down on exactly what the employer cost is per month, per plan type.
“That has not changed by the city for over two years now. So, it is due for an increase. It was not changed for a two-year period because the peaks and valleys were pretty level, pretty predictable – but we are no longer there,” he said.
Secondly, a committee will be formed including representatives from city council, city administration and the various employers to review the performance of the self-insured plan each month.
Fergison said the goal would be to start repaying money back to the financial stabilization fund in the next six months and fully repay the “borrowed” funds within one year.
However, if the upward trend in claims doesn’t equalize and the city cannot make progress to that end in the next six months, Fergison said council may eventually need to make a tough decision to start looking at commercial insurance.
The outcome of this situation, he said, will be incredibly important for city employees as well as the city as an employer.
“If you compare just gross wages alone, the city is not really up to what we call “market.” But yet, once you consider the health insurance we provide as a benefit and also our retirement, because we have a defined benefit plan, then we are at market. So, we compete that way,” he said.
