Deficit forces Ashland to rethink self-insurance

The city of Ashland is looking to end its self-insured health benefits program to avoid a $1.4 million deficit next fiscal year, but it could leave city employees with higher premiums and fewer benefits in 2020.

“We don’t know where the premiums are going to be after this,” said Mark Welch, the city’s finance director. “For the next 18 months, we could say it’s a financial gain for the city. After that, we don’t know.”

Ashland shifted to self-insurance in 2013 to avoid a 10 percent spike in costs of using an insurance company as a middleman. The council and city administrator at the time applauded the effort.

“But it didn’t go as we planned it,” Welch said.

The self-insured program covering 800 individuals, including staff, their dependents, city councilors and the city recorder, has run a deficit every year, which has required a city interfund loan of roughly $500,000 to balance out. It also left the city without a health care reserve fund.

The trend got worse this year — as of Feb. 28, the city faced a $26,000 deficit in its health insurance program, even after factoring in the loan.

According to the city health insurance consultant’s analysis, that deficit will grow to $63,000 by the end of March. By the 2018-19 fiscal year, the health care cost will demand a 37 percent increase — or run a $1.4 million deficit.

Staff called the situation “alarming” in its report, which was scheduled to be presented to the council at its study session Monday night. Its proposed solution is to rejoin City County Insurance Services (CIS) — a self-insurance trust program it left five years ago.

The shift would provide the city the same level of benefits through Blue Cross Regence Network instead of the city’s current provider, Pacific Source.

CIS is asking for lower premiums, which would save the city almost $1 million, Welch said. The contract would kick in July 1 and run through December 2019.

The drawback is a potential increase of 10 to 20 percent in deductibles and insurance copays after the 18-month plan, according to the staff report.

“In 18 months, our benefits offering will be closer aligned to other cities and counties in the state,” Welch said, indicating a drop in benefits for city employees.

Under the current labor contract, the insurance premium allocation is split at 95 percent city contribution and 5 percent employee contribution. According to the analysis, Ashland’s health care plan is considered “superior” with better benefits “in essentially every category” compared to other similar jurisdictions.

By being self-insured, the city is obligated to pay all claims incurred up to $150,000 per participant. Within the first eight months of the 2017-18 fiscal year, the city paid out more than $422,000 in claims above premiums received, the staff report says. The city is also anticipating bills between $700,000 and $1 million for incurred but not reported claims, while it only has $472,616 in reserve.

“If we continue with this, we would have to see operational changes or cuts in services,” Welch said.

By rejoining CIS — a larger self-funded insurance trust program with a larger number of participants — the city will be able to offset its overhead costs and dilute its financial risks. CIS would also provide quarterly claim data to help the city predict trends — a feature that wasn’t available in 2013 that was a factor in Ashland leaving the program.

According to its website, CIS Oregon supports 98 percent of cities and more than 78 percent of counties in Oregon with at least one type of coverage. Ashland has had its property and liability insurance program with CIS Oregon for a number of years.

“The 18 months will give us time to communicate with staff about the changes in their health benefits,” Welch said.

Reach reporter Tran Nguyen at 541-776-4485 or Follow her on twitter @nguyenntrann.

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