Self Insured Feasibility Study Bernard Township Board...

Self Insured Feasibility Study Bernard Township Board of Education October 18, 2017

ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™

Fully Insured vs Self Insured Current market landscape

PPO

50%

17%

6%

18%

50%

83% 82%

94%

200-999 1,000-4,999 5,000 + All Firms

Percen

tag

e o

f E

mp

loy

ers

Insured Self-insured

Source:Kaiser/HRET Survey 2016

2


Fully Insured vs. Self Insured Comparison Key Considerations

Considerations Fully Insured Self Insured

Who holds the risk? Carrier; employer liability limited to premium

Employer; risk may be limited by stop-loss insurance (individual/aggregate)

Who is responsible for paying the claims? Carrier Carrier / Third Party Administrator (TPA)

Who is responsible for claims upon termination?

Carrier retains liability upon termination Employer retains liability upon termination (depends on contract in place)

Who controls the reserves? Carrier Employer discretion

How does cash flow work? Fixed, budgeted amount Initial gain; subject to fluctuation

What are the cost components?

Premium includes: - Incurred claims - Pooling Charge - State Taxes - HCR PCORI & Reinsurance Fees - HCR Insurer Assessment Tax - Expenses - Risk Charge/Profit margin

Budgeting includes: - Paid claims - Expenses - HCR PCORI - Specific Stop Loss (equates to pooling) - Aggregate Stop Loss (optional) - Fluctuation margin (optional)

Who controls plan design? Subject to State Department of Insurance Complete flexibility, subject to Federal ERISA

Who is responsible for ACA reporting? Carrier Employer (can outsource to ACA vendors)

Who is the plan fiduciary? Carrier Employer (can purchase fiduciary coverage)

Banking Agreement Limited employer involvement Claim check drawn against employer’s benefit fund account

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Fully Insured vs Self Insured Advantages and Disadvantages

Advantages • Insurance carrier assumes risk

• Carrier acts as fiduciary and handles appeals and litigation

• Known monthly premium liability for employer

• Carrier provides full service package

• Carrier completes most ACA reporting

Disadvantages

• Underwriting more conservative

• State premium taxes (3%) paid on all premiums

• ACA Insurer Assessment Fee ( ̴3%)

• Carrier funds and holds all reserves

• Pay carrier profit margin

Advantages • All claim reserves held by employer

• No state premium taxes or ACA Insurer Assessment Fee

• Minimized insurance regulations (state law pre-empted by ERISA)

• Increased flexibility in plan design and benefits administration

• Potential for increased flexibility in negotiating service fees

• Elimination or reduction of risk charges

• If favorable claims experience, employer retains unapplied funds

Disadvantages • Fluctuation of monthly funding liability

• Need to purchase stop loss coverage to cap claim liability

• All services arranged by employer and/or consultant

• Employer acts as claim fiduciary and is responsible for litigation

‒ Administrators may assume claim fiduciary for an additional cost (typically $1 per employee per month)

• Required to establish a bank account for claims and pay administration separately

• ACA reporting and fees are handled by the employer (PCORI, Reinsurance Assessment Fee)

Fully Insured Plans Self-Insured Plans

4


Medical Experience Rollup Yearly Comparison

5

Month ContractsIncurred Medical

Claims

Incurred Rx

Claims

Total Incurred

ClaimsPremium Loss Ratio

Jan-14 727 $739,325 $122,746 $862,071 $874,470 98.6%

Feb-14 724 $672,659 $145,405 $818,064 $873,633 93.6%

Mar-14 725 $606,653 $165,511 $772,164 $874,654 88.3%

Apr-14 725 $615,778 $156,236 $772,014 $874,975 88.2%

May-14 724 $899,188 $139,364 $1,038,552 $874,054 118.8%

Jun-14 719 $632,050 $205,335 $837,385 $870,022 96.2%

Jul-14 703 $613,378 $138,036 $751,414 $899,304 83.6%

Aug-14 705 $727,223 $140,744 $867,967 $902,306 96.2%

Sep-14 723 $663,153 $190,896 $854,049 $915,826 93.3%

Oct-14 721 $688,013 $148,744 $836,757 $916,217 91.3%

Nov-14 719 $667,901 $121,710 $789,611 $913,288 86.5%

Dec-14 718 $541,179 $188,540 $729,719 $908,287 80.3%

Jan-15 721 $740,248 $144,946 $885,194 $906,647 97.6%

Feb-15 720 $764,942 $142,382 $907,324 $907,672 100.0%

Mar-15 718 $671,792 $222,384 $894,176 $904,188 98.9%

Apr-15 719 $700,897 $126,880 $827,777 $904,246 91.5%

May-15 715 $757,448 $148,554 $906,002 $900,549 100.6%

Jun-15 713 $742,324 $213,762 $956,086 $897,004 106.6%

Jul-15 719 $594,179 $141,601 $735,780 $1,024,511 71.8%

Aug-15 716 $1,033,697 $220,837 $1,254,534 $1,024,399 122.5%

Sep-15 728 $627,659 $183,123 $810,782 $1,039,957 78.0%

Oct-15 725 $582,664 $194,109 $776,773 $1,034,365 75.1%

Nov-15 720 $724,514 $238,082 $962,596 $1,029,561 93.5%

Dec-15 713 $685,422 $216,487 $901,909 $1,018,160 88.6%

Jan-16 714 $499,331 $197,054 $696,385 $1,023,139 68.1%

Feb-16 716 $587,169 $212,834 $800,003 $1,023,984 78.1%

Mar-16 716 $663,274 $177,817 $841,091 $1,025,346 82.0%

Apr-16 713 $690,986 $220,188 $911,174 $1,020,630 89.3%

May-16 708 $1,039,051 $230,255 $1,269,306 $1,017,085 124.8%

Jun-16 705 $789,233 $179,959 $969,192 $1,014,061 95.6%

Jul-16 711 $781,450 $209,095 $990,545 $1,123,748 88.1%

Aug-16 709 $759,263 $195,582 $954,845 $1,070,013 89.2%

Sep-16 708 $792,086 $224,671 $1,016,757 $1,029,114 98.8%

Oct-16 708 $634,208 $197,276 $831,484 $1,030,128 80.7%

Nov-16 705 $830,132 $164,890 $995,022 $1,026,222 97.0%

Dec-16 707 $696,633 $182,823 $879,456 $1,020,562 86.2%

Total CY 2014 8,633 8,066,500 1,863,267 9,929,767 10,697,036 92.8%

Total CY 2015 8,627 $8,625,786 $2,193,147 $10,818,933 $11,591,259 93.3%

Total CY 2016 8,520 $8,762,816 $2,392,444 $11,155,260 $12,424,032 89.8%


Medical Experience Rollup Period Comparison

- Loss Ratio’s over the past 2 periods have been about 90%

- The total claim spend has increased by over $0.1 since the last experience period - The population has remained relatively stable over time

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Month ContractsIncurred Medical

Claims

Incurred Rx

Claims

Total Incurred

ClaimsPremium Loss Ratio

Jul-15 719 $594,179 $141,601 $735,780 $1,024,511 71.8%

Aug-15 716 $1,033,697 $220,837 $1,254,534 $1,024,399 122.5%

Sep-15 728 $627,659 $183,123 $810,782 $1,039,957 78.0%

Oct-15 725 $582,664 $194,109 $776,773 $1,034,365 75.1%

Nov-15 720 $724,514 $238,082 $962,596 $1,029,561 93.5%

Dec-15 713 $685,422 $216,487 $901,909 $1,018,160 88.6%

Jan-16 714 $499,331 $197,054 $696,385 $1,023,139 68.1%

Feb-16 716 $587,169 $212,834 $800,003 $1,023,984 78.1%

Mar-16 716 $663,274 $177,817 $841,091 $1,025,346 82.0%

Apr-16 713 $690,986 $220,188 $911,174 $1,020,630 89.3%

May-16 708 $1,039,051 $230,255 $1,269,306 $1,017,085 124.8%

Jun-16 705 $789,233 $179,959 $969,192 $1,014,061 95.6%

Jul-16 711 $781,450 $209,095 $990,545 $1,123,748 88.1%

Aug-16 709 $759,263 $195,582 $954,845 $1,070,013 89.2%

Sep-16 708 $792,086 $224,671 $1,016,757 $1,029,114 98.8%

Oct-16 708 $634,208 $197,276 $831,484 $1,030,128 80.7%

Nov-16 705 $830,132 $164,890 $995,022 $1,026,222 97.0%

Dec-16 707 $696,633 $182,823 $879,456 $1,020,562 86.2%

Jan-17 704 $727,167 $177,019 $904,186 $1,021,677 88.5%

Feb-17 707 $663,807 $170,784 $834,591 $1,021,785 81.7%

Mar-17 703 $746,359 $200,747 $947,106 $1,022,232 92.7%

Apr-17 701 $702,134 $144,178 $846,312 $1,021,421 82.9%

May-17 699 $809,344 $234,572 $1,043,916 $1,017,297 102.6%

Jun-17 700 $739,317 $211,861 $951,178 $1,019,537 93.3%

Period 1 (July 2015 - June 2016) 8,593 $8,517,179 $2,412,346 $10,929,525 $12,295,198 88.9%

Period 2 (July 2016 - June 2017) 8,462 $8,881,900 $2,313,498 $11,195,398 $12,423,736 90.1%


Fully Insured vs Self-Insured Comparison Estimated Costs & Potential Savings

Pro

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Re

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al P

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$

14

.7M

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cted

Total C

ost

$1

3.3

M

Fully Insured Cost Components 2018

Self-Insured Cost Components 2018

Pooling: $887,000

Estimated Claims (Including Pooling Write-Off):

$12,091,000

Estimated First Year Claims (Including PBM Savings):

$12,287,000

ASO & HCR Fees: $426,000 Retention/HCR Fees & Taxes: $1,752,000

Savings: $1,460,000 (9.9%)

SSL & ASL Stop Loss : $556,000

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IBNP Reserves: $1,280,000


Fully Insured vs. Self Insured Comparison Side by Side Comparison

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2018 2019 2020 2018 2019 2020

PEPM

Claims $1,460.98 $1,555.93 $1,657.06 $1,460.98 $1,555.93 $1,657.06

Retention/ASO Fee $134.08 $142.81 $152.12 $49.50 $51.98 $54.57

Pooling/Stop Loss ($300K 12/15) $103.94 $110.71 $117.93 $65.14 $72.96 $81.71

ACA PCORI Fee $0.45 $0.48 $0.00 $0.45 $0.48 $0.00

ACA Health Insurer Fee $39.33 $54.65 $58.21 $0.00 $0.00 $0.00

Premium Tax $31.47 $33.52 $35.71 $0.00 $0.00 $0.00

Pooling Write-Off ($43.89) ($32.91) ($24.69) $0.00 $0.00 $0.00

PBM Savings (w/ Rebates) $0.00 $0.00 $0.00 ($20.84) ($23.98) ($26.33)

Subtotal Retention and Fees $265.39 $309.26 $339.29 $94.25 $101.43 $109.96

Total Expense $1,726.37 $1,865.20 $1,996.34 $1,555.24 $1,657.36 $1,767.01

Annual Expense

Claims $12,465,092 $13,275,220 $14,138,000 $12,465,092 $13,275,220 $14,138,000

Retention/ASO Fee $1,143,933 $1,218,497 $1,297,922 $422,334 $443,451 $465,623

Pooling/Stop Loss $886,791 $944,593 $1,006,164 $555,774 $622,467 $697,164

ACA PCORI Fees $3,881 $4,075 $0 $3,881 $4,075 $0

ACA Health Insurer Fee $335,603 $466,276 $496,668 $0 $0 $0

Premium Tax $268,525 $286,028 $304,672 $0 $0 $0

Pooling Write-Off ($374,431) ($280,823) ($210,617) $0 $0 $0

PBM Savings (Rebates) $0 $0 $0 ($177,815) ($204,585) ($224,634)

Subtotal Retention and Fees $2,264,301 $2,919,469 $3,105,425 $804,174 $865,408 $938,153

Total Expense $14,729,393 $16,194,689 $17,243,426 $13,269,265 $14,140,628 $15,076,153

Self-Funded Savings* $1,460,127 $2,054,061 $2,167,273

Self-Funded Savings (Excluding ACA Fee)* $1,124,525 $1,587,785 $1,670,604

Assumptions

Contracts: 711

Medical Trend: 5.2% medical, 9.8% pharmacy (6.5% combined)

Fully Insured Retention Based on 2017 Horizon BCBS renewal. Trend of 5.0% for retention, 12.0% for pooling charge @ $200,000

Self-Funded Retention Stop loss fee is using quote provided by Symetra

Fully Insured Write Off Assumed to reduce each year given less leverage in negotiations

Medical/Rx Savings Estimated $1,168,000 of Medical savings and $292,000 of Rx savings

*Savings are subject to claims volatility and are not guaranteed.

Fully Insured Self-Funded



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2018 2019 2020 2018 2019 2020

PEPM

Claims $1,460.98 $1,555.93 $1,657.06 $1,460.98 $1,555.93 $1,657.06



ACA PCORI Fee $0.45 $0.48 $0.00 $0.45 $0.48 $0.00


Premium Tax $31.47 $33.52 $35.71 $0.00 $0.00 $0.00




Total Expense $1,726.37 $1,865.20 $1,996.34 $1,567.37 $1,670.95 $1,782.23

Annual Expense

Claims $12,465,092 $13,275,220 $14,138,000 $12,465,092 $13,275,220 $14,138,000


Pooling/Stop Loss $886,791 $944,593 $1,006,164 $659,268 $738,380 $826,985

ACA PCORI Fees $3,881 $4,075 $0 $3,881 $4,075 $0


Premium Tax $268,525 $286,028 $304,672 $0 $0 $0



Subtotal Retention and Fees $2,264,301 $2,919,469 $3,105,425 $907,667 $981,320 $1,067,975

Total Expense $14,729,393 $16,194,689 $17,243,426 $13,372,759 $14,256,541 $15,205,975


Self-Funded Savings (Excluding ACA Fee)* $1,021,032 $1,471,873 $1,540,783

Assumptions

Contracts: 711





Medical/Rx Savings Estimated $1,085,000 of Medical savings and $271,000 of Rx savings





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2018 2019 2020 2018 2019 2020

PEPM

Claims $1,440.71 $1,534.62 $1,634.65 $1,440.71 $1,534.62 $1,634.65



ACA PCORI Fee $0.45 $0.48 $0.00 $0.45 $0.48 $0.00


Premium Tax $31.47 $33.52 $35.71 $0.00 $0.00 $0.00




Total Expense $1,706.10 $1,843.89 $1,973.94 $1,566.34 $1,671.19 $1,783.96

Annual Expense

Claims $12,292,169 $13,093,398 $13,946,853 $12,292,169 $13,093,398 $13,946,853


Pooling/Stop Loss $886,791 $944,593 $1,006,164 $823,423 $922,234 $1,032,902

ACA PCORI Fees $3,881 $4,075 $0 $3,881 $4,075 $0


Premium Tax $268,525 $286,028 $304,672 $0 $0 $0



Subtotal Retention and Fees $2,264,301 $2,919,469 $3,105,425 $1,071,822 $1,165,175 $1,273,892

Total Expense $14,556,470 $16,012,867 $17,052,278 $13,363,992 $14,258,573 $15,220,744


Self-Funded Savings (Excluding ACA Fee)* $856,876 $1,288,018 $1,334,866

Assumptions

Contracts: 711





Medical/Rx Savings Estimated $954,000 of Medical savings and $238,000 of Rx savings




Data Quality and Risk Factors Observations & Considerations

• Funding levels • Current Horizon BCBS funding levels are potentially inadequate (based on loss ratio’s)

• Showing loss ratio’s in low 90% range.

• Claim Estimates • Claim projections were made based on Horizon BCBS’s incurred claims

• This analysis is dependent on the reserve factors used by Horizon BCBS (may be inflating claims)

• This could positively affect the Township cash flow

• Stop loss payment timing • Payments for large claims may come 2 – 3 months after a claim has been processed.

• This will negatively affect the Township cash flow

• Prescription Drug Rebates • Current claim projections include Rx rebates

• These rebates may also be subject to a 2 – 3 month lag in payment due to processing.

• This could positively affect the Township cash flow

• Healthcare Trend rate • We have used an estimated 6.5% total trend for claims based on our National trend study

• Horizon BCBS has historically used trends between 8 and 10%

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Cash Flow Scenario Estimated CF (Moderate Scenario)

- Claim Reserves will build up in early years as the claims are immature and start to complete 2 – 3 months later

- Timing of drug rebates should be a consideration as well

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Year Date Reserve (BOY)* Bernard Premium Expected Incurred Claims Expected Paid Claims** Reserve (EOY)

2018 Jan week 1 0 282,738$ 286,158$ 66,036$ 216,701$

Jan week 2 216,701$ 282,738$ 286,158$ 88,049$ 411,391$

Jan week 3 411,391$ 282,738$ 286,158$ 132,073$ 562,056$

Jan week 4 562,056$ 282,738$ 286,158$ 264,146$ 580,648$

February 580,648$ 1,130,951$ 1,144,631$ 934,990$ 776,610$

March 776,610$ 1,130,951$ 1,144,631$ 1,035,550$ 872,010$

April 872,010$ 1,130,951$ 1,144,631$ 1,080,710$ 922,252$

May 922,252$ 1,130,951$ 1,144,631$ 1,099,317$ 953,886$

June 953,886$ 1,130,951$ 1,144,631$ 1,104,668$ 980,169$

2018 July 980,169$ 1,244,046$ 1,150,202$ 1,110,045$ 1,114,170$

August 1,114,170$ 1,244,046$ 1,155,801$ 1,115,448$ 1,242,768$

September 1,242,768$ 1,244,046$ 1,161,427$ 1,120,878$ 1,365,937$

October 1,365,937$ 1,244,046$ 1,167,080$ 1,126,334$ 1,483,649$

November 1,483,649$ 1,244,046$ 1,172,761$ 1,131,816$ 1,595,880$

December 1,595,880$ 1,244,046$ 1,178,470$ 1,137,325$ 1,702,601$

January 1,702,601$ 1,244,046$ 1,184,206$ 1,142,861$ 1,803,786$

February 1,803,786$ 1,244,046$ 1,189,970$ 1,148,424$ 1,899,408$

March 1,899,408$ 1,244,046$ 1,195,762$ 1,154,014$ 1,989,440$

April 1,989,440$ 1,244,046$ 1,201,583$ 1,159,632$ 2,073,854$

May 2,073,854$ 1,244,046$ 1,207,432$ 1,165,276$ 2,152,625$

June 2,152,625$ 1,244,046$ 1,213,309$ 1,170,948$ 2,225,723$

*Estimated reserve should be approximately $1.3M based on 1.25 months of claims

**Completion factors based on BCBS bulk feed


Cash Flow Scenario Estimated CF (Moderate Scenario) cont’d

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$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Yearly Cash Flows (Moderate Scenario)

Reserve (BOY)* Bernard Premium Equivalent Expected Paid Claims**


Aggregate Attachment Point Amounts in excess of expected claims

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- Under all three stop loss levels, there is a less than 1% chance of aggregate claims exceeding 125% of expected claims

- These probabilities are based on 1,000 claim simulations run for each stop loss level

- These probabilities are based on a 90% confidence interval

Probability $200K Stop Loss Level

Difference between

actual and expected

% above Expected

Claims

0.1% $15,365,212 $3,073,042 25%

0.5% $14,692,527 $2,400,357 20%

1.0% $14,588,098 $2,295,929 19%

2.5% $14,037,541 $1,745,372 14%

5.0% $13,778,176 $1,486,006 12%

10.0% $13,464,672 $1,172,503 10%

25.0% $12,880,314 $588,145 5%

Expected Claims $12,292,169


Difference between

actual and expected

% above Expected

Claims

0.1% $15,581,365 $3,289,195 25%

0.5% $15,120,196 $2,828,026 21%

1.0% $14,792,884 $2,500,715 19%

2.5% $14,358,599 $2,066,430 15%

5.0% $14,094,340 $1,802,170 13%

10.0% $13,717,996 $1,425,827 10%

25.0% $13,111,779 $819,609 5%



Difference between

actual and expected

% above Expected

Claims

0.1% $15,663,093 $3,370,923 25%

0.5% $15,357,819 $3,065,649 23%

1.0% $14,961,799 $2,669,630 19%

2.5% $14,532,552 $2,240,383 16%

5.0% $14,268,390 $1,976,221 14%

10.0% $13,869,961 $1,577,792 11%

25.0% $13,187,244 $895,074 5%


Thank you!

This analysis is for illustrative purposes only, and is not a proposal for coverage or a guarantee of future expenses, claims costs, managed care savings, etc. There are many variables that can affect future health care costs including utilization patterns, catastrophic claims, changes in plan design, health care trend increases, etc. This analysis does not amend, extend, or alter the coverage provided by the actual insurance policies and contracts. See your policy or contact us for specific information or further details in this regard.

Self Insured Feasibility Study Bernard Township Board...

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