Town Council - Regular Meeting

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The biggest advantage for you is plan flexibility. Uh, as you know, again, going back to the analogy of a vehicle or a home, you buy a product off the shelf, right? They give you a $500 deductible, a $1,000 deductible, do you want a rental card, do you want a glass replacement, and do you want a co-ay with that or not? Well, the same thing occurs insurance. You you look at what is available by the carrier, you purchase that, they define what the benefit is. Well, modern, larger, more sophisticated employers, they want more control over that. They want to identify plans that meet the needs of their population. They want to install programs and services that meet the needs of their employees from a traction and a retention perspective, but they also want to put plans in place to mitigate potential risk within the plan. And so a self-funding environment when it's built properly gives you the plan flexibility that you don't have today. And then of course, everyone focuses on surplus attention. But I want to just caution everybody when you move from fully insured to self-funding, you haven't fundamentally done anything different about your risk. Think about it. Going back to your vehicle, just because you transfer the risk to an insurance company versus if you take that risk, your vehicle did not change the val the cost of your vehicle. The cost to replace your vehicle remains the same. Correct? Same thing in health insurance. And so I don't want folks to walk away, well just by simply self-funding we're going to save 7% 10% over the market. That's not that's not the goal. The goal is to obtain more data, obtain more self-control, put measures in place that will help you manage your risk. And then over a period of time, three, five, 10 years, you're going to be able to manage your cost better. and as a result, you'll be able

to keep the surplus uh because of your plan running well versus pushing it back to an insurance carrier. I hope that makes sense. Okay, so move forward. Uh this is a bit more detail. Uh again, I won't go into uh too much information here outside of one thing that I'll point out. Um and in the town is very equipped to do this, very much has the knowledge and understanding of this in a self in a fully insured market. It's it's very predictable. On a monthly basis, you know what your premium is, right? You know, on a quarterly basis, a bianual basis or an annual basis, your premium is X. Uh in a self-funded market, claims are coming in literally every day. And so, there's some fluctuations within the claims, right? You might have a big hospital claim this week, a lot of pharmacy claims next week. Maybe it was a holiday and it was a very quiet week, right? someone unfortunately has a car accident and the claims go up and so there's some fluctu some fluctu fluctuation um I was going to say flexibility but I don't I trying to combine two words that don't work but there's fluctuation in that claims and so the the town uh Selena very well equipped to understand that we have predictive models that will help the town uh establish what is an appropriate funding so that you can smooth that out over time

again. A couple of more. Uh certainly you can read these things. This is rather detailed, but I'll move along. Um and then as I've said, uh I think the microphone's on, so if you want to Is it pull it a little closer? I think a little bit closer. I can step closer. Yes, Casey. Yeah, we're good. Yeah. So, just pull that closer and make sure it's on on top or Casey. Yes, please. Thanks.

I just need to get closer. Okay. Uh and the final thing here, uh one of the things that I want to point out here, I talked about stop-loss, right? That's this catastrophic insurance that the town will purchase on top of its self-funded plan, right? To uh protect the town from potential catastrophic liabilities. There's a couple variations in there. Certainly be happy to spend some time with you, but it's technical insurance uh stuff. It's called individual stop-loss as well as aggregate stop-loss. But what I really want to point out about this slide is the year one funding. Again, I want to make sure that expectations are correct. Uh, as you imagine in the first year in Selena and in the in the town, the financial folks are very much understand this and are prepared for this, but in that first year, you have to build reserves, right? And so when you look at the funding and and and I won't step outside my lane here, uh but you'll certainly see that within the funding projections, you'll see likely an increase in that first year from a overall funding perspective to make sure that you have the reserves should there be some high claims in that first year. Now the offset of that is if you have a good year, you have a good couple of years. other municipalities that I've worked worked for, uh, when they have a bad claims year, they can reach into their reserves and they can use those reserves to offset some of the increases that they're seeking in the market. And ultimately, that is one of the greatest benefits of self-funding. And then the last thing here, I I've mentioned a couple of these things. the the the probably the the thing that I want to point out I've spoke about a couple of them but the one other thing that I want to point out here I it and you don't have to be an expert in insurance or health insurance in our country all you have to do is experience

it yourself and and maybe read a little bit in the newspaper or watch the news but uh there's a lot of misalignments I I'll use that term I think it's a fairly neutral term uh misalignment within the health care space there's a lot of um dollars that are moving around in a in a less than transparent way and you as as a payer, the town is a payer for employee health insurance for your employees. One of the advantages of self-funding is sort of faring out some of the misalignments in the health care and the insurance industry. And one of the things that we'll work with um the the different partners to to benefit the town is making sure specifically on the pharmacy side. Uh in fact uh you if you've seen the Trump administration recently has been addressing the PBM uh regulations and uh they've put out some new guidance here to make sure that there's 100% transparency. there's pass through pricing. Uh so all of those dollars will come back to the town and that's something that you do not uh you're not able to take advantage of today. All of those rebate dollars uh some of the misalignment with behind the scenes, all of those dollars go back to the carrier today. But those dollars will come back to you and you'll be able to use those dollars to offset your risk. Back to Shauna. Okay. where we are today in terms of navigating the change from fully insured to self-funding is really looking at engaging a thirdparty administrator to continue with our current network with United. Um that way we will be focused on minimizing the disruption to our employees and really the change will be financial in nature. Um there will be some programmatic changes and a little bit of plan change as we move into

self-funding. Um, but for the most part, we're looking at minimizing any of that disruption to make this this jump. Um, we are continuing to explore whether or not an internal service fund or section 115 agreement trust is going to be the best opportunity for the town to make sure that we are legally compliant with self-funding and all of the regulations as well as fiscally conservative and responsible as part of this process. So, our next steps in terms of timeline, um, today we're here just to receive any feedback that you might have on this initiative and we would expect over the next few weeks to receive both our self-funding, our stop-loss, and our fully insured renewal rates so that we can begin working with Dave and his team on modeling and ensuring that this is going to be the right time for us to make this jump. Um if we are continuing to move forward, we will look at implementing that thirdparty administrator ahead of our open enrollment in May for a fully um well a self-insured plan year starting on July 1. That we'll uh take any questions that you might have.

Council, we have any questions for staff? Go ahead. So that was July of this year that you're thinking it's going to be happening. Um, so is this like an umbrella policy and it includes everything from liability to property to we're uh we are looking specifically at health insurance for self-funding. Um, we are not looking at doing any self-unding for our property liability or workers comp. That is a separate policy under the Arizona Municipal Risk Retention Pool. Um, so specifically for our medical insurance and moving forward,

I just it um overwhelms me when you go to the doctor anymore and you're thinking maybe a procedure is going to cost 4,000 and you get the hospital bill alone and it's 25,000 plus the surgeon plus the anesthesiologist plus the laboratory work and you're like, whoa. You know, things have just gone completely out of control of what you end up paying and that's with insurance. So, I'm trying to visualize what it would be like with being self-funded. We still have our um health insurance for now. Will we always have health insurance through another company like um Blue Cross Blue Shield or something like that as well? It's it's separated, right?

Yes. So now I'm going to turn over to Dave to talk a little bit about the difference between the third party administrator and your network which is going to be the carrier like United or Blue Cross Blue Shield. That's the part I guess I'm getting kind of confused on.

Yeah. I just try to make it hopefully a little bit uh more simple. Self-funding to fully insured, you're literally just simply changing who pays the bill. Now there's some nuances in there. Um, and they're important, but in in the most fundamental way, it's simply the town is going to pay for the claims versus an insurance carrier is going to pay for the claims. Now, the town doesn't actually pay claims. So the town is going to contract with a third-party administrator and that third party administrator is going to utilize the United Health Care Network which is what is utilized today and they're going to use that network to pay the claim. So that example that you gave that hospital the anesthesiologist the physician the ambulance driver everybody else it's going to submit the claim to the third party administrator. They're going to adjudicate what the true cost is according to the contract. The third party administrator is going to then pay that claim and then they're going to reach out to the town and ask for the town to fund those dollars.

And I as an employee or a person, a patient having to use those services, you still have a co-pay for your deductible to begin with every year.

Um, and then I know you were well, so you kind of threw in the vehicle thing and it threw me. So I was like, oh, we're doing everything. Um, and I know if as a uh private individual, usually you have to be in millionaire status to be self-insured. Um, you know, I I couldn't do it on my income right now. That's what I'm saying. Um, do we have the money and the funds already retained like in a separate account just for that? Um, so we we would be having a third party administrator. That means it would not be handled in house per se and it wouldn't be our employee. It would be an outside employee. So we have do we have to have the funds in place before this all transessions over to it and and like is there is there a minimum that we have to come up with in order to be able to do that? I mean the town's big so you know what I mean it's like I'm not thinking just one individual. I'm thinking well now times however many in place.

I'd be outside my lane to address that. So I'll turn to someone shorter mayor vice member members of council. Um thank you for the question. We are looking at different um modeling um proformals I'll call them. And so what we plan to do is come to council with a recommendation for seed money to do the reserve and then the rest we can actually build into the premium but we don't really have enough information to show you that today. And so we'll have a couple different options on how we can build the reserve over time. Gotcha. Thank you so much. But it's a great question.

Mr. Mayor, could I I just want to stress a couple points. One is the town Shauna Tan and I are not handling claims like we we are not reviewing uh recommendations from doctors. We are not approving people's medical procedures. That is what is all going to be handled by this third party administrator. Interestingly, um, United Healthcare, which is our provider, they are the large, I believe the largest in the country, they've got a subsidiary component of United Healthcare called UMR, and that is who we're going to be working with. They they're set up to work with jurisdictions like ourselves that are going to be self-insured. So they there's a whole component of United Healthcare that works with self-insured entities. Um that doesn't so long-term we we can go back out to bid and that's something we'll talk about in the future of looking at you know whether it's Blue Cross, Etna, any of the others. Um, so we're not wedded to United Healthcare, but because we're with United Healthcare, it is helping us to be able to set up this self-funded model because uh, United has this whole subsidiary called UMR. So that's kind of why why this actually it's kind of, you know, per good alignment for us to be able to to move uh, in that regard. Um, the other thing is if we could just explain a little bit more the difference between a 115 trust account and an internal service fund so that the council really understands that difference.

Absolutely. Mayor, vice mayor, members of council, just as a highle overview, there are advantages and disadvantages to both. Um, an internal service fund would actually be just a separate fund within our financials and we would operate it similar to like a utilities or an enterprise fund. So, we would actually segregate dollars into that fund and then run the self- insurance through there. It would be pretty much the equivalent of an insurance company. You know, section 115 would operate the same way, but it has different advantages where if you were to allocate money, for example, a million dollars to the reserve, that would be part of the section 115 only available for the medical plan. And so we it it would only be able to be used for self insurance. So if something like an internal service fund, if we needed to do a loan from the general fund to the internal service fund, you could do that, but you couldn't do it with section 115. And so sometimes it provides you um some assurance where the money is set aside. So if there was um a liability or something, those assets wouldn't be subject to to that to that liability. Does that kind of give you an idea? It's kind of just segregating it to a separate entity.

You're welcome. Anything else? None. Thank you. Have a good night.