Since I became County Executive, I have confronted many challenges but there has not been a more difficult or complex issue as the spiraling costs of health insurance for employees. Whether in the private or public sector the issues that are driving health insurance costs are varied and in many cases are things that are totally out of our control. However, there are approaches that employers and employees can do to hold down costs and at the same time protect the value of their health insurance coverage.
In spite of Chautauqua County being in an area of limited competition among health insurers, the restrictions of a collective bargaining agreement and a large public-sector entity, we have achieved both significant costs savings and an improved health insurance product for our employees. I would like to summarize the specific successes and how they were achieved.
As with any successful approach, this has been a team effort. Under the leadership of Finance Director Darin Schulz and his staff, and in conjunction with our employees and health insurance broker Flexcare Inc., we have accomplished the following objectives:
Health Insurance Costs
In the five-year period of 2007 through 2011 the county's health insurance premiums have increased an average of 6 percent per year. The regional trend for that same period of time has been in the range of 10-14 percent increase each year.
Using a very conservative figure of 10 percent, Chautauqua County has avoided 2.4 million dollars in premium increases that would have been spent in 2011. For the entire period from 2007-11 over $5.1 million in premium cost increases have been avoided.
To achieve these savings we have changed health insurance providers twice in the last three years. In addition, after six years of no changes in the plan benefits prior to 2007, the pharmaceutical coverage has been modified through negotiations and the new employee's share is 15 percent of the insurance premiums. Also through negotiations, we have eliminated costly "custom" benefits.
In addition, the Medicare Advantage Plan option that is open to retirees 65 and above has been dramatically improved. Presently 174 retirees are enrolled in this program. Five years ago, it was just 38 people.
What have been the benefits of this change? Retirees who have moved from paying 100 percent of their county insurance premiums to the Medicare Advantage Plan have saved a total of $1.8 million from 2006-2011.
What is the value of the savings to county government? First, this is keeping money in the hands of the retirees who are spending these dollars throughout the county as opposed to paying higher health insurance premiums. An additional value to the county is that a significant amount of healthcare risk has been removed from our experience rating for our health insurance.
Another creative and cost-effective idea that was started in 2009 was the Health Reimbursement Account (HRA). This program allows retirees to convert their health insurance to an HRA. These funds are utilized for medical-related expenses and save the county from paying FICA/Medicare Tax. It also saves retired employees from paying federal, state & FICA/Medicare Tax. In the two years that this program has been available, the county has saved over $25,000 and retired employees have saved over $100,000.
The county will continue to review the data, and in conjunction with our consultants, broker and insurance carrier look at creative ways to decrease the administrative and risk charges that account for approximately 15 percent of our health insurance premiums. However, the largest potential return on investment is to address what is creating the other 85 percent percent of our health care costs which is the actual health claims from the medical providers.
There are basically three ways to address increased health insurance costs. First, you can change the benefit plan to cover a lower percentage of medical and pharmaceutical costs. Second, you can increase the employee's share of their health insurance premiums. Third, work with your employees to provide them the tools, information, and resources to focus on their and their family's health and wellness. This option is by far the most cost-effective and long-term solution in lowering the ever-increasing costs of employee health insurance. In the second part of this series, I will address the overall value and effectiveness of health and wellness programs and specifically what Chautauqua County government is doing to create a comprehensive health and wellness prevention program that involves our employees in the process.