I have dealt with health benefit cost control in local government management since early in my tenure as City Manager of South Haven. Double-digit annual increases in the cost of providing healthcare benefits to employees began in the early to mid – 1990s and have not abated since. Increases of 5 to 15% are painful enough but recently many governments have faced increases of 30% and above. As a point of reference, a 30% increase in Ottawa County health benefit cost would equate to over $2 million.
Ottawa County became self-insured in 1983 as a method of controlling cost more effectively. This worked for many years but beginning in January 2011 we went back to a fully funded insurance plan with Priority Health. The stars aligned in many ways and we were able to achieve first year savings of $4.8 million what we would have paid had we not changed.
The Michigan Legislature adopted Senate Bill 7 (SB-7) on September 7, 2011 which was subsequently signed into law by Governor Snyder on Saturday, September 24. The new law was named Public Act 152 of 2011. PA 152 mandates that public employers can pay no more than $15,000 for a family health insurance plan; $11,000 for a individual and spouse “ two-person” plan; and $5,500 for a single plan. The dollar benchmarks are commonly referred to as “hard caps.” A public employer can opt out of the hard cap requirement by a majority vote of its governing board or council and implement what is referred to as an “80-20 plan” wherein the employer cannot pay more than 80% of the total cost of employee health insurance. A governing board of a city, village, township or county can also opt out of this requirement by a two-thirds vote.
The County currently provides three health insurance plan options for employees: the 100-80 fully funded plan; 90-70 plan; and High Deductible Health Plan with a Health Savings Account where the County currently pays the full cost of the deductible, $1,200 for single coverage and $2,400 for two-person and family coverage.
Ottawa County is well ahead of the State in attacking future health care expenses with our focused intent to reduce future health plan claims cost. State policy has been driven largely by the battle between the Republican legislators and the Michigan Education Association (MEA) over how much public employees should pay toward health care expenses and not directed at the problem itself: escalating health care costs largely due to burgeoning claims cost. Governor Snyder’s recent healthcare speech and his call to action at a health care forum attended by 500 leaders last week seems to offer an improved future focus. Studies have shown that a high percentage of diseases that cost health plans the most money and in some cases are most debilitating for employees can be eradicated two to three years before they even happen through a good health management plan. This is where real cost savings can be achieved and not just rebidding, reshuffling and redistributing health care cost which has been the game for far too long. The companion strategy with the high-deductible HSA is the health management plan whereby employees will benefit by becoming increasingly sophisticated consumers of their own healthcare.
The Ottawa County approach to attacking long term health care expense is highlighted by the health management program rolled out in January. The first year of the program included three action items for employees, and spouses (when applicable) with a $50 incentive attached to each: 1) complete on-line health screening; 2) have an annual physical completed at your doctor’s office; 3) complete one actionable item at webmdhealth.com.
So how will Ottawa County respond to SB-7? Initially, no response is necessary because if you average all health care premium costs by single, individual and spouse and family plan; add the cost of the fully paid deductible; and subtract the amount employees pay toward the premiums, the County is currently under the hard cap limits established by SB-7. We expect that the County health plan cost will exceed the hard cap amount set by the State in the next few years. We do not view the hard cap method as a good long term solution as annual health inflationary increases will far outstrip the average “medical care component of the U.S. Consumer Price Index” which currently averages 3 percent. We also do not view the 80-20 plan as a viable alternative because it doesn’t provide the same level of incentive for employees to move into the high deductible plan.
We are on a positive course to better control expenses in the future, a future that the State has yet to take practical, concrete steps to get to. Thus we plan to increase the premium cost share on the fully funded 100-80 plan to 20 percent from the 10 percent that it is currently at. Only 18 employees are currently enrolled in the 90-70 plan. If we keep this plan, the premium cost share will also be set at 20 percent. The plan for at least the next year will be to keep the high deductible HSA plan at 5 percent employee premium co-pay with the $1,200 and $2,400 deductible amounts paid by the County. And of course, we will continue to implement the health management plan over the next few years. Good To Great author Jim Collins conceptualized the BHAG, or Big Hairy Audacious Goal. Our health care BHAG is to take an axe to future health claims cost through our focus on healthy lifestyles and decision making.
We encourage employees to study the high deductible plan. It is no secret that the County has funded this plan so that an employee has a very similar benefit to a 100 percent fully insured plan. In 2011, the County funded the entire deductible and will do the same for 2012. The current deductible is $1,200 for singles and $2,400 for two person or family. Once an employee has exhausted the deductible amount, which the County has funded, the plan turns into a 100/80 fully insured plan. The County saves approximately $3,600 each time an employee currently in the 100-80 fully insured plan chooses to change to the high deductible plan. Equally important, the employee saves on average of six to seven percent of salary depending on what plan they move from and their level of coverage in that plan, i.e. single, two-person or family.