Officials with the city of Ashland say the city will avoid a 10 percent spike in health insurance costs and save $400,000 by adopting a new plan to self-insure city employees and their family members.
The move is part of a trend among governments and businesses — especially large companies — to rein in increasingly burdensome healthcare costs by skipping the insurance company middleman.
After city staff members researched the pros and cons of self-insurance, the Ashland City Council approved the change on June 18.
The self-insurance program will take effect on July 1, the date when the city would have otherwise been hit by a 10 percent health insurance premium hike that would have cost an extra $400,000.
Councilor Greg Lemhouse said city staff members did an excellent job in researching the cost-saving switch.
"It's a huge benefit to the city and the community as a whole," he said.
City Administrator Dave Kanner saw the benefits of self-insurance when he was county administrator in Deschutes County before coming to Ashland in 2012.
In a four-year period, Deschutes County saw only a 1.4 percent increase in healthcare costs, Kanner said.
Meanwhile, many governments and businesses were being hit with double-digit percentage increases in health insurance premiums — every year.
"It works. It saves money while providing the same benefits," Kanner said.
For every dollar the city has been paying in health insurance premiums, its health insurance company has been paying about 80 cents toward actual healthcare costs, Kanner said.
The remaining 20 cents was going toward the health insurance company's administrative costs and profits, he said.
"We can achieve savings through lower administrative costs and the absence of profit," Kanner said.
The city had been using the health insurance company PacificSource to provide traditional insurance. It solicited bids for a third party to administer the city's new self-insurance plan, and, ironically, PacificSource won the contract.
PacificSource will administer the city's self-insurance plan for a much lower cost than if the city continued to pay traditional health insurance premiums.
City employees and their covered family members will not see a change in their health-care benefits. They will just receive a new insurance card, Kanner said.
To protect city finances, the city is buying safety net insurance in case the cost of paying claims ends up being much more than expected.
"Claims experience can be extremely unpredictable. Sooner or later, you have a bad year," Kanner said.
Locally, the city is joining Ashland Community Hospital, the Ashland School District, Jackson County managers, the Oregon Shakespeare Festival and other organizations that have moved to self-insurance to control costs.
Nationally, the Employee Benefit Research Institute reported in November 2012 that 40.9 percent of businesses were self-insured in 1998, but that the percentage had grown to 58.5 percent in 2011.
Among businesses with 50 or more workers, 69 percent were self-insured, while only 10.8 percent of businesses with fewer than 50 workers were self-insured.
Kanner said a government entity must have at least 500 covered people before it can move to self-insurance.
The city of Ashland has 770 covered people, which includes employees and their covered family members.
OSF Finance Director Jerry Roos said that OSF didn't have to have a minimum number of covered people to become self-insured, but OSF's self-insurance consultant suggested a nonprofit or business should have at least a few hundred for self-insurance to be economical.
OSF covers more than 400 people, which includes its employees and their covered dependents, Roos said.
Like the city of Ashland, OSF buys safety net insurance.
"It's a safety valve for anyone who self-insures. You can get horrendous claims," he said.
OSF's safety net insurance on individuals, for example, kicks in if an individual claim goes past $125,000, Roos said.
A claim to cover healthcare costs for a premature baby or a person with a serious heart issue could soar well above $125,000, he said.
As with the city, OSF pays a third-party administrator to handle OSF's self-insurance program, Roos said.
"I wouldn't try to do it in-house," he said. "Third-party claims administrators are very well worth the price you pay."
Rather than having to choose from a menu of insurance plans, OSF has been able to tailor its coverage. OSF offers certain preventive care without requiring a co-payment from employees, among other specialized offerings, Roos said.
OSF has been self-insured for almost a decade, Roos said.
In its first three years, OSF saw no increase in healthcare costs, but increases have been about 2 to 6 percent annually since then, he said.
"I think we've saved money and controlled the double-digit escalation in premiums many employers are facing," he said. "Premiums are going toward health care, not administration."
Roos and Kanner said governments, businesses and nonprofits that are interested in self-insurance should talk to a consultant or insurance broker.
"It's hard to predict healthcare costs, but with enough experience and good consultants, things usually average out pretty well," Roos said. "To employees, it's seamless. Many of our employees may not even know that we are self-insured."
Staff reporter Vickie Aldous can be reached at 541-479-8199 or firstname.lastname@example.org.