Waterford Pays $1.6 Million Off Of $2.6 Million Health Care Deficit

On June 30, 2011, at the end of last fiscal year, Waterford had run a $2.6 million deficit in health care costs.

One year later, Waterford Finance Director Rudie Beers presented much better news. As of June 30, that deficit had been cut to $973,986, after claim levels came in low and the town used its surplus funds to pay down the dept, Beers reported to the Board of Finance Wednesday night.

“In explanation, we had a banner year,” she said.

The town has been wrestling with skyrocketing health care costs for the past five years, and that led to large deficits in the town’s health care account, Beers explained. By reducing the deficit by $1.6 million in one year, the town has the far more leverage in its negotiations with health insurance companies for the upcoming budget year, and more control of its most volatile cost, health insurance.

What does it mean for taxpayers, and the citizens of Waterford? Hopefully, not as large of a tax increase for next year or a better chance of avoiding the cuts that happened in 2011,

“It gives us more options,” Beers said.

History

Until this fiscal year, which began in July of 2012, the town was self-insured. That basically means the town puts aside a certain amount of money they estimate it will cost for all the medical services for all town employees over the course of a year, and then pay the real medical costs as they come in.

For many years, this worked well and Waterford could budget the right amount for health insurance, Beers said. But that changed around 2007, when both the price of healthcare and the amount of claims the town was experiencing began to skyrocket, and the town was spending more money on health care claims than it had budgeted, Beers said.

This peaked in 2011, with the town budgeting $2.6 million less than it needed to cover the cost of employees’ medical claims, causing a $2.6 million deficit. That money comes out of the general fund, but to satisfy auditors and to properly run the town’s finances, it must be paid back, Beers said.

That led to around a 30 percent increase in the town’s budgeted cost for health care for the 2011-12 Fiscal Year, meaning a $1.6 million increase for the Board of Education alone. That, , forced the board to shed more than 20 positions, many of which were teaching positions.

The Solution

The town readjusted its budgeted amount for health care claims in 2011-12 (hence the large increase in cost), and actual claims came in less than what the town expected, Beers said. Additionally, the town and the Board of Education both underspent their budgets, all of which amounted to $1.6 million to pay off the deficit, she said.

In 2012-13, the town went to a fully indemnified plan, which is essentially a standard health insurance plan where the town pays a set fee and the insurance company takes on all the risk. A plan like that was used because it does stabilize prices, but Beers contended it will be more expensive than a self-insurance plan, because the health insurance company needs to make a profit above the amount of claims it pays out where the town does not.

The goal this year is to again use surplus funds to pay down the deficit, and hopefully get it to zero, Beers said. Then, the town can again look to go back to a self-insurance model, or at least have the possibility of doing so, which will give it leverage in negotiating a price for a fully indemnified plan, she said.

“That’s the big decision,” Beers said. “We are going to have to figure out what we are going to do for the future of health insurance in this town.”