In a major revision of how the city provides for the health care of more than 860 employees, the City Council voted 7-2 Monday night to award a three-year contract for health insurance to the Rhode Island Interlocal Trust.
Since the early 2000s, the city has self-insured, meaning that it pays a provider to manage the system with the city picking up the cost of claims.
Under the fully insured plan it will have starting July 1 with the Trust, it will no longer pay claims nor will it have the cost of stop loss insurance. Stop loss was a means of insuring against large individual claims, such as happened earlier this year when a single claim exceeded $570,000. In that case, the city paid $300,000 with the insurance covering the rest.
“It will be transparent to the employees,” City Personnel Director Oscar Shelton said yesterday. He explained that employees would have the same Blue Cross coverage they are provided under West Bay Community Health that currently manages the self-insured system.
While the fully insured system carries a known fixed price – $19.6 million – it is a guess whether it will be less or more costly than a self-insured system.
Shelton said the city projected claims and operation of the self-insured system would be about $18 million for the upcoming year. Based on projected health care increases of 7 to 10 percent, the amount would be more than going fully insured.
The uncertainly of switching systems was cause for an extended council debate.
Ward 4 Councilman Joseph Solomon and Ward 9 Councilman Steven Merolla voted against making the change despite the fact that Mayor Scott Avedisian recommended the city switch from West Bay Community Health to the Trust.
“The mayor feels that this is in the best interest of the city by being fully insured,” Shelton said at the meeting. The risk of going with self-insured, Shelton explained is, that “we don’t know what the future brings. The inherent nature of health insurance is that we don’t know the nature.”
In an email exchange, Avedisian said he is confident in the Trust.
“The end product is that the actual bid and the stop loss
insurance savings appear to be about a million dollars less per year. A fully insured premium gives us an absolute guaranteed highest number. I also believe that the Trust has a proven track record, is member-owned, and has the necessary staff expertise to do the job well.”
During a phone interview Tuesday evening, Solomon said he favored staying with WB based on testimony of WB Executive Director Robert Dooley, who at the meeting said the Trust bid was $400,000 to $800,000 higher than the WB price. However, this information is not reflected in the original bid submissions.
“When you calculate that over a three-year period, we could be overspending $2.5 million to $3 million,” Solomon said Tuesday. “That’s why I asked Oscar to tell me which one was cheaper [at the meeting.] He said, ‘I don’t have an answer for you.’ But, based on what I heard, the cheaper plan was the West Bay Community Health plan.”
Further, said Solomon, while he believes both products provide reliable health coverage, he was concerned about cost, as well as what he called a “financial stability issue.” He felt more secure with WB.
“I was uncomfortable that the trust recently merged with a group health plan, which jeopardizes the integrity of the entire plan,” he said. “I wanted the plan that was just as good and offered a cost savings to the taxpayers and provided the same health coverage.”
The city advertised for both a self-insured and fully insured plans. Blue Cross, United HealthCare and Tufts were all notified and Blue Cross returned with a fully insured bid of $23.4 million, putting it well above the Trust bid.
When Dooley sought to sway the council, he said while the WB program has risks, as it is a self-insured program, he felt it would have been more beneficial for the city to stay with them because the WB has proven their ability to successfully set the city’s rates.
“You’ve been in our program for four years and we have received payments from you in terms of revenue based on those rates and have paid out 99.5 percent of those revenues to cover your claims, stop loss, administration fees – all of your expenses,” Dooley told the council. “We’ve been right on target.”
Dooley also said, “If you award a contract on the higher rates submitted by the Trust, you will immediately incur a $700,000 budget hole.”
However, when Dwyer spoke at the meeting, he said that is not the case. In fact, he was baffled by Dooley’s figure and expressed that he didn’t understand how Dooley came to that number.
Also, Dwyer noted the downfalls of going with a self-insured product like WB, such as having to finance all claims, plus any administration fees. With a fully insured plan, the city pays a set premium regardless of what the claims are, he said.
“If you want a self-insured product, stay with WB,” Dwyer said. “The Trust offers a hybrid approach. As a pool, it provides self-insurance. We pass on to our participating members of the city of Warwick an insured rate. You will not get a balloon payment at the end of the year if, in fact, you have some type of overage in terms of your claims. It’s a style question from the city’s point of view.”
Dooley did not bring up that the city has a reserve with WB of about $500,000 to cover claims. Once outstanding claims have been paid, what remains of the reserve will come back to the city.
The bid information packet indicated that the self-insurance costs as projected by WB totaled $20.8 million, plus stop loss insurance at an additional cost of $253,092.
Yet, at the meeting, Dooley said that he did not submit a projected cost for the city insurance but provided only his administrative rate of $23.24, plus $1 for WB, totaling $24.34, with a stop loss amount of $18.34 per plan per month for a total of roughly $253,000.
Dooley also said that he provided Shelton with a projection of $18.8 million last week. He stated that he simply took last year’s budgeted amount and increased it by 10 percent.
In an email exchange, chief of staff Mark Carruolo said last year’s 2011-2012 budgeted amount was $18,429,811, so if Dooley actually did increase last year’s amount by 10 percent, his bid would have been $20,272,132.
At the meeting, Solomon said he was also concerned about voting in favor of the Trust because it would possibly be a conflict of interest, as the mayor is a member of the board.
Carruolo spoke on behalf of Avedisian and pointed out that Ernie Zmyslinski, the city’s finance director, is a member of the WB board.
“As far as a conflict of interest goes, we have members on both boards,” Carruolo said.
Solomon challenged him saying that unlike Avedisian, Zmyslinski didn’t issue a letter to the council with a recommendation.
In response, Carruolo said, “If the mayor was making the decision, there may be a conflict of interest, but the council is making the decision, not the mayor. The council has the final say in who awards the bid.”
At that point, City Solicitor John Harrington interjected, saying it can only be defined as a conflict of interest if there is an economic involvement between Avedisian and the Trust.
“Does he get compensation for being on the board?” Harrington asked.
With that, Dwyer said that the mayor is not being compensated for his affiliation with the Trust.
Further, Dwyer said that if his memory serves correct, every mayor in Warwick since 1986 has served on the board.
In a phone interview Wednesday morning, Merolla said he didn’t vote in favor of the Trust because at least four or five years ago the city had a study done by a health care consultant that worked for the city. As a result, said Merolla, the mayor recommended that the city go with a self-insured plan, as at the time, it saved the city a “significant” amount of money.
For him, switching it again doesn’t make sense.
“They’re charging us an administrative premium to do what we were already doing,” Merolla said. “We never had a problem with the WB.”
By the end of the discussion, Merolla said he plans to draft a resolution for the city to hire a health care consultant; a cost he said should be no more than $30,000 annually.
“With health care, we’re talking about a $20 million line item,” Merolla said.