By a vote of 7-2, the City Council approved Monday a $19,210,000 contract with the Rhode Island Interlocal Trust to provide city employees health care for another year. An amendment proposed by Joseph Solomon (D-Ward 4) required the city to begin the renewal process earlier, in October 2016, to allow time to fully explore the pros and cons of returning to a self-insured health plan in July 2017.

The city was self-insured from the early 2000s until 2012, when the council voted to join the trust. The city employees and the school employees currently negotiate their health plans separately. Robert Calise, managing director of Cornerstone Gencorp, a benefit advisory firm, recommended exploring a joint bid, which has been done in the past. The school department has a self-insured plan managed by West Bay Community Health (WBCH), while the city employees’ health care has been in the fully insured plan for four years.

Noting that it a violation of city ordinance for the school department and the city to negotiate their health plans separately, and moving to a self-insured health plan for city employees could save millions of dollars, Councilman Steve Merolla (D-Ward 9) said it is “nauseating that we’re just kissing away that amount of money…there is no rational reason for us” to remain with the trust rather than becoming self-insured.

Mayor Scott Avedisian pointed out yesterday that the newest contract represents a savings of about $1 million.

In an email he said, “Self-insurance is good if your utilization each year is stable and has no catastrophic illnesses. I like the stability that a fully insured model gives the city.”

The Rhode Island Interlocal Trust is a partnership of public sector entities that participate in a common risk pool in order to have affordable insurance options. The trust negotiates rates with insurer Blue Cross and bundles those rates with a per-employee administrative charge to create a guaranteed premium rate for the municipalities. The member municipalities participate in the trust’s pooled surplus, enjoying gains when premiums exceed claims and suffering losses when claims exceed premiums in what is termed a “shared risk pool.”

Warwick currently has nearly $3 million in the pooled surplus but could only remove half of that if it decided to self-insure, according to the trust agreement. The pooled surplus does not reward municipalities for reducing the number or amount of claims; it is shared proportionally based on a formula that counts the number of members and their months in the system.

“We give those benefits away to other communities,” said Merolla.

The city’s consultant, Calise recommended that the city remain with the trust this year. He said that the trust is working well, and that the administration is “looking for budgetable, sustainable rates year over year,” which the trust provides. Yet, he championed the return to self-insurance in the future, noting, “At some point, the city is going to end up upside down” because they are larger than the other participants and bear a larger share of the losses.

“The city is large enough to control its own destiny” said Calise, “and why it would want to be part of something that it cannot control doesn’t make sense to me.”

In support of self-insured plans, Calise said that claim expenses for groups of 1,000 or more employees are statistically stable over a three- to five-year period even though the payment may vary from month to month. Stop loss insurance would protect the city from large and unexpected claims, and the city could create a claim reserve to hedge against the fluctuations in the monthly claims.

While self-insurance might save the city a substantial amount of money over several years, it’s not without risk. Calise pointed to the pharmacy benefit as an example, saying the current employee contract caps out of pocket costs for prescription medication at $300 a year, and pharmaceutical expenses are rising 16-18 percent annually. Warning of larger claims down the road due to advancement in pharmaceuticals, and giving an example of a new treatment for Hepatitis C that costs $90,000 for a three month dose, Calesi said, “If you don’t start to manage the pharmacy [benefit] now, it’s going to get away from you.” He suggested the city put prescription coverage on the table the next time the employee contract comes up for negotiation.

Merolla agreed, saying city employees need to recognize that in times of increasing health care expenses they are effectively getting a raise because of the added annual expense to the city of their generous health care plans.

“It needs to be recognized” said Merolla, “that if we continue on this path with health care costs it will bankrupt the city and no one will have health insurance. We have nothing saved. We have an ostrich policy in the city of Warwick. We bury our head in the sand.”

Merolla and Ward 7 Councilwoman Kathleen Usler voted in opposition to the award.