Wednesday, October 20, 2010

San Angelo's Health Department Decimation & ERRP Gift

Tight budgets over the last fifteen years caused the shedding of major health department services.  The Primary care clinic went first.  The city then shed its pharmacy and social services ($176,000 savings).  The 2010-2011 budget indicates what's left:

TB Clinic
Sexually Transmitted Disease Clinic

Oddly, the city added an employee health clinic while cutting services to the public.  This may make financial sense for San Angelo, as it could save health insurance costs, where the City is self insured.

Health reform included a $5 billion Early Retiree Reinsurance Program (ERRP) and the City was in the initial group approved for reimbursement.  Over a two year period the City expects $750,000 in ERRP funding.  The money is intended to keep health insurance affordable for early retirees.

Hewitt Associates generally projected a 25 to 35% savings within any retiree healthcare program.  That's $2,000 to $3,000 per early retiree. In this scenario, the City's expected funding translates to 150-175 early retirees

Veronica Sanchez with San Angelo Human Resources gave different numbers.  She cited a $200,000 savings on a $4 million program, savings more like 5%.  Had she used the $307,000 expected savings given by the City's benefit consultant (Holmes Murphy), the number would have been near 8%, but well below Hewitt's projection.

The City budget shows self insurance operating expenses of $6.7 million (page 36).  Veronica's $4 million in retiree health costs comprise 60% of the total.  Maybe 150 early retirees could cost more than 1,000 employees, but it seems out of whack.  Plus, if this were the case, wouldn't reinsurance, paying 80% of costs between $15,000 and $90,000 produce a much bigger check from Uncle Sam?

Is the city spreading ERRP savings over the whole self-insurance program?  There's more to this story.  The report from Holmes Murphy may have the answers.

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