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Insurance suggestions may help School Board

After a 30-year career in the health insurance industry, I've read with interest of the challenges facing the Hernando County School Board in arriving at a quality insurance program both it and its employees can afford.

Experience taught me that school groups generally, and especially smaller groups, are heavy users of insurance benefits, which translates to budget-busting higher premiums or high self-insurance costs when coupled with coverage rich in benefits.

Reasons for this seem rooted in the makeup of school groups. By their nature, their members are better-educated, on average, than other types of insured groups. Better-educated people are more health-conscious and thus seek out care made available to them by their insurance.

The extended annual summer vacations of most school group members also provide the opportunity for elective procedures that may require lengthy convalescence, time that might not be available in other kinds of insured groups. This, too, increases utilization of insurance benefits because their wages are not jeopardized by lengthy absences from work, which might be the case in other industries.

The cost of care, whether paid for by insurance premiums or self-insurance, is the product of numerous factors, including but not limited to the size and makeup of the insured group, utilization of insured services, the cost of each of those services and the "intensity" of care (referring to the effect of increased use of constantly improving and expensive technology and modes of care). If a program includes prescription drugs, the problem of costs is even greater.

In determining premiums for a future term of coverage, an insurer (or self-insurer) must take into consideration not only the aforementioned factors, but also the trend of utilization (how steeply use of benefits is increasing) within a given group, administrative costs, contributions to reserves and the rate of inflation anticipated during the projected term of coverage. Of course, if the insurer is a commercial company (versus a non-profit), a profit factor must be added.

Not being an actuary, and not professing to be educated on all the intricacies of that science, I have two suggestions to offer the board. One they're aware of, but apparently have chosen not to pursue for health insurance, is the Northeast Florida Educational Consortium (or an equivalent alliance) that permits member school districts to pool their various insurance risks. The advantages of pooling include "spreading the risk" (the axiom for this being the larger the group, the more predictable its "experience," or use of benefits, will be, thus minimizing premium increase shock); greater interest and competition among prospective insurers, thus increasing bargaining power; greater leverage in negotiating favorable discounts with providers of care; and more cost-efficient administration. Taken together, these benefits of size generally result in more predictable insurance costs by leveling out the peaks and valleys of benefits utilization and other costs common to smaller insured groups.

My second suggestion is one I've never read as having received any attention. It's possible that it's been discussed and I've missed it, or it went unreported. I'm referring to a hybrid of self-insurance and purchased insurance.

It would work like this: The School Board would budget a finite amount that it could afford to spend on self-insuring its program. This limit places a cap on what the School Board would spend out-of-pocket for self-insured benefits. It would then purchase "excess" insurance that would not come into play until and unless the cost of self-insured benefits used by the school group exceeded the predetermined limit for which the board budgeted. The group's self-insured limit would act essentially as a deductible before the excess insurance (a kind of "major medical" coverage, if you will) would begin paying. Because the School Board's self-insurance limit would, in effect, serve as a rather high deductible, the premium for purchased excess insurance would be reasonable and, at the same time, attract more bidders since the School Board would be assuming liability for the projected lion's share of benefit costs.

This approach would fix two costs for the School Board. It would fix the amount self-insurance would pay out to the predetermined figure for which the board budgeted. It also would fix the premium the board would pay for excess insurance, which could be structured to include extremely high benefit limits. Thus, both the School Board and its employees could be assured of excellent benefits at predictable, affordable and budgetable costs.

My former company and our school accounts struggled with the same problems that now challenge the Hernando School Board, and the two ideas suggested here worked to our mutual benefit.

_ Larry Weier lives in Spring Hill. Guest columnists write their own views on subjects they choose, which do not necessarily reflect the opinions of this newspaper.

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