By Bill Geraci, CEO of MAGIC Health Insurance Solutions
Several years ago, we were given the opportunity to review the Health Insurance program for a very large school district. We were told the district was going to the voters, asking for funds to update or replace aging mechanical systems at a number of schools. We had also been told funds were so tight that teachers were actually buying classroom supplies from their own personal finances.
With well over 20,000 employees covered under the Health Insurance plan, the annual cost was over $200,000,000 a year. That’s “TWO HUNDRED MILLION – WITH EIGHT ZEROS MILLION – DOLLARS! That’s … a lot … of money!
When we began our review, we were stunned (and I mean S.T.U.N.N.E.D) to learn the school district was fully insured.
That’s right! A 20,000+ employee group was fully insured.
Now, there’s nothing wrong with being fully insured. It’s the perfect solution for small companies or organizations that aren’t big enough to take on large risks or liabilities.
However, an organization with over 20,000 employees, being fully insured is unheard of. In my 20 years of helping employers with their Health Insurance programs, I’ve never seen it.
According to the Kaiser Family Foundation, 94% of organizations with over 5,000 workers are self-funded, and 84% of “all large firms” are self-funded.
So, the big question … “Why was this school district fully insured?”
We wondered if it was because the brokerage firm was making “tons” of money and didn’t want to stop “the gravy train.”
The normal commission rate for a fully insured policy is between 3% and 6%. The larger the group, the lower the commission rate. At a 3% rate, the brokerage firm could have been making $6,000,000. Even if this was close to what they were getting paid, this could have bought a lot of air conditioners and school supplies! Also, every time the school district’s premium went up, which was every year, guess what? The brokerage firm got a nice raise for basically doing nothing.
The members of the School Board were responsible for allowing this total mismanagement of taxpayer’s dollars. Both the brokerage firm and School Board should have been fired for malfeasance and a total violation of their fiduciary responsibility to the taxpayers.
And just like so many other things, the great citizens of this district were getting totally screwed.
In our Summary, we stated 10% could easily be saved by the school district becoming self-funded, because it was just a more efficient model. This would have saved the school district $20,000,000.
With a group of this size, there were definitely individuals on the plan that didn’t qualify to be on it. So, we recommended doing a dependent eligibility audit. This was a no-brainer, and yet, in the information provided to us, we did not see that this strategy was ever recommended or implemented. This would have saved at least 1% or $2,000,000.
Although the savings percentages are low, we’re not talking “chump change.” And never forget, we’re talking about the hard-earned money of this school district’s taxpayers. They deserved better!
We made other, numerous recommendations, including:
- Negotiating direct contracts with local hospitals
- Creating near-site or onsite clinics for employers and family members
- International sourcing of expensive medications
- And more!
We were absolutely confident the school district could save at least 15% or $30,000,000. If our ideas and strategies were implemented, there would be no need to go to the taxpayers for more money.
Not long after providing our recommendations, the School Board decided to do a “Request for Proposal” or rfp. All the big brokerage companies in the United States responded. When the review was finished, the School Board decided to award the new contract to –
Drum roll please ….
The same brokerage firm that had been keeping them fully insured.
You read that right. The same brokerage firm.
Was the rfp “just for show;” to show the taxpayers that the School Board was “doing its due diligence.” We’ll never know. Even so, as Elmer Fudd would say, “There’s something awfully screwy going on around here!”
Well, if you’re serious about trying to control your Health Insurance spend, don’t continue down the road of “doing the same thing and expecting different results.” If you’re ready to stop the insanity and partner with someone who is absolutely committed to saving you every penny possible, give us a call. We’d love to work with you.
We can be reached at (844) 800-MAGIC.
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