Monday, January 26, 2009

Indianapolis' Coming Insurance and Budgetary Crisis; Was the Indianapolis City-County Council Misled?

As someone who used to have an active Indiana insurance license to sell health insurance, I took great interest when, on October 6, 2008, a proposal passed the Indianapolis City-County Council that authorized City Controller, David Reynolds to, as of January 1, 2009, establish a self-insurance group health plan for county and city employees.

Since then, about 1/3 of the Indianapolis/Marion County employees (mostly uniformed employees such as police officers and firefighters) have become part of the city’s self-insurance plan. The City insured part of its catastrophic loss by purchasing a 12/12 re-insurance contract when it set up this plan. This means that very large claims that are both incurred and paid during the 12 month 2009 policy period are covered. The claims incurred during 2009 but not paid in 2009, are not covered. Thisrisk to the taxpayers has not been disclosed and this unfunded liability has been excluded from the current budget.

Here’s the problem. While the turnaround time for paying most bills is generally within 30 days, medical bills are much more complicated and take much longer to process, often 90 days or more. So medical bills incurred during the latter part of 2009 will not be paid until 2010, and will not be covered by the current catastrophic insurance contract. What this means is that the city has about a 3 month unfunded liability for such medical bills, which translates into about a $4.6 million shortfall in the budget. In insurance lingo this is called the unfunded run-out liability. Was the City-County Council informed of these facts? It is doubtful.

This $4.6 million budget slight of hand is short-lived and only benefits the current year. In 2010, the City will need to budget for the whole amount and will have to find ways to make up the $4.6 million shortfall.

One way to make up for the shortfall is to use the same deceptive budgetary scheme again and self-insure the rest of the city/county employees starting in 2010. The shifting of that liability would continue, with another three months of bills incurred in late 2010, and tens of millions of more in unfunded liability, being pushed into 2011.

In short, although there is a reinsurance policy covering catastrophic health problems, the City did not purchase a policy that covers the months of unfunded liability.

Hopefully, Anthem, which provided the stop-loss policy, will continue to write the reinsurance after this year. Hopefully. Given the fact that Anthem quoted the city a 50% increase on their fully insurance plan for this year, it is quite likely that Anthem will choose not to continue providing the stop-loss insurance or will price it so high the City cannot afford it. If that happens the City may have to go “naked,” which means the City will have to assume the full risk of all the employees covered by the self-insurance group health plan. Translation: Indianapolis taxpayers will be footing the risk of all catastrophic health problems.

The problem is that the shifting of unfunded health insurance liability from one year to the next can only happen so long. Eventually the piper has to be paid, a year when the bills come due and there are no accounting tricks that can be used to further shift liability to another year. When that year arrives, the city will have a budget shortfall of tens of millions of dollars. The City health care plan could likely implode leaving police, fire, and civil employees with bad coverage at best, and the Mayor and City-County Council dealing with a financial fiscal fiasco, faced with the unpopular choice of drastically slashing services or raising taxes. It appears the year the manure hits the fan will be 2011, the same year the Republican Mayor and Republican-controlled Council will be asking voters to continue GOP control of the city.

Who is to blame for the bad advice regarding the insurance for the city’s employees, advice that might well explode in the faces of Republicans seeking re-election in 2011? Well, try a Democrat. Rather than replace Mayor Peterson’s highly-compensated benefits consultant from Hamilton County, who supported Peterson rather than Ballard, Bob Grand, managing partner of the law firm Barnes & Thornburg and the Mayor Ballard’s unofficial advisor, insisted that the consultant be retained. It does not take a rocket scientist to figure which law firm that consultant is a client of. Once again, Mayor Ballard seems unaware that there is a fox in the city’s chicken coop.


Anonymous said...

Life has become was too complicated

Anonymous said...
This comment has been removed by a blog administrator.
M Theory said...

The mayor, as a middle management Lt. Colonel, was used to taking orders. A fox like Bob Grand knows that and he capitalized on it. That's why he was in that car on the way to New Albany with our new mayor right after the election. He plays the part of the general because our mayor only knows following orders.

It is time our mayor learned it is ok to own his own power. We didn't hire Barnes & Thornburg. We hired Ballard to run the city.

Thanks for what you're doing here Paul. I know there are a lot of "elites" who would love to have your head right now.

Paul K. Ogden said...

I answer to questions I have received, the comment deleted was a very long, rambling comment about Obama that had nothing to do with the topic of insurance or the city. From the content, it appeared like it was being posted on multiple conservative blogs. The content of the comment wasn't objectionable, except it had nothing to do with the subject being discussed.

Gary R. Welsh said...

Paul, Thanks for bringing this to our attention. This is the first I had heard of this. I hope our mainstream media takes a harder look at this issue. I'm surprised the public employee unions haven't been more vocal about his, but then again, didn't the police just get a 5% or 6% increase in pay under their contract this year?

Anonymous said...


My understanding of the Indianapolis's sef insurance plan you referenced is that it is administered as an High Deductible plan.

For those that are not famiiar with how these plans work, each employee is given a health acre allotment, let's say $2000 for this example. The employee can spend that #2000 for certain heath care expenses that also count towards a $2000 dedcuctible where a "catostrophic" coverage layer kicks in where cost sharing is involved.

These plans create two behavior patterms. First, because the deductible/healthcare dollars are based on a calendar year, employees generally rush to get claims paid befoire the end of the year and it eats into next year's dollars/deductible. Second, because of worries of blowimg through the Deductible level soon, these plans are generally populated by younger, healthier employees and shunned by older, not as healthy employees who file more claims. This is what i hear is the case, as the older, unhealthier Indianapolis employees are preferring to stay on the HMO, and this Self-Insurance Plan is mainly used by younger, healthy employees who file fewer claims that are also less costly.

What does this all mean? That the likelihood of delayed claims past the reinsurance peiod referenced in this post is far less than the traditional health insurance model used in Mr. Ogden's Calcuations. And while there is also a possibility of catostrphic claims, they are less likely given the population of employees enrolled in the plan.

So "Was the Council Misled"? Unikely. More likely the only people misled were the readers of this block, misled into believing that mayor Ballard made a dunderhead move, misled because Mr. Ogden wanted to get his daily jab at Barnes and Thornburg,

Anonymous said...

The previous response from 10:49 Anon is misleading for many reasons. It does not accurately describe the behavior of employees and dependents with catastrophic claims. Since the cost of a catastrophic claim is so much larger than the employee deductible, a higher deductible amount does not affect behavior in the way described by this response. Further, in the case of large claims, the employee has little or no control over the time frame of claim submission and processing. At the City’s recent open enrollment, the younger, healthier employees continued their migration to the less expensive “Advantage” plan. What the City has left in its self-funded plan is a shrinking pool of older, sicker employees and those with catastrophic problems. They did not change plans because they require more health care and more expensive health care. They did not change because they do not want the stress of changing doctors and hospitals in the middle of complicated health care.

Anonymous said...

I am hearing the exact opposite. The self Funded plan is not the HMO, where most of the older folks with Catosrohic caims are. it's the HMO that provides that stability, not the Self Funded plan. Th Younger, healthier folks are migrating to the new sef funded pan, which was just created as Paul duly noted.

Anonymous said...

I hope they are looking at the Health Savings Plan option. That's what we have at work. I like it because it puts me in control and allows me to save money (pre tax) for medical expenses including elective things like tooth whitening, laser surgery, and cosmetic surgery.

Anonymous said...

Reply to 8:58 AM

Jeff, the truth is that catastrophic suffers have a lower out-of-pocket when they use the self-funded HSA plan than they have using the Advantage HMO. An HMO does not have a maximum out-of-pocket amount. Therefore, when you add up all the potential co-pays someone with a catastrophic disease might pay when insured under an HMO, the cost will be higher than the self-funded HAS maximum out-of-pocket. Folks tend to act in their own economic self-interest. Your chickens are coming home to roost!

Anonymous said...

11:10 is missing the point. This blog claims that the plan was a bad deal for Indianapolis because the reinsurance for Catosrophic claims will not cover a good chunk of claims (this blog estimates $4.6 million) because the claims lag month behind the coverage of the reinsurance. The original point is High Deuctible and HSA plans, like the new self-insurance plan this blog is criticizing, encourage claims being filed by the end of the calendar year. The $4.6 million estimate would be accurate if this plan were a traditional HMO, but since the plan is either High Deductible or an HSA plan, the exposure to the City will be negligible.

The point was the original post assumed traditional HMO behavior, but this is not a traditional HMO plan.

Anonymous said...

12:29 needs to brush up on the latest research. Not only is there no evidence or study in existence that suggest younger people are a guaranteed to enroll into HSAs, but on the contrary --Hewitt and Assoc. (a National HR and Benefits consulting firm) --discovered to their amazement the opposite was the fact. Without getting into a debate on the long-term feasibility of HSAs, Hewitt found OLDER workers were taking the HSAs. Jeff, are you smarter than Hewitt?

But this is all your distraction. Because, as I read Paul's blog, his concern was the failure of your side to disclose the $4.6 million run-out liability. this will grow over time.

Paul K. Ogden said...

I think this is being made way more complicated than it is.

Fact: It is undisputed that the the catastrophic policy purchased by the City is a 12/12 policy which covers bills incurred AND paid in 2008.

Fact: It is undisputed that About three months of the bills incurred in 2009 will roll over unpaid until 2010.

Fact: It is undisputed that the 2009 catastrophic policy purchased by the city will not cover those 2009 bills that roll over to 2010, which is about 3 months worth.

Fact: It is undisputed that the City's budget did not account for this unfunded liability in the budget.

The critic or critics in the comments section fail to dispute any of these facts. Unless they can dispute them, and they are more than welcome to try, then the post is dead-on accurate about the upcoming budget problem caused by how the self-funded insurance was handled by the city.

Paul K. Ogden said...

Correction: The date in the first "Fact" should be 2009 not 2008.

Anonymous said...


Are you blind? The critics are disputing that there will be three months of unpaid bills! People with HSA's do not let claims sit around before the end of "use them or lose the" time for this type of insurance.

While we are at it, given you bias against Ballard, I doubt your analysis of the reinsurance policy is a "fact" I challenge you to file a public record request and post the insurance terms like you have in past contracts. Until then, you have just given us a rumor that would be IRRESPONSIBLE for taxpayers to be up in arms about until we have real facts.

Your recollections have turned out to be pretty poor facts in the past. Show us "real" facts and you will be credible.

Anonymous said...

Anon 8:29 today again demonstrates that he does not understand the complexities of self-funding. Or perhaps he is diverting attention from the fact that there is an unfunded liability that is not covered by any insurance and is not reflected in the budget.

The Participants in a plan have absolutely no control on when the hospitals and other medical providers submit bills to be paid. The Participants have no control over how long it takes the PPO to re-price those claims. The Participants have no control over how long it takes the Third Party Administrator to make sure that the services provided are consistent with the legal plan document (SPD). The Participants have no control over how long it takes the employer or TPA to actually release the funds to pay the bill. If this was a simple, automatic process, medical providers would not occasionally sue for delayed payment or place employees accounts out for collections.

It is not unusual to have invoices presented for payment a full year (even longer) for payment after the services have been provided. Jeff, again you are showing your ignorance before the whole benefits brokerage-consulting community. Do you need this account so bad that you continue to misrepresent what is commonly known by professionals? You either misrepresented facts to the City or are helping the City hid a material unfunded, non-disclosed liability.

Duke said...

I just got on to this. Sorry I missed all the fun. The City has a $2K HSA , no doubt, because they were forced. No offense to Melyssa,but City employees on that tier of wage are not saving for teeth whitening. They are often uniformed men and women who's lives are on the line and expect a real benefit for them and their families, not some bogus savings plan in disguise meant to lower utilization by creating a barrier to care.

The last HMO exited the market after spilling millions in red ink for the City, as is the current HMO. HSA is not going to save a dime ( contrary, imagine the "blow through" when someone hits this out of pocket max --they will use all they can). If it were going to be viable, why would Anthem not offer to insure it at the expected claims plus admin??

Musical chairs has been played with millions of dollars in would be claims --via hospitals eating it in risk arrangments with HMOs.The music is slowing down, there are less chairs, the City Controller and paid consultants are clueless.

Wake up City employees, the people in charge have taken away your choices year after year and backed themselves into a corner whereby soon, your benefits will be severely cut, and the true costs to insure the City are going to be manifest.

Adios Mayor.