City's Medical Insurance Funding Change Saves Taxpayers $800K

Mayor Sebastian N. Giuliano has announced the decision to move from fully insuring the city’s medical program to self-funding has saved taxpayers more than $800,000.

“We simply have to look at alternative ways to finance government operations,” Giuliano said, “changing the status quo based upon the best recommendations and practices as provided by our consultants have worked to the taxpayer’s advantage.”

Last year, he consulted City Risk Manager Dawn Warner and medical insurance consultant, The Segal Company, on ways to reduce the Middletown's third largest budget line item. Faced with a 20.8 percent increase in renewal rates from Aetna, a lower increase was negotiated, but Giuliano felt the cost was still too high. 

Negotiated plan changes with city unions also produced major savings, but again, Giuliano was not happy with the final numbers.

After discussions with key city staff, including Director of Finance Carl Erlacher, the decision was made to consider self-insuring the program. The city has in the past self-funded the insurance. Such a funding for a city the size of Middletown made sense, Giuliano says. 

"Had we not self-funded, we would have paid an insurance premium to our health carrier, which would have been $800,000 higher than what it cost us to pay the claims," Giuliano explains. "We pay Aetna to process the claims and to use their provider network, but we fund the actual costs, rather than pay the carrier to do so."

"These savings also offset the $400,000 cut the Common Council made to the insurance fund."

Self-funding changes the manner by which the city pays for medical benefits. On July 1, 2010, the city began its self-insurance. A comparison of what the city would have paid in fully insured premiums shows an estimated savings of $809,000 for July 1, 2010, to June 30, 2011.

Giuliano said staff were instrumental in assisting him. “We modified the plan design, employees are paying more for coverage, the negotiations with Aetna reduced the overall rate and now the decision to self-insure has saved a significant dollars.”

“Tough times, tough decisions; but in the end, a decision that has saved each taxpayer thousands of dollars. Getting all the players in the end to work collectively is a daunting task, but it is a task that has allowed us to run more efficiently."

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