HomeMy WebLinkAboutCOD-015-11 Unfinished Business
claringion REPORT
CORPORATE SERVICES DEPARTMENT
Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
Date: JUN 13, 2011 Res I ion#• 9' ''�// By-law#: N/A
(may„, �, aimed Rcs�
Report#: COD-015-11 File#:
Subject: ASO BENEFIT PROGRAM ANALYSIS
RECOMMENDATIONS:
It is respectfully recommended that the General Purpose and Administration Committee
recommend to Council the following:
1. THAT Report COD-015-11 be received for information.•
Submitted by: /e'� Reviewed by: ala-.2.12--)
+arie Marano, Franklin Wu,
H.B.Sc., AMCT,
Director of Corporate Chief Administrative Officer
Services/Human
Resources
MM/gj
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379
REPORT NO.: COD-015-11 PAGE 2
1.0 Background
1.1 At the General Purpose and Administration meeting of April 18, 2011 the
following motion was approved:
"THAT the Director of Corporate Services be directed to prepare a report
indicating whether moving to `Administrative Services Only' would save
the Municipality money on the Municipality's benefit program."
2.0 ASO and Traditional Fully Insured Programs -Considerations
2.1 The Municipality historically has carried the health benefits program through a
fully Insured plan, which requires paying premiums for the benefit coverage, in
exchange for the benefit provider assuming the risk of paying all claims.
2.2 Under an Administrative Services Only (ASO) program, the external company
assesses, administers and pays the claim from a bank account funded by the
Municipality. This program requires the Municipality to assume the risk of all
related claim costs, essentially "owning" the claim. ASO programs generally
exclude Life, ADD (Accidental Death & Dismemberment), and LTD (Long Term
Disability), which would continue under a paid premium basis. Under an ASO
program the Municipality would be required to pay over and above the actual
claim cost, the following:
1. General Administration fee of Paid Claims);
2. Profit Charge of Paid Claims)
3. Claims Administration Charge of Healthcare, Vision, Dental paid
Claims)[covers salaries for health/dental assessors, technology etc]
4. Printing costs for booklets and Medical Reports (pay incurred costs)
5. Commissions (paid during the Policy Year)
6. Amendment Charges
7. Premium Taxes
8. Premium for stop loss insurance (large claim pooling )
The estimated additional fees for administration could be in the neighbourhood
of 8 to 9% of paid claims). (For information, similar to Ajax notation below, Clarington
has one drug claim for an individual in excess of $54, 000 for one year. The total drug
claims paid by GWL under the premium paid program was $555, 000 from February
2010 to January 2011).
2.3 Attachment #1 is a brief outline of ASO considerations submitted by Great West
Life for purposes of this report. It notes that any reserves established with GWL,
would not be refunded if the Municipality switched to an ASO program. The
reserves are established on the basis of expected claims, and vary at any given
time. Great West Life advised that "due to claims exceeding premium in the first
financial period, all reserves were used and in fact, a negative balance remains".
REPORT NO.: COD-015-11 PAGE 3
The Municipality would be required to assess liability under the self insured ASO
basis, and establish internal funds in a reserve in order to offset the risk of
unpredictable year to year shifts in benefit costs. This would have to be taken
into consideration in any cost-benefit analysis.
2.4 Over the past year, Clarington was provided a preliminary and informal estimate
of an ASO program cost from a different firm than GWL. The estimated saving
from an ASO program at that time was 9.8% equating to approximately $165,000
without taxes, and based on a 10% health trend, 8% dental trend. It is
anticipated this amount could be eliminated with the internal reserves that would
be required to fund the program, the impact of taxes, and any change in the
claims history and trending. It is anticipated that additional staff resources would
also be required to administer the internal process (reconciliation for claims
charged, claims documentation review for legitimacy since the ASO Provider
would not have a vested interest in investigating claim only payment of same)
thereby potentially further eroding any anticipated savings.
3.0 Area Municipalities
3.1 The area municipalities have advised the following:
Municipality A.S.O. Program Comment
The risk of assuming the claim is not
Ajax No considered advisable; have claim for
one employee over $50k for one Rx
drug. Have $25,000 stop loss.
Whitby No 900 employees on benefit plan including
retirees. Not willing to absorb risk for
assumption of claim, particularly with
some unlimited coverage.
Pickering No Risk of contentious claims paid without
consideration of impact because
external provider not responsible for
cost of claim. Some costs expected to
be high for groups with high usage and
REPORT NO.: COD-015-11 PAGE 4
demographics.
Oshawa Yes - Excludes Hard to say if it is less costly, move
LTD/Life made years ago based on consultant
recommendation; covers 1,000 people
including retirees.
Region Yes -Excludes Plan in place for 4,000 employees &
LTD/Life carry $50,000 stop loss; Expect
program more suitable for large Region
Groups. Entered ASO in 2005, &
established internal reserves.
4.0 Summary
4.1 Great West Life advised of the following in assessing whether ASO is a good fit
for an organization:
"Generally clients that have better than average claims experience, so
they are at or below the insurer's target loss ratio, find ASO to be a better
funding arrangement" A plan sponsor needs to have sufficient cash
flow available to pay claims should they end up being higher than
anticipated. There is no way of knowing if one or more plan members will
reach the pooling level in any given year."
4.2 In light of the Municipality's recent claims history which caused the professional
firm of GWL to lose in excess of $450,000, thereby giving rise to the significant
renewal impact, it is not recommended to change to an ASO program at this
time.
ATTACHMENT # 1
ASO Considerations
An ASO Arrangement -how it works
With an insurance plan, the Municipality of Clarington pays premiums to Great-West in exchange for
Great-West taking on the risk of paying claims. With an ASO plan, the Municipality of Clarington is
responsible for the cost of plan member claims, expenses and taxes. Great-West provides claims
adjudication and administration, funded through monthly electronic transfers by the Municipality of
Clarington.
Insurer holds reserves to pay Plan sponsor has no legal obligation to hold ;
Reserves claims that are incurred but have reserves, but must be financially prepared to
not yet been submitted. cover all claims submitted.
Plan sponsor pays fees for administration and
Insured premiums include all
Expenses expenses regardless of number or for the processing of claims, and these costs
are calculated based on a percentage of paid
value of claims submitted.
claims. {
With the exception of Ontario, Quebec and
Insured premiums include all
Taxes Newfoundland and Labrador, plan sponsor
applicable taxes.
does not pay premium tax.
Insurer manages the analysis and Plan sponsor is responsible for managing
Legislative
Implementation of any legislative legislative changes and the impact to their
Changes
changes. benefit plan.
Types of A90
Option 1: Administrative Services Only (A91J) Daily Withdrawal: Under thisfunding method, there are
no monthly rates charged. Claims are withdrawn from an account that you designate, the day after they
are incurred. Can one day per month, daims payment and administration expenses are also withdrawn.
It is important to note that with thistype of A9~, we do not withdraw any claimsfrom the account once
a person hitsthe $10,000 stop loss level; we automatically pool the daims at that point, so there is no
need for concern about large withdrawalsthat cannot be funded.
Option 2: Administrative Services Only (ASO) Deposit in Advance: Under this approach, a monthly
deposit is determined'or we can develop "budgeted" rates that are applied just like insured rates and
billed each month. At the end of the policy year, any deficit determined by a reconciliation (claims plus
expenses vs. deposits or budget premiums) is payable by the client; any surplus is returned to the client.
Afloat equal to approximately 4 weeks of claims plus expenses is required to cover any fluctuations in
claims experience.
Under either of the options, your current stop loss (or large-amount pooling) protection of $10,000 for
drugs, private duty nursing and accidental dental would remain in place, as would your pooling
arrangement for out of country emergency claims, which are pooled from first dollar. Therefore, your
exposure would remain limited as is the case now with your non-refund coverage.
A Switch to ASO
• Means an "immediate pick-up' basis -this means that any claims paid after the accounting
change would be charged to the new accounting basis regardless of the date the claim was
incurred
• Existing reserves are not transferred to the ASO plan nor are they refundable
• Results in a new policy number, new employee materials
• A change to ASO is a 6-8 week set-up period
A Switch Bacl< to the Current Funding Arrangement
• Would mean a new policy number, new employee materials
• The reserves would need to be re-established
• A 6-8 week set-up period