BRADENTON -- A program designed to save Manatee County schools money has a growing deficit of more than $9.4 million that has led residents, school board members and state officials to question district officials’ fiscal responsibility.
The program in question is the school district’s health insurance.
As a self-insurer, Manatee County School District officials have specific responsibilities: Pay insurance claims to a third-party administrator -- Blue Cross Blue Shield. Keep up with the premiums. Keep a financial safety net. And every year a report on the fiscal health of the program has to be submitted to the state’s Office of Insurance Regulation.
But some job responsibilities were not done, according to school board members and administrators. Other responsibilities weren’t properly completed, causing the district to borrow dollars from the general fund to pay insurance claims.
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But the litany of problems didn’t start until late 2006, right before the state’s economy began to tank.
In June 2007, administrators found the district’s health insurance plan was about $700,000 in the hole. One year later, that figure escalated to a whopping $4.7 million.
Superintendent Tim McGonegal and Director of Risk Management Forrest Branscomb said they knew they had to fix the problem.
“In October 2008, our board changed the benefits of all three (insurance) plans,” McGonegal said. “We had to impose that on all unions. We thought that was going to cure our problem. It did not.”
The fix described by McGonegal was done at the request of then-Superintendent Roger Dearing, Branscomb said. McGonegal was serving as chief financial officer at the time.
“The previous superintendent put in a 1-percent salary reduction back in 2008-2009,” Branscomb said. “Since we were taking a 1 percent reduction in salary, he didn’t want to increase premiums, which made sense.”
Their solutions involved “design changes.” They tweaked benefit packages by raising deductibles and copays. But that first fix didn’t solve the deficit problem.
“It just slowed the problem,” McGonegal said in hindsight.
By June 2009, the deficit had increased by $3 million. The slowdown occurred between June 30, 2009, and June 30, 2010, when the deficit increased by $1.4 million.
A perfect storm
School officials were slammed by insurance claims in 2009, Branscomb said. By June 30, 2009, the deficit had ballooned to $7 million.
As risk manager, it’s Branscomb’s job to ensure that Blue Cross Blue Shield pays the district’s insurance claims. He also works with actuaries who project how much insurance claims should be on an annual basis. Those projections are critical when considering the district has to budget for those dollars.
“An actuary gives what they think is the actual projection of things,” Branscomb said. “But they don’t have a crystal ball. They could be off.”
Projections were off from 2007-2010. Insurance claims were projected between $2 million-$3 million below the actual numbers. The school board had to approve the shortfall to be paid from the general revenue fund, according to school records and Branscomb.
“In 2009, we just had a very bad year on claims,” Branscomb said. “But thank God we made those plan design changes or it (the deficit) would have been like $10 million or $15 million by now.”
Employees, with a choice of three insurance plans (Blue Choice PPO, Blue Options PPO and Blue Care HMO), weren’t paying the full value of the premiums due to the previous superintendent’s request to keep premiums down. According to the consultants of Mercer Health & Benefits, district officials did not charge enough money for employees to financially cover the insurance. At the request of the district in 2010, Mercer completed a 30-page report detailing how the district could get out of debt. The cost of the report: $32,490.
“Current funding rates are not set appropriately based on the actuarial value of the plans,” the report says.
“Employees moving to the HMO from either plan or to the Blue Option PPO from the Blue Choice PPO would have an increase in claims and a considerable decrease in contributions, costing SDMC (the School District of Manatee County) more money,” the Mercer report says.
District officials also had to maneuver through the external problems. The economy worsened. And school district officials got caught having to cut $46 million from their budget between 2007-2010.
“It’s the perfect storm. We’re being cut like $46 million. That’s the money we used to keep up with these premium increases,” Branscomb said. “We’re like a big ship -- we’re the largest employer in Manatee County. We’re in a big ship in a perfect storm.”
Local accountant Byron Shinn was asked to sit in on the budget committee. He reviewed the health plan and became concerned.
“I want to be constructive, not destructive,” Shinn said. “What they do as a self-insurer is try to save money.”
But the claims have been more than the premiums, Shinn added.
“Somebody in the system is not paying attention.”
The growing deficit forced school officials to pay attention. McGonegal and Branscomb said the only way to get control of the deficit was to increase premiums.
District officials are required by state law to inform the Office of Insurance Regulation about the health of the school system’s health insurance program in an annual report. But school officials have not completed the annual reports required by state law. Those reports were not submitted to the Office of Insurance Regulation from 2006-2009.
Branscomb and McGonegal offered two different responses about why the reports were not filed. McGonegal said he wanted to file a report that showed the deficit and the proposed solution to the shortfall.
“That was my position for the last few years,” McGonegal said. “Why don’t we just submit what we have?”
But, McGonegal said, it was actuary and consultant Alison Pool, of Wakely Consultant Group in Clearwater, who directed the school district not to file the report.
“Our actuary told us we couldn’t do that. She could not file a report unless she could certify it,” McGonegal said.
Branscomb said, “I think everybody knew our situation all the way up from me to the board. It would have been simple to file a report. But there were no penalties for not reporting.”
Jack McDermott, communications director with the Florida Office of Insurance Regulation, confirmed that there “is not a penalty associated with not filing,” although submitting an annual report is required.
Pasco County’s Mary Tillman, director of employee benefits, assistance and risk management, was surprised to hear there is no penalty when an annual report isn’t filed. Her district along with Manatee County are two of the 44 school districts in the state that are self-insurers. Pasco has been self insured at least two years.
“You absolutely have to do the report,” Tillman said. “They (representatives with the OIR) can tell us we cannot operate as a self-insurer. My understanding was we had to do the report. I was unaware it was optional.”
Not doing a report for three years led Manatee County’s school district to get back-to-back audit report warnings. The state’s Auditor General’s Office cited the district for not filing the group health insurance plan’s annual report.
“Without timely filing annual reports, the District may limit OIR’s ability to properly monitor the District’s plan,” says the 2008 audit from the state.
The audit advises the school district to take appropriate action to ensure the report is filed within the proper time frame -- 90 days after the close of the fiscal year of the plan -- which is March 30.
That wasn’t the last time the district received that warning. In 2010, the auditor general issued that same finding on an operational audit.
In the 2010 report, the auditor said district personnel blamed the deficits on new claims expenses and increased medical costs.
“District personnel further indicated that the district will review premiums to determine if an increase is needed and anticipates settling older claims to reduce the estimated claims liability,” the audit says.
The audit findings led McGonegal to write a letter to the Department of Education, asking how much trouble the school district was in for not filing an annual report. He asked if the audit findings would lead the state’s education department to take action against the school district to “in some way punish us for the lack of filing these required reports for four years?”
Deputy Commissioner Linda Champion said, “While the Department of Education is concerned about the failure of the district to file the plan ... the department is not authorized to take action.”
Branscomb said, “I think we’re going to report every year now. Because of the ... controversy that it’s brought up. It is required. We should be doing it.”
Unions & residents discord
The auditor’s findings have captured public attention.
Retired insurance man Mike Becks began to compile his own stack of information after hearing about the auditor’s findings and the outcry from some residents.
“I think there’s some malfeasance out there,” Becks said. He described how he sees the escalating costs. “This is a symptom of a cancer. What’s going on below the surface that we don’t see?”
Becks isn’t alone. School district officials have decided to follow suggestions made by the consultants with Mercer. The consultant’s report recommends increasing premiums of each employee’s health insurance plan. Those dollar increases had to be negotiated in the salary talks between the two school district unions.
“The plan and the premiums obviously had to be bargained with the unions,” Branscomb said. “We’re trying to do that to get more money into the fund.”
McGonegal said, “We tried to do this without raising premiums and it was almost impossible. So we’ve had to bite the bullet and raise premiums.”
District officials believe premiums will need to increase substantially for the Blue Options PPO and the Blue Care HMO -- the school system’s more popular insurance plans. On average, the premiums may increase nearly $30 each month for individuals on the Blue Options plan over the next three years. Families on the same plan could expect more than a $100 increase each month over the next three years. Blue Care HMO individuals may have to pay more than a $30 increase, while families may pay a nearly $200 increase over the next three years.
Contract talks, however, haven’t gone well between the two unions and the district. Manatee Education Association sought a more gradual increase to the insurance costs. But the district halted talks with MEA and declared an impasse. A magistrate was requested by the district and a hearing was held in late March. The magistrate had not by Friday offered recommendations, and the district doesn’t have to follow them.
“The deficit didn’t get here in two or three years. So to believe you can get out of this dilemma in that sort of time frame doesn’t make sense,” said Bruce Proud, MEA’s business agent.
The American Federation of State, County and Municipal Employees represents food service, custodial, transportation and maintenance workers. The school district has also declared an impasse against AFSCME. A magistrate has been assigned and that hearing will take place April 14.
“The insurance was one of the biggest hurdles,” Local AFSCME President Bruce Mohr said about the salary talks.
Mohr said his group wanted to opt out of the insurance plan so that they could “competitively search for other insurance.”
However, the Mercer report relies heavily on a three-year plan that calls on increasing employee premiums to eliminate the deficit.
Premiums were supposed to increase April 1 for nonunion, salaried and administrative employees on approval of the school board. But since the two unions were fighting the changes, no premiums were increased. Monday, the school board will have a second vote that would officially halt any premium increases until June. By then, the insurance premium decisions will be made by the magistrates.
In June, the health insurance deficit will exceed $10 million, according to school records.
School district officials have finally submitted an annual report to the Office of Insurance Regulation for the first time in nearly four years. The six-page report, dated April 1, is filled with pros and cons regarding the district’s health insurance program. Wakely Consulting Group wrote the report for the district. Pool signed off on the district’s self-insurance plan.
“In my opinion the techniques and assumptions used are reasonable and meet the requirements and intent” of Florida law, she said. However, she also added that the plan has a deficit of $9.37 million.
“The current net assets available ... are inadequate to cover outstanding claim liabilities,” Pool said in the report. “Because of the deficiencies, we do not consider the School Board of Manatee County self-funded employee health plan actuarially sound.”
Said Branscomb, “You only become actuarially sound when you’ve got the money and you get a fund balance.”
The fund balance requires that the district have finances to cover 60 days of claims. However, McGonegal and Branscomb believe their three-year plan will build a reserve and create a surplus for the district.
“When we actually get the financials for December 2011, the prediction is the deficit will be more than cut in half at that point,” McGonegal said. “The next year, we’ll actually be in the black.”
School board member Julie Aranibar was chairwoman of the budget committee. She doesn’t believe the school district will reverse the deficit based on the Mercer report’s recommendations.
“It relies on data that is not proven,” Aranibar said. “We owe the employees a plan that is fiscally responsible and solvent.”
Board Chairman Robert Gause said, “I wasn’t happy with the deficit last year. Now we have less money. The deficit is still up there. We have to make decisions and the decisions will be more difficult than they were a year ago.”
Two different actuaries have been used to determine if the district’s plan will be solvent in three years. McGonegal said the second actuary was more positive than Wakely, which has been used for the past few years.
“Actuaries are saying the plan could do better than expected due to recent trends in the district,” Gause said.
Aranibar isn’t so sure.
She said the same actuary who has been incorrectly projecting low claims for the district on an annual basis is still being used.
“The best indicator of future performance is past performance,” Aranibar said of the actuary.
“The future looks much brighter, but it’s on the backs of our employees,” McGonegal said. “That’s the tough part about it. We just don’t have the money for our board to pay the premiums.”