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Consideration of request for continuation of self-insurance of Worker’s Compensation program
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Submitted by:
John Ruggini
Department
Finance Department
A. Issue
The State Department of Workforce Development requires municipalities to pass a resolution as authorizing the City to continue to self-insure its Worker’s Compensation program.
B. Background/Options
The City is required by law to pay the medical bills and salaries of employees who are injured on the job. The City has self-funded our Worker’s Compensation claims for over 30 years. The City pays first dollar of all Worker’s Compensation claims until our insured stop loss retention of $500,000. The City also has the option of fully insuring its Worker’s Compensation risk. In this case the insurer would cover all of the claims and salary costs but charge a higher premium. The difference is a trade-off between managing risk and upfront cost. It has been financially advantageous to the City to self-insure. Staff requested an analysis be done by the City’s third-party billing administrator, Charles Tayler Co. comparing it’s prior 5-year costs as a self-insured plan to the assumed costs over that same period had the City been fully-insured and paying an annual premium to a worker compensation insurer. The table below summarizes 2 different methodologies.
The blue “FI Premium” column shows the estimated costs if our workers compensation program had been fully insured between 2018 and 2022. The “SI Spend (Paid)” column shows the costs of the current program based on how much cash was spent in that year (regardless of when the claim occurred). The difference from the fully insured column is shown in the next column - a Fully insured program would have cost $433,561.11 than our current program. The next column, the SI Spend (incurred) is the amount of total incurred losses by the policy year for claims occuring during the same policy year (i.e. 2018 = losses occuring between 1/1/2018 and 12/31/2018 even if the dollars were paid out in future years). This column is more representative of how we account for costs. Under this comparison, our self-insured model was $188,690.23 more expensive than a fully insured model. Details behind this analysis are attached.
While this analysis does show a savings in a fully-insured model, the savings of 4.0% over a 5-year period is not sufficient enough to for the City to give up the flexibility we have in maintaining our own program.
The state requires the City to update its official authorization of the self-funded program every three years. This resolution accomplishes that authorization.
C. Strategic Plan (Area of Focus)
NA
D. Fiscal Impact
The premium for the excess insurance for claims that exceed $500,000 is budgeted so this recommendation has no negative fiscal impact. They analysis does show that a fully insured model could save the City money over a 5-year period.
E. Recommendation
I recommend that the City continue to self-insure its Worker’s Compensation program given that the limited amount of savings possible with a fully insured plan will not offset the value of the flexibility the City maintains with a self-insured plan. Attached is an example of the resolution that the State is requesting be filed with the Department of Workforce Development. Although not recommended, the earliest the City could transition to a first-dollar program would be 2025.