Cities and Towns Cheating on Health Insurance Contributions to Self Funded Plans

When cities and towns use self-funded health insurance plans, they have been able to cheat on their required contributions.  We have already found a number of cases where municipalities have failed to make their required contributions, thereby forcing employees to pay a greater share then they had agreed to.

This cheating is possible because of the way premiums are established for self-funded plans.  In such plans the premiums are set by estimating a number which will cover the projected cost of claims and expenses.  The premium payments must also maintain a cushion in the fund sufficient to cover regular variation in claims plus enough to cover claims which will come in after the end of a plan period.  We have found that when there is such a cushion in the fund, employers can be tempted to skip their payments and allow claims to be paid from the cushion and from employee contributions.

To prevent this cheating, union representatives acting under their collective bargaining agreement or working through a Public Employee Committee, where the PEC has a health insurance agreement, must carefully monitor the financial records of the insurance plan.  They should insist on monthly records to be presented quarterly for review.  The records must include the following:

  1. The monthly claims paid.
  2. The monthly expenses of the plan including the fee paid to the plan administrator and the fees for consultants, actuaries, and accountants.
  3. The monthly revenue, showing both the revenue from employee contributions and from employer contributions and income from any other source, like interest on funds.
  4. The monthly fund balance.

Looking at this data the unions should be able to confirm that the total contribution rate is appropriate to cover the claims and expenses of the plan and that the employer is paying its agreed upon share.  Finally, there should be an annual audit report on the plan confirming that the monthly data has been correct.


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