Faced with a changing national landscape, rising health care costs, and a dwindling membership, the Municipal Association will discontinue its self-funded health benefit program in 2011.
The South Carolina Local Government Assurance Group was established in 1981 as an alternative to commercial health insurance programs. It was part of a national trend that saw cities working collectively to create self-funded pool programs. SCLGAG provides medical, dental, vision and life coverage for municipal employees. The program will be discontinued June 30, 2011.
"This has been a good program for 30 years," said Harvey Mathias, director of Risk Management Services, noting the program has always been known for its excellent customer service and strong knowledge of cities’ insurance needs. "The program was established to provide cities with an alternative that could better meet their needs than the commercial medical insurance market. But today, we’re faced with circumstances beyond our control, and cities have other options that weren’t available 30 years ago."
With health care costs rising, members’ rates have increased. Cities, facing the crunch of the current recession, have been forced to cut costs and sometimes make short-term decisions. "When there are budget constraints, the insurance line always gets scrutinized," SCLGAG board member and Fort Mill Town Manager David Hudspeth said. "Members will leave if they can go and reduce their rates even for a year or two."
Membership in SCLGAG has dwindled from 129 municipalities in 1996 to 71 today, Mathias said. The new national health care law has made the landscape even more uncertain with additional constraints that offset many of the efficiencies SCLGAG has been able to achieve over the years.
"What has separated SCLGAG in the market has always been the knowledge our staff has of city operations and the needs of municipal employees. But when budgets are tight, it’s often the bottom line rather than customer service that has to drive decisions," Mathias said.
Difficult budget years typically are what drive members to leave, said Hudspeth.
"This is more an issue of how many participants are in the program than of the financial stability of the program," Hudspeth continued. "It’s better to have these discussions when we are financially strong, and our decisions are not being driven by finances."
SCLGAG remains financially sound, and the program is capable of covering its expenses and may be able to return money to its final members once the program is closed out, Mathias noted. In addition, Municipal Association staff will help members find alternative health insurance programs. The state health plan is one possible affordable option for local governments.
As many municipalities prepare to begin a new budget year, now is the time to consider all the options and make choices, said board member and Chester City Administrator Jeff Kerr.
"As a board, we needed to be proactive and decide what is in the best interest of our members," Kerr said. "The last thing we want to do is for the program to continue on and lose dollars. Now is the right time, when we have a good healthy balance and are financially sound."
As a medium-sized municipality, North Augusta has benefitted greatly from the pool concept, said City Administrator Sam Bennett. However, all municipalities are making tough choices right now, he said.
"We’re all looking for the most cost-effective way to provide the myriad of services we’re engaged in, including health insurance," Bennett said. "That’s why it’s so important to get ahead of the issue now. I have to compliment the Association staff. If we have the opportunity to go out while the program is still fiscally sound, it speaks well of the staff members and their commitment to the members."
Although the SCLGAG program has had challenges, the Association’s other pool programs continue to thrive. The SC Municipal Insurance and Risk Financing Fund (property and casualty coverage) and SC Municipal Insurance Trust (workers’ compensation coverage) programs have flourished. One important reason for their success is the membership in these programs has more ability to control and reduce claims costs.
"The programs are successful because of the cooperative effort between our cities and staff in reducing claims," Mathias explained. "We’re able to manage claims costs by having good risk management procedures and training in place. Furthermore, members with excellent claims records are rewarded handsomely for their efforts."
Because of the financial success of those programs, this year, SCMIT will return $3 million in participation credits to its members, and SCMIRF will return $2 million in participation credits to its members, Mathias said. "While we are dealing with an ever-changing landscape in the health insurance environment, the workers’ compensation and liability environments remain areas where we can and do have tremendous impact from a membership, cost and service perspective. Those programs do not face the same challenge that SCLGAG would if it remained in operation."