Twin Peaks: Controlling Health Costs with Self-Funded Plan

Like most schools that rely on a fully insured, carrier-driven program to deliver healthcare benefits to employees, Twin Peaks Charter Academy (TPCA) had grown accustomed to perennial (and in many cases, hefty) premium increases that inevitably left school officials to confront a multiple-choice question with two highly unappealing answers. They could either (a) switch insurers to chase a lower first-year premium, knowing full well that the move could be disruptive for staff and that major premium increases would be coming from their new insurer in subsequent years; or (b) for the sake of continuity, stick with their current fully insured plan, realizing that substantial annual premium increases likely would force them to continue to cut funding to other mission-critical areas, to dilute employee benefits and/or to shift more costs to faculty/staff.

In TPCA’s case, year after year of large annual insurance premium increases were hamstringing the northern Colorado school in significant ways:

• Because annual premium increases were outpacing annual per pupil revenue (PPR) increases, TPCA was forced to cover rising health benefits costs using funds earmarked for curriculum, making it more difficult for the school to fulfill its academic mission and serve its students.

“For a school to have to make these kinds of choices is just wrong,” says Amy Anderson, the human resources representative at Twin Peaks.

• Rising health benefits costs had forced the school to scale back benefits and/or shift benefits costs to employees in some years — moves often perceived by staff as pay cuts that were hampering the school’s efforts to recruit and retain top teaching talent.

The Self-Funded Solution

Seeing no clear end to fast-escalating, hard-to-control health benefits costs and the collateral damage they were likely to continue causing if TPCA were to continue along the fully insured path, Anderson, Director of School Joe Mehsling and the Twin Peaks Board of Directors instead confronted this difficult multiple-choice question by circling “none of the above.”

That meant fundamentally changing the way the school approached health insurance.

With the guidance of their long-time health insurance broker, HUB International, Twin Peaks embarked on a multi-year, strategic plan to shift away from their traditional, fully-insured plan to a more sustainable and cost-effective self-funded plan. In doing so, TPCA found its way out of a health benefits cost quandary that has become all too familiar in the charter school world.

The transition was gradual, over a period of several years, during which Twin Peaks incrementally gained more control over their plan, first by moving to a partially self-funded plan, then ultimately by implementing a self-funded program.

Under the self-funded plan that TPCA implemented on Jan. 1, 2019, the school is responsible for paying employee claims directly, as they are incurred, up to a pre-determined limit. A cost-benefit analysis conducted by the school with the help of HUB had determined that assuming the risk and responsibility associated with paying employee health claims would ultimately be a more fiscally sustainable route than continuing along the fully insured pathway, with the higher fixed costs, lack of cost-control and large year-over-year premium increases that came with it.

Like many organizations with a self-funded plan, TPCA chose to transfer the bulk of the administrative duties associated with its plan to a third-party administrator, or TPA, which assumes responsibility for managing day-to-day claims and other administrative tasks. The school also selected a PBM, or pharmacy benefits manager, to help administer the prescription medication aspects of the plan.

With HUB’s help, Twin Peaks also joined together with other charter schools that have self-funded health plans to purchase re-insurance, an important step in protecting them financially against the risk of catastrophic claims. This program, the HUB Charter Pool, has allowed TPCA to access much greater protection — for a much lower cost — than they would otherwise be able to get on their own.

Impact

For Twin Peaks, the decision to move away from the trappings of a fully insured health plan structure to a self-funded health plan structure has proven to be a wise one. The expected benefits that motivated the move have indeed materialized and, in some cases, have surpassed projections, according to Anderson and Mehsling. Here’s a look at several of those benefits:

Massive cost savings
Anderson calculates that moving from a fully insured plan to a self-funded plan has cut TPCA’s health insurance costs nearly in half. Since 2016, the school has saved an estimated $1.6 million, or roughly $3,600 per employee, per year. That money has gone directly back into the school’s operating budget to enrich teacher compensation, curriculum and other mission-critical areas.

Greater control of their plan
TPCA is no longer beholden to an insurance carrier’s restrictive rules and off- the-shelf benefits products. Instead, serving as its own plan sponsor, TPCA has full flexibility to design and adjust their plan to best suit the needs of the school and its staff. That includes everything from selecting the healthcare provider network they partner with to having decision power over which claims are approved.

Continuity, transparency and value for employees
The move to a self-funded plan was seamless for TPCA faculty and staff: virtually no change in their benefits and providers. Employees get “a great menu of plan choices and progressive voluntary benefits, and they get to stick with their preferred providers,” Anderson explains. “Folks are very happy. It’s something they don’t have to think about, and that’s a good thing.”

Labor savings
With a team consisting of an insurance broker (HUB), third-party administrator and a pharmacy benefits manager to support its health benefits plan, the time and resources required to manage TPCA’s health benefits have decreased significantly. Now not only does the school need just one clerk for those responsibilities rather than two, it also has been freed to contract out CFO responsibilities, creating additional cost savings that the school can apply to other mission-critical areas.

Ease of management
“From billing to problem-resolution, the entire plan and process have been incredibly simple for us to manage,” says Anderson.

A recruiting & retention edge
No longer does Twin Peaks struggle to attract and retain top teaching talent. Instead, robust health benefits give it an advantage in a highly competitive talent marketplace.

Keys to Success

Interested in pursuing a similar strategy at your charter school? Here are tips to ensure the most positive outcome.

1. Be open to a different way of delivering health benefits. As unfamiliar as the self-funded health insurance model may be to some charter schools, it already has been widely embraced across the business landscape. Overall, 67% of covered U.S. workers participate in a self-funded plan, the Kaiser Family Foundation found in its 2020 Employer Health Benefits Survey, which encompasses private and nonfederal public employers with three or more workers. In many cases, breaking from the traditional fully-insured model to move to a self-funded plan can make good business sense. “It was an option that as a forward-thinking organization, we felt we had to at least explore,” says Mehsling.

2. Find a broker who’s a true ally. Don’t settle for just a salesperson. A high-quality insurance broker can serve as an advisor, expert guide, advocate, information source, sounding board and partner on the self-funded journey. “A knowledgeable broker makes all the difference,” says Anderson. “HUB has been a partner in every sense. They walked our board through all the numbers and got them comfortable that the self-funded model would work for us. Now they consistently bring us ideas and opportunities to save money. They are true experts in the field.”

3. Do your due diligence. The decisions you make about health benefits will reverberate throughout your organization and directly impact the lives of your employees. So be sure to conduct a thorough cost-benefit analysis to assess the potential impact of the move to a self-funded model before committing to such a move. And if the organization ultimately chooses the self-funded route, take the time to evaluate (with your broker’s help) multiple third-party administrators, pharmacy benefits managers and other potential partners to find the best fit.

4. Take it at your own pace. Some schools switch from a fully insured plan to a self-funded plan in a single year. Others like TPCA opt to transition in stages, so they can see how a partially self-funded plan works before committing to a fully self-funded plan.

5. Put a safety net under your plan. Having an adequate amount of stop-loss coverage (purchased in the reinsurance marketplace) underneath a self-funded plan is critical to protecting an organization from a potentially catastrophic claim. Here’s another area where your broker can help.

6. Measure and benchmark plan performance. By tracking metrics like PEPM over time, and benchmarking them with other similar charter schools, your organization can gauge how its plan is performing, and make adjustments accordingly.

Learn More About Self-Funded Health Plans

Curious about self-funded plans, and whether your school or charter management organization (CMO) is a viable candidate to participate in one? Want to find out how moving to a self-funded health benefits program could impact your organization, and what the transition process would entail? Find answers from the following resources:

● BuyQ, our group purchasing organization dedicated entirely to charter schools and CMOs, through which organizations can gain access to the HUB Charter Pool.

● Condition Critical, a report from BuyQ with original research documenting the damage that a continued reliance on fully insured health plans is inflicting upon charter schools, and detailing the reasons more charter school organizations are turning to self-funded plans.

● HUB International’s Charter School Practice, Senior Vice President Gary Clark, chief contact for the HUB Charter Pool: mobile: 303-808-2942; toll-free: 888-795-0300; email: gary.clark@hubinternational.com; hubinternational.com

About Twin Peaks

Twin Peaks Charter Academy (twinpeakscharter.org) is a charter school in Longmont, Colo., that serves students pre-K through 12^th grade. The longest-operating charter school in the St. Vrain Valley School District, TPCA has earned numerous awards for academic achievement since its founding in 1997, helping it grow to 830 students and 90 staff/faculty members.