Bankrupt Status-Quo Health Plan Eyes Cost-Shifting Remedies

“There is no excuse for this! Poor risk management, old style remedies and believing in magic is a recipe for disaster!” – Don Pedro

The following article was referred by Alex Zuniga, Edinburg, Texas

McAllen to alter worker health plan


With the resumption of non-emergency procedures and a spike in inflation, McAllen’s health plan fund for active employees is projected to be more than $3 million in the red, prompting city staff to look at cost saving proposals. To avoid the projected deficit, city staff will be presenting changes to the city’s health plans in the coming weeks that would result in savings ranging from $225,000 to $1.8 million, according to Jolee Perez, the director of employee benefits, who presented the projections to city commissioners during a workshop on Monday.

Without the changes, the city is projecting revenue of $13,213,985 and total expenses of $16,244,526 for their active members’ health fund, which would result in a projected loss of $3,029,427 for the 2022-23 fiscal year.

The fund for retirees, with $516,907 in reserve, is projected to receive $1,655,507 in revenue and have expenses totaling $1,308,494 for the 2022-23 fiscal year.

Instead of having fully insured health plans that are owned, designed and managed by carriers such as Blue Cross Blue Shield or United Healthcare, the city has self-funded health plans which allows the city to design the plans and control the rates, Perez explained via email.

If the rates are too low, and the claims are too high, the city would incur that burden. But if the rates are higher than the overall expenses, the fund maintains the reserves for future years.

Currently, there are 1,835 employees enrolled in the city’s active member health plan and 90 enrolled in their retiree fund.

Next year’s projected deficit for the active members’ health fund is a continuation of an increase in health spending that was also seen in the current fiscal year.

For 2021-2022, the city’s beginning working capital for the active member fund was at $871,372 and their projected total revenues for this year are $14,676,728. However, that includes a mid-year adjustment of an additional $954,292 that was done to avoid going negative.

Their expenses this year are projected to total $15,546,986 and their ending working capital is expected to be $1,114.

Meanwhile, the retiree fund is expected to be back in the black at the end of this fiscal year after taking a big hit last year.

The higher costs for the current year are largely due to COVID-19 expenses, according to Perez.

“Out of the $2 million we have spent on COVID since inception, $1.3 million has been spent in this fiscal year,” Perez told city commissioners, “so we took a huge hit just this year when you compare what we spent in (2020), in (2021), and now in (2022).”

The $1.3 million, she said, were what had been spent to date since Dec. 15.

“We’re also now seeing the delayed, non-emergency surgical claims come in so if they didn’t have it back in 2021, they’re now starting to have it,” she said.

Perez added they’re also seeing the result of people delaying their primary care, early care, and preventative care during the early part of the pandemic.

“All of those things are now resulting in more complex cases, cancers that could have been caught earlier had it been done during preventative care maintenance,” Perez said.

There’s also an increase in behavioral health claims, and she said another contributor is inflation. Compared to the 2021 fiscal year, health care inflation this year increased by more than 200%.

The delay in early or preventative care that is now resulting in higher expenses for the city is what also enabled them to maintain a healthy fund last year.

By the end of the 2020-21 fiscal year, the city managed to have more than $870,000 in the active member fund, an achievement reached in spite of different, additional expenses brought on by the COVID-19 pandemic.

That fund balance was also achieved, at least in part, thanks to aggressive changes to the health plan that were implemented after the plan was $3 million in the hole in 2017.

That three-year plan consisted of a health premium increase structured in increments to fill the funding gap between the revenues and expenses, Perez said via email.

She said the premium increase was stretched over the three years rather than all at once to make the burden more tolerable.

So while that helped the active member plan build a reserve, the retiree plan took the largest hit in more than a decade during the 2020-2021 fiscal year and had a negative fund balance for the first time since 2007.

The expenses were driven by “a few high-dollar claimants,” Perez told the commissioners, and COVID- 19 was a contributor in that category.

The primary drivers of medical costs were neoplasms, which are cancers, infectious and parasitic diseases of which COVID was a part, and “other conditions” that didn’t fall into a specific category. For pharmacy costs, the primary drivers were diabetes, infl ammatory conditions and oncology.

Overall, medical claims went down .2% for the 2020-2021 fiscal year and the pharmacy trend went up 14%. Specifically for specialty conditions, which includes inflammatory conditions, oncology and significant cases, spending was up 7.7%. However, there was a 2% reduction in claims for catastrophic cases, which are those that are more than $50,000.

Perez also highlighted changes among their membership during the 2020-21 fiscal year.

Their diabetic population grew by 5.3% while cancer patients decreased by 22%.

There was also a notable increase in mental health issues among the employees enrolled in their health plan.

Substance abuse increased by 11.1%, while the number of members using depression medication increased by 16.3%.

Additionally, there was a COVID-19 baby boom with maternity claims going up by 38.3% during that year.

“So that is also what’s going to be driving our claims into this year,” Perez said.

Perez reiterated that despite the pandemic, the city was able to achieve its goal of the three-year funding plan to end in the black last year, the 2020-2021 fiscal year. But moving forward, they will be focusing on building their reserve and filling that funding gap of $3 million projected for next year.