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Insurance consortium keeps costs down for county municipalities

This article first appeared in the St. Louis Beacon, April 11, 2012 - While competition, usually for shopping centers, may grab the headlines, the 90 municipalities of St. Louis County actually cooperate in many ways, some of which are largely invisible to residents. Cooperative efforts include sharing swimming pools and community centers, buying salt for frozen roads and sharing jail space for prisoners.

But the St. Louis Area Insurance Trust may be one of the most important ways  cities have come together to help each other. The trust, which celebrates its 25th birthday in July, was started in 1987 by a handful of cities frustrated with high liability and worker’s compensation insurance costs -- not to mention the difficulty of finding policies for police and fire fighters. The trust, began with liability but then added worker’s compensation and now offers health insurance. It has grown to include 27 municipalities in St. Louis and St. Charles counties as well as two dispatching entities.

“We have been a huge financial success,” said Des Peres city administrator Douglas Harms, also a board member. “We are an insurance company.” Banding together, he says, has resulted in much lower insurance rates.

“Worker’s compensation insurance costs 18 percent lower than the state’s normal cost pool,” he said.

The idea for a St. Louis County insurance consortium was born in the early 1980s, said Dave Watson, director of finance for Maryland Heights and one of the trust’s founding members.

“In the mid-1980s the insurance market was not kind to government entities,” said Watson. “A lot of carriers decided they did not want to risk programs with municipalities.”

“We couldn’t find insurance on the open market,” said Harms. “There were so darn few [insurance companies] who were willing to write policies.”

And when policies were written, they were extremely expensive, Harms said, because police and firefighters were considered risky bets for liability and worker’s compensation.

Although Missouri has its own insurance purchasing pool, founding members felt that their needs would be better served by joining forces with similar cities.  So, Crestwood, University City, Maryland Heights, Creve Coeur, Clayton and other cities studied a similar program in Kansas City and then formed their own liability insurance company in 1987.

Only cities professionally managed by city administrators or city managers may join the pool, the rationale being that a city administrator would take the responsibility of enacting safety and risk-management programs to reduce the risks of accident.

“There’s got to be a person in charge who has the authority to enact safety programs. The authority must be vested in a charter or an ordinance,” Harms said.

Other risks were taken into consideration. Cities such as Kirkwood, which operates a water utility, cannot join either, Harms said, due to the cost of extra insurance for utility employees. And the trust eschews skateboarding parks and pools with high dives.

Health insurance added

Three years ago, the trust began offering health insurance.  Currently, Harms said, the trust offers health insurance to 1,900 employees in 14 municipalities.  When spouses and dependents are added in, about 3,500 people total are insured.

By banding together, cities spread out insurance costs, said Watson.

“If a group of 200 people has two or three cancers in its group, it’s going to cost a lot of money,” said Watson. The same number of cancer cases in a group of 2,000 costs much less per person.

“Putting all these together is providing what we hope is stability in the rates,” Watson said, although he admits “we don’t have a magic wand that’s going to keep health-care costs down.”

“The health insurance business is a lot harder [than liability and worker’s comp], only because the premiums are big and they keep going up,” said Steve Wicker, vice president at Daniel and Henry, the administrator of the insurance consortium.

To combat more frequent and more expensive claims, the trust uses the data from its claims database to develop targeted wellness programs.

To Amy Hamilton, city manager for Richmond Heights and vice president of the trust’s board, running a health insurance company takes much of the painful uncertainty out employees’ health insurance.

“We were averaging a 15 percent increase every year with our health insurance renewals,” she said. "One year the increase was 25 percent, another year it was 9 percent,” she said.

Not anymore.

“I’m not seeing the percent increase I was seeing when I was in the market by myself,” Hamilton said.

Moreover, operating the insurance trust allows municipalities to see exactly where their insurance dollars are going.

“We know exactly how much we’re paying for the administration; it’s right in the budget.”

Because Daniel and Henry tracks claims and provides information on what health claims are most prevalent (municipalities do not have access to individual medical claims, only statistics), cities can tailor wellness programs directly to their employees’ most common health problems.

Running one’s own insurance company has other perks. When money is left over and the fund balance requirements have been satisfied, cities receive dividends.

“If there’s a surplus one year, we give the money back to our members,” said Harms.