Health Care Insurance Carve Out Plan – FAQ’s and More!
Over the last several years, two major issues relative to healthcare benefits have continued to plague DPS employees. The first is the ever-increasing costs, especially to retirees. The second is the exclusion of DPS employees from participation in DOA controlled health coverage decisions that directly affect us.
In looking for viable solutions to these problems, AHPA discovered that many police associations around the country manage their own health plans apart from their government controlled plans. In each case, the association is better able to provide a higher quality benefit at a lower rate than the larger, government plans. We found that police groups are generally viewed as less costly benefit pools by insurers than public employees as a whole. As a result groups like AHPA experience lower premium rates compared to state or municipal plans.
Each plan that AHPA looked at was administered by a police association through a trust fund board. This arrangement placed the benefit decisions where they should be, in the hands of those affected by them. As the trusts have grown, each association has devised its own strategy for providing benefits the members want while maintaining fund solvency. The trust board is accountable to the membership and not to administration department heads.
Carving DPS employees out of the DOA controlled, state employee healthcare plan will allow us to help keep costs down for active and retiree members, and empower us to determine our own solutions to the coverage needs of our DPS families.
How it Works
Other associations around the country have generally carved out of their employer health plans through the collective bargaining process. Arizona however, does not have a provision in law to allow collective bargaining. AHPA would have to lobby the passage of legislation to carve-out of DOA healthcare.
The legislation would need to allow for the carving out of DPS employees, establish a trust fund, create a trust board, set powers and duties for the trust board, and specify that both the employer and employee paid portions of health premiums are deposited in the trust fund. The trust board would then need to hire professionals to advise the board in administering the fund for the benefit of the members. Management of the fund would be a process similar to the retirement systems.
Some policy makers in agreeing that DPS employees would have lower insurance costs if carved out of the state healthcare coverage, have expressed concern that carving us out would subject the remaining employees to higher costs. We believe that theory is mistaken. DPS employees account for less than 4% of state employees. While we cost less to insure as 100% of a small group, we do not significantly reduce premiums for a large group of which we are only 4%.
Some DPS employees have expressed fears of losing benefits. Interestingly, one of the greatest advantages of carving out is that decisions as to the types and costs of benefits will be in our own hands. This scenario is preferable by far to continuing to rely on the whims of bureaucrats that neither take our input nor answer to us when things go wrong.
AHPA has been in talks with state policy makers both legislative and executive to make the carve-out happen. Additionally, AHPA has requested data from DOA so we can actuarially research the issue further. We will continue to pursue the goals of keeping costs as low as possible and bringing local control to our health coverage.
Following are frequently asked questions about carving DPS employees out of the DOA controlled state system:
Carve-out refers to the process of removing a select portion from a larger group. Specifically, in this case, it is the removal of DPS employees from the DOA healthcare benefit plan to a plan controlled by DPS employees.
What is the purpose of carving out?
Carving DPS employees out of the DOA controlled, state employee healthcare plan will allow us to help keep costs down for active and retired members, and empower us to determine our own solutions to the coverage needs of our DPS families.
How do we know this carve-out will work for DPS employees?
AHPA has already received preliminary estimates from major insurers that indicate a group savings of between $1.5 and $2 million for the first year after the carve-out. These preliminary estimates are without negotiation. We can be reasonably certain that as we get closer to actual agreements, the savings will increase.
How will carving out keep healthcare costs down?
Typically, law enforcement groups like ours have lower health insurance utilization. Because our members are generally younger and healthier than other groups, we present a lower risk to insurers. Lower risk translates into lower cost for health coverage for our members. Premium savings along with a sound investment policy will allow our trust fund to grow rapidly. The growth will be passed along to members, both active and retired to keep healthcare costs manageable.
Why should DPS employees be treated differently?
DPS is already treated differently and maintains separate programs in the areas of:
- Human Resources
- Information Technology
Has the state already created a carve-out precedent?
The state has already cooperated with the successful carve-out of Northern Arizona University. NAU has run its own healthcare plan for about 20 years.
Have health benefit carve-outs succeeded for similar organizations elsewhere?
Carve-outs have worked with public safety groups throughout the country. Among those groups are associations that represent:
- Alaska DPS
- California Highway Patrol
- Fresno County California Sheriff’s Department
- Nebraska Highway Patrol
- Orange County California Sheriff’s Department
- Riverside County California Sheriff’s Department
- San Diego Police Department
- Tulare County California Sheriff’s Department
Additionally, Washington State Patrol, Montana Highway Patrol and Colorado Highway Patrol are currently exploring carve-out feasibility.
Do all of the associations include benefits for retirees?
No. Some of the associations provide some sort of benefit such as a subsidy or complete inclusion in the plan. However some associations exclude retirees entirely. AHPA has always approached carving out as a means to benefit both active and retired members.
Will the carve-out benefit retirees?
Yes. There are two possibilities for lowering healthcare costs for retirees. First is to provide a subsidy to retirees with a portion of the growth of the fund. The other, if feasible, is to include retirees as full members in the coverage plan. The preference has been to allow retirees to fully participate in the plan. AHPA is including that question in the up-coming actuarial study.
What studies have been conducted to ensure the feasibility of carving out?
The most meaningful study of all is one conducted by insurers. Twice AHPA has provided census data of DPS employees – age, coverage type, zip code, and sex – to insurance providers for preliminary estimates. Each time significantly lower rates than the DOA plan for similar or better coverage was presented back to AHPA.
Even so, due to concerns of some policy makers, AHPA is in the process of commissioning an independent, actuarial study. The study is to look at potential cost savings for our members, future outlook as to the viability of our plan, and the potential cost impact to the state employees who remain in the DOA plan.
What is the purpose of creating a health care trust?
- A trust is created to administer the funds utilized to secure healthcare benefits.
- The trust board will invest monies in order to grow the fund.
- The trust board will determine how fund monies may be best used to provide retiree subsidies and additional employee benefits.
- The board will hire professionals to guide them and to interact with insurers on our behalf to ensure the best possible coverage.
Who will be on the trust board?
The trust board will be similar to other boards within Arizona. It will consist of five DPS employees and 2 public members.
Will members with pre-existing medical issues get the same or better care compared to the existing system?
As part of any agreement with an insurer or insurers, no diminishment in benefits and no gaps in coverage will be accepted. Among our chief concerns is the seamless transition of benefits.
This is a complicated issue. Shouldn’t we consult with professionals before taking action?
AHPA has been working with Pacific Financial Designs, inc. to make sure that we are going about carving out in the most effective manner. PFD, under the leadership of Patrick Madden, has assisted several other groups similar to ours successfully carve-out of their government healthcare plans. PFD is the same company that has assisted AHPA with our accidental death and dismemberment insurance. PFD has the expertise and experience to help us make the right insurance decisions.