Monday, January 27, 2014
$1.9M Shortfall Blamed on More Claims, Low Reserves
By James Lomuscio
Intentional drawdowns of health insurance reserves and a sharp increase in unreported claims since 2012 left Westport’s Board of Education more than $1.9 million in the hole, the board’s Health Insurance Fund Review Committee announced today.
Members of the committee meeting today with Charles Haberstroh (3rd l) and Kevin Connolly (l) attending for the first time.n (CLICK TO ENLARGE) Dave Matlow for WestportNow.com
Initial shortfall projections were close to $2 million of the school system’s current $104 million operating budget, but today that number was reduced to $1,902,409.
“The projections keep moving,” said Brett Aronow, school board member and chairwoman of the ad hoc review committee.
The shortfall consists of a projected cash equivalent of $595,009, plus $1,307,400 of incurred but not reported (IBNR) claims. Aronow noted that IBNR claims are an accounting item.
“Everyone was looking at the operating budget, not the IBNR,” said Paul Block, school board and review committee member. “It wasn’t looked at on a consistent basis.”
Meanwhile, the school board in agreement with the Board of Finance and the Representative Town Meeting, intentionally drew down its health insurance reserves, judged an acceptable risk. According to Elaine Whitney, the drawdowns were $1.6 million in 2012-13 and $1.4 million in 2013-14.
At the same time, there was unanticipated spike in medical claims. Elio Longo, the school system’s business manager, noted that for 2012, six claims exceeded $100,000, one of them more than the stop loss of $225,000. For 2013, the number of six-figure claims jumped to 16, he said, with six exceeding $225,000.
“We knew we were taking a calculated risk, but that risk turned out to be worse than expected,” said Aronow.
“We didn’t calculate the risk properly, and it came back to bite us,” said Block. “We intentionally took it (the reserve) too low, and we had an increase in claims.”
At the start of the meeting, Aronow welcomed two new members to the review committee, Charles Haberstroh, a former selectman and finance board member, and Kevin Connolly, a former Board of Finance member.
“Basically, I really want to get to the facts of what happened, why it happened and how we are going to fix it,” Aronow said.
The shortfall has ramifications for the 2014-15 school operating budget, as School Superintendent Elliott has requested a 6.5 percent, as opposed to a 4.5 percent, increase.
According to Aronow, avoiding shortfalls in the future will hinge on internal checks and balances, a review by a second administrator, more frequent reporting and an annual audit of the health reserve fund.
“We need to strengthen our internal controls to make sure it doesn’t happen again,” she said.
Comments: Comment Policy
Perhaps the insurance involved needs to be reviewed as to the risk reward of self insuring to a certain amount. I assume a stop loss means insurance kicks in after a loss hits $225K. Would the cost of lowering that amount more than offset these kinds of reserve hits.
It seems we are rolling the dice with the tax payers money and we have not done a proper job of assessing the risk.
FYI - The RTM has no say over any line item in the BOE budget. That’s State law.
So I am not sure where there was any agreement in drawing down anything. The RTM cannot increase the BOE budget and if there is a cut the BOE decides where to parse it out.
One move that could show us how the expenses and budget is handled or not, is the recent announcement from I believe Longo that he will save money this year to try and help with the $2 million issue, by saving $200,000 in energy costs. REALLY? We are experiencing one of the coldest winters ever. If we remember, 2012 was a warm winter and this years budget is not much different than what was actually spent. I am sure everyone is feeling the effects of the cold winter with HIGHER energy costs. Are they lowering thermostats in the schools?
Is the budget that much ‘padded’ that they can save the $200,000 or are they misleading us and the savings will not happen?
Another question is when did the expenses occur and when was the budget established? And was this years budget set with a reduction in medical to make the budget number work?
To many questions including the proposed savings which is what they put forward. Leaves much concern.