Tackling Health Care Together
At a time when many districts are reeling from rising health care costs, M. Mohsin Dada helped his Illinois district buck the trend. As assistant superintendent for business services at Community Consolidated School District 54 in Schaumburg, Dada tackled the problem of health care inflation head-on and immersed himself in the details of health plan design. Working with employees, he saved the district millions of dollars by changing the district's plan to better reflect practices in the private sector.
Dada, also the chief financial officer, was able to secure the employees' cooperation by explaining that continued health care cost increases would drag down their total compensation, including salaries.
To honor his achievements, the Association of School Business Officials International in 2005 presented Dada with its Distinguished Professional Eagle Award, one of four given out every year. The award is not only a measure of an extraordinary deed or lengthy career but it recognizes leaders who, throughout their careers and lifetimes, have demonstrated excellence and leadership.
District Administration recently spoke with him about his approach to health care cost management to garner tips that might be useful for administrators facing similar health care cost woes.
D.A.: First, what are the major considerations when comprising a health care management plan for a district? We would assume it varies by district, size and location, but are there general points that must be considered?
Dada: The top issues CFOs should take into consideration when designing the health care plan are:
Reduce the administrative cost of the health plan by slashing the cost of insurance brokers and claims processing. Our administrative rates are 2 percent of the total health care contributions. It is not unusual to come across rates of
10 to 15 percent of total health care contributions.
Educate employees about the process involved in the formulation of the health care premium. They need to be aware of co-relation between a rich benefit plan and annual premiums. One way to motivate employees to be practical and more cost efficient in the demands for more coverage is to make them partners in the payment of premiums. Design the premium cost-sharing formula so that any significant growth in future premiums will require greater employee contribution.
Provide an incentive to the employees for using efficient medical service providers. Reduce the demand for services and cost of claims by promoting wellness, disease management and large case management.
We took into consideration what was appealing to our employees and what was affordable to us. Most negotiations in the last five to 10 years between employee and employer have focused significantly on the insurance plan design, which includes deductibles, co-pays, and a little less flexibility in selecting doctors by providing incentives to employees to go to doctors and service providers who have agreed to discount fees. These service providers are part of the network and have agreed to provide discounts from 30 to 50 percent of the usual and customary charges. In order to contain the cost of prescription medications, we have designed a reimbursement program to encourage generic medications when possible and provide a [better] reimbursement for formulary drugs.
Also, in the private sector, it's very common to have deductibles from $500 to $1,000. In other words, the private sector employers have already insisted that their employees pay a significant portion of health care costs with higher deductibles and greater co-pays. Public sector employers are now demanding the same. School districts should adjust deductibles and co-pays on a regular basis to account for health care inflation.
D.A.: How did you decide which options to consider, and then how did you narrow them down for a final plan? What extraneous inputs went into the decision, either from colleagues or various representatives from health insurance plans?
Dada: Our first task was to educate our employees in terms of what health care costs are doing to the school district. These costs were threatening the financial stability of our district, like many school districts in the country.
What we did was set up a Benefit Committee, made up of a group of employees from various areas and the union leadership. At the committee meetings, we promoted open discussion about controlling health care costs. We encouraged employees to think outside the box. We also explained that the employer looks at the total cost of an employee, which includes benefits, and that rising health care costs will have an impact on their salaries.
We also made sure that the committee had a system in place to distribute information back to the employees and involve the employees in plan design changes.
We didn't want to do things unilaterally. Because we had a committee, we came up with a plan in terms of identifying how the changes would affect the bottom line. We provided committee members with various design changes along with expected savings. After much discussion, all the ideas were accepted.
D.A.: What were the steps involved in creating your particular plan? Is there anything unique to your district's needs?
Dada: As the CFO of the district, I made sure I understood from start to finish what needs to happen to control health care costs. Once I educated myself, I wanted to find out, how do I reduce health care costs and whom do I use?
The private sector uses the services of cost reduction consultants in many fields. The consultants normally charge fees based on the amount saved. In our district, I was able to do this without the service of a cost reduction consultant. I wanted to know all the costs involved and negotiate all the costs, because from my perspective, all rates and fees from service providers are negotiable. In the last five years, premiums have doubled for most employers, and a lot of insurance brokers are still charging commissions, which are a percentage of the premium.
I think that's the wrong formula to reimburse the insurance brokers. Instead, negotiate a fixed rate fee, based on the amount of time involved for the insurance broker, and use the broker as a consultant. Reimburse the broker based on a certain hourly rate not to exceed a certain amount of money. We were able to reduce the insurance commission from $380,000 to a fixed insurance fee of $30,000 per year.
Next, because we are self-insured, we also have a third party administrative service providing claims management. We were able to reduce claim process and management services by 40 percent. We were also able to negotiate higher service provider discounts.
To encourage our employees to go to service providers, which offer greater discounts, we offered lower deductibles for employees who participate in-network.
Our district introduced a deductible for emergency room care, increased the annual deductible for health insurance, and increased the prescription medication co-pays. The previous amounts did not reflect the practice in the private sector.
D.A.: In the end, how would you assess the plan's success?
Dada: We started implementing changes in fiscal year 2004. The benchmark for fiscal year 2003 was $8.8 million in total claims. Upon completion of fiscal year 2004, our total claims were $6.7 million. This is a significant savings, especially if we were to apply the national health care inflation rate of 16 percent. Applying that rate to claims of $8.8 million would have resulted in total claims of $10.2 million. In fiscal year 2006, our savings were $6.2 million.
D.A.: You won a Distinguished Professional Eagle Award from ASBO. Any lessons learned that you could share with colleagues in other districts?
Dada: Essentially, we have made sure that we direct as many resources as possible to the classroom by reducing costs outside the classroom. Our school district has the lowest administrative costs in Illinois. Keep an open mind. Listen to people. In my opinion, I am a lifelong learner and there is always a better way to do things. I am able to focus on cost reductions because I have a very talented team working together. Our school board is very supportive, our superintendent [Ed Rafferty] is focused on improving student performance and the staff in the business office is fully committed to operate effectively and efficiently. The reason for our balanced budget and improved financial condition is implementation of successful cost containment strategies.
To implement a major change, which impacts so many people, it should not be a top-down decision. It should involve the employees in the decision making process. And trust the employees. We made sure that we showed employees the need for reducing health care costs.
Kevin Butler is a freelance writer based in Los Angeles.