Jump in large claims hit OU's health-care budget

For most organizations that offer employee health insurance "“ including Ohio University "“ steadily rising costs are a fact of life.

But after coming in under or slightly over budget on its health-care expenditures the last four years, OU is likely to be looking at a significant cost overrun in this area when the current fiscal year ends June 30.

Greg Fialko, benefits director in OU's human resources department, said that with the fiscal year coming to a close in less than three months, based on expenditures during the year to date, OU can probably expect to exceed by about $1.4 million its medical-claim budget of around $26.7 million. (This number, which represents about a 5 percent overrun, doesn't include dental, prescriptions, vision, life insurance or disability insurance.)

This is in marked contrast to recent years. From FY 06-08, such expenditures came in under budget, by up to nearly 11 percent. In FY 09, expenditures went over budget, but by less than 2 percent.

One reason for the jump this year seems to be an increase in very large, or "catastrophic"� medical claims among OU employees and/or their policy beneficiaries such as spouses or children.

During a meeting of the university Board of Trustees earlier this month, Michael Angelini, interim senior vice president for finance and administration and treasurer, warned the board that OU so far this year has paid "a number of catastrophic claims,"� and is looking into the origins of this historically unprecedented development.

"It has been an anomaly for us,"� Angelini said in response to a question during a news conference following the trustee meeting. "We're a little bit concerned."�

OU, like many large employers, self-insures for medical coverage; that is, the university pays an insurance company to administer its claims, but pays for them itself, splitting the cost 90/10 with the employee.

According to data supplied by Fialko, OU's budget for medical claims (again, not including dental et al), has risen by more than $3 million over the previous three years, going from $24,265,920 in FY 06 to $27,435,500 in FY 09. It actually dropped by about 1.1 percent from FY 08 to 09, however.

During that same time, payouts stayed pretty well in line with budgets. Expenditures came in under budget in fiscal years 2006, 2007 and 2008 "“ by 0.5 percent, 2.9 percent, and a whopping 10.3 percent, respectively "“ and went over budget by 1.8 percent last year.

Overall during those four years, OU's budget for medical claims payouts was in the black by a total of more than $3.2 million.

When Fialko spoke to The Athens NEWS earlier this month, however, he reported that based on data through February, large claims "“ defined as a total claim amount of $25,000 or more by an individual policy holder "“ are making up a larger portion of the total claims filed by all OU employees this year than they have in previous years.

Where in FY 08 such claims made up about 41 percent of total claims, and in FY 09 about 43 percent, he said, "this year so far they're 45 percent of total costs,"� and will probably go up a bit more by fiscal year's end. That means large claims account so far for a little under $8.2 million this year, out of about $18 million paid out. OU is actually seeing fewer very large claims than it has in recent years, he said, but a handful of these are very large indeed.

Looking at total annual claims by any individual employee of more than $200,000, he said, in FY 08 OU had six people at this level, in FY 09 it had seven, and as of this February, has only three for FY 10. Those three, however, account for about $1.1 million in payouts, he said.

"That is $100,000 per person higher than our average for the past few years,"� he said.

OU REGULARLY HAS AN actuary analyze employee data to project what the university can expect to pay out in any given year in medical claims. The recent jump in big claims, however, is "beyond what an actuary would account for,"� so OU plans to have the data analyzed more closely to try to pin down the reason for the increase, and figure out if it is a quirk, or if the university can expect more of this in the future.

The big jump could just be the result of a coincidence "“ people having catastrophic events such as heart attacks or automobile crashes in the same year "“ or could be due to other factors, such as greater utilization of medical services by employees, or bigger-than-expected insurance payments being approved for medical procedures, he said.

If the source of the increase stems from something like the last two factors, Fialko said, OU may need to address it. If it turns out that the university's employees just had a run of bad luck medically this year, however, "then it would even out (in future years), and it would not be a problem."�

In an environment of tightening budget constraints, proposed changes in university health benefits became a point of contention last year between OU faculty and the administration.