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Procurement versus trust participation – options in insurance buying

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Presentation on theme: "Procurement versus trust participation – options in insurance buying"— Presentation transcript:

1 Procurement versus trust participation – options in insurance buying
Bill Munch and Andrea Billings Procurement versus trust participation – options in insurance buying

2 Options in Buying Insurance
Public Procurement Process Contract Negotiations Meet Bill Munch Meet Andrea Billings Two different opinions, approaches and experiences. We d tend to have differing opinions on what process is best. You have the typical “purchasing” process through RFP, best and final, etc. and there is the non-public process that we will refer to as contract negotiations. In the next hour we will talk to you about the different processes and how they differ so that you know and can communicate the advantages and disadvantages of each. Then we will end by taking a look at some comparative financial figures that have come out of each insurance buying process.

3 Public procurement process
Bill Munch Public procurement process

4 Theoretical Intent of Public Procurements
Open, transparent and non-discriminatory procurement is generally considered to be the best. Optimizes competition among suppliers. To prevent waste. Since public resources are scarce, the efficiency of the procurement process is a primary consideration of every school district. Open, transparent and non-discriminatory procurement is generally considered to be the best tool to achieve 'value for money' as it optimizes competition among suppliers. To prevent fraud, waste, and corruption, the laws in Arizona regulates school district procurement closely. It usually requires the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold.

5 The laws in Arizona regulates procurement closely.
Public Procurements The laws in Arizona regulates procurement closely. There are some distinct phases in the public purchasing process: Call for bids or Request for proposals (RFPS) Request for information, prior to bid Bid delivery Evaluation of the bid (awarding procedure) Contract award What is involved in the Public Procurement (Purchasing) Process? Usually there are some distinct phases in the whole public procurement or purchasing process: Call for bids or Request for proposals (RFPS) Request for information, prior to bid Bid delivery Evaluation of the bid (awarding procedure) Contract award

6 Public Procurements For buying insurance, a consultant is typically hired prior to development of the RFP, which is separate RFP process. The consultant works with the Purchasing staff and typically a selection committee. It usually requires the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold.

7 Contract negotiations
Andrea Billings Contract negotiations

8 Contract Negotiations
Broader, more innovative, and competitively priced services and contracts. Contract negotiations capitalize on the knowledge, capabilities, and opportunities of each party involved, making the purchase as efficient as possible. I managed the Employee Benefits and Risk Management contracts for a large district in Arizona for over five years. Having had this valuable opportunity, I know that the public bidding process has its benefits, and its limitations. Alternatively, I have spent many years working in the private sector and understand the purchasing process, that of analysis and contract negotiations, in corporate America. Many times this process will result in broader, more innovative, and competitively priced services and contracts.

9 Contract Negotiations
Do not have the same “limitations” as the public procurement process. Some limitations include; When the need for a contract is urgent. High cost of preparing a bid. Excessive standardization restricts innovation. Negotiated savings are not achieved. Scope creep. Personnel assigned to the bid committee are not familiar with the services they are charged with evaluating. Limitations of the Public Procurement (Purchasing) Process When the need for a contract is urgent, public employees may resort to direct negotiation of contracts with the private sector, usurping the purchasing department and legally-required procedures. The high cost of preparing a competitive bid (2-10 percent of total project costs) could deter some good firms from participating. The usual solutions don't suit all bidders. The public entity purchasing process might not justify the transaction costs for small concessions and contracts. Proposals must be very specific, or they cannot be compared. However, excessive standardization can eliminate new technology, and may restrict innovation, that could produce better quality or lower costs. Sometimes the lowest bidder under estimates costs and cannot meet obligations. This can lead to substantial renegotiations of terms. Negotiated savings is not achieved. Many firms are willing to make concessions and lower prices if the special concessions are kept confidential. If exclusive prices are published they become unattainable. Personnel assigned to review and award contracts are often not familiar with the services and products they are charged with evaluating.

10 Contract Negotiations
When are negotiated contracts advantaged over the public entity purchasing process? When the scope is complex. When more information is required. For unique and innovative proposals. To learn what firms are willing to negotiate. When are negotiated contracts advantaged over the public entity purchasing process? When the rules are unclear. If legislation is inadequate, it's better to negotiate. This works provided you deal with a reputable company. When more information is required. Sometimes school districts cannot specify the terms for the RFPs, because they lack certain knowledge. Then it's best to negotiate with companies that are willing to risk developing a proposed project. For unique and innovative proposals. Negotiated contracts are appropriate for developers with unique, unsolicited proposals that present a new solution to a problem. Competitive tendering would discourage private firms from developing their ideas. To learn what firms are willing to negotiate. Use negotiated deals to learn what is required to obtain serious private sector interest. The public procurement process may be used for later transactions.

11 Trusts and pools – the other insurance option
Bill Munch Trusts and pools – the other insurance option

12 Trust Participation Many public entities have elected to pool together to benefit from the “best of both worlds”, and is truly a competitive bid. Taking advantage of collective bargaining allowances under the statutory authority afforded in ARS , , Given the restrictive, expensive, bureaucratic process required by law for public entities, perhaps it is inappropriate to continue to refer to this as a “competitive bidding” process. It certainly is not. As a result, many business savvy school districts have elect to pool together, taking advantage of collective bargaining allowances under the statutory authority afforded in ARS , ,15-382, and The proposal process afforded by Valley Schools allows public entities to benefit from the “best of both worlds” and is truly a competitive bid.

13 Arizona Public Insurance Pools
As reported by the Arizona Dept. of Insurance there are currently as many as 23 public insurance pools operating in the State of AZ: Arizona Counties Insurance Pool Arizona Counties Worker’s Compensation Pool Arizona Health Insurance Pool Arizona Local Government Employee Benefit Trust Arizona Municipal Risk Retention Pool Arizona School Alliance for Workers’ Compensation, Inc. Arizona School Risk Retention Trust, Inc. Behavioral Health Insurance Pool, Inc. Cochise Combined Trust Mohave Schools Insurance Consortium Navajo County Schools Employee Benefit Trust Given the restrictive, expensive, bureaucratic process required by law for public entities, perhaps it is inappropriate to continue to refer to this as a “competitive bidding” process. It certainly is not. As a result, many business savvy school districts have elect to pool together, taking advantage of collective bargaining allowances under the statutory authority afforded in ARS , ,15-382, and The proposal process afforded by Valley Schools allows public entities to benefit from the “best of both worlds” and is truly a competitive bid.

14 Arizona Public Insurance Pools
Northern Arizona Public Employees Benefit Trust RSNA Employee Benefit Trust Rural Arizona Group Health Trust School Construction Insurance Pool, Inc. Schools Medical Insurance Trust Social Service Contractors Indemnity Pool Valley Schools Employee Benefit Trust Valley Schools Insurance Trust Valley Schools Workers’ Compensation Pool Verde Valley Employee Benefit Pool Yavapai Combined Trust Yuma Area Benefit Consortium (Trust) Given the restrictive, expensive, bureaucratic process required by law for public entities, perhaps it is inappropriate to continue to refer to this as a “competitive bidding” process. It certainly is not. As a result, many business savvy school districts have elect to pool together, taking advantage of collective bargaining allowances under the statutory authority afforded in ARS , ,15-382, and The proposal process afforded by Valley Schools allows public entities to benefit from the “best of both worlds” and is truly a competitive bid.

15 Andrea Billings Cost analysis

16 Claims Fixed Medical Expenses Pharmacy Total Cost Breakdown
Total Costs

17 VSEBT Fixed Expense Fee Comparison
Compare like programs to accurately evaluate fixed expenses. Self-Insured School Districts UnitedHealthcare NOT participating in a Trust or Pool Fixed Expenses Medical Administration Prescription Drug Administration Stop Loss Coverage Wellness Administration EAP/Managed Care COBRA Services Consulting

18 VSEBT Fixed Expense Fee Comparison
Public Records Requests Fees for the 2011/12 Plan Year UnitedHealthcare Administrative Services Only (ASO) Stop Loss Coverage Employee Assistance Program Managed Care/Behavioral Health COBRA Administrative Program Flexible Spending Account Program Consulting Services

19 VSEBT Fixed Expense Fee Comparison
The above rates include claims administration, network usage, Stop Loss coverage, employee assistance program, COBRA administration and consulting services. Dental, vision, and life program fees are not included in this analysis. The consulting services PEPM is calculated based on the monthly paid invoice divided by the total employees. Behavioral health programs vary from fully insured to self funded. The more significant differences in programs are noted here. This analysis does not include each possible program variation, or capture every contractual difference. PEPM Not In VSEBT: $54.32 VSEBT PEPM: $46.90

20 VSEBT Fixed Expense Fee Comparison
District 2 The stop loss level is $175,000 per specific loss and does not include retirees. The number of EAP visits is 3 per issue, per lifetime. The managed care fees/costs were not reported. Does not include an online employee benefit/enrollment system. District 1 The stop loss level is $225,000 per individual, plus an additional specific deductible of $200,000; does not include retirees. Fee above does not reflect RX rebates at 80%. The number of EAP visits is 8 per issue, per lifetime. PEPM Not In VSEBT: $54.32 VSEBT PEPM: $46.90

21 Annual Member Savings/Benefit
Employees Dependents Total Members Annual Savings 2011/2012 Non-Operating Revenue Total Savings + Interest Revenue Peoria USD 3592 1689 5281 $575,007 $125,563 $700,571 Deer Valley USD 3395 1301 4696 $285,180 $779,694 $1,064,874 Chandler USD 2850 1295 4145 $239,400 $354,848 $594,248 Paradise Valley USD 2811 2136 4947 $236,124 $569,427 $805,551 Scottsdale USD 2395 834 3229 $201,180 $251,182 $452,362 Glendale ESD 1133 190 1323 $79,537 $221,778 $301,315 Tolleson UHSD 594 337 931 $41,699 $138,894 $180,593 Sierra Vista USD 509 64 573 $35,732 $92,596 $128,328 Queen Creek USD 421 218 639 $29,554 $87,731 $117,285 Littleton ESD 417 147 564 $29,273 $17,998 $47,272 Apache Junction USD 395 159 554 $27,729 $59,992 $87,721 Balsz ESD 216 73 289 $15,163 $68,742 $83,905 Northwest Fire District 219 461 680 NA $6,594 Litchfield ESD 207 99 306 $89,365 Fountain Hills USD 171 92 263 $12,004 $823 $12,828 Tolleson ESD 161 70 231 $11,302 $46,019 $57,321 Town of Queen Creek 125 185 310 $25,805 Total 28,655 $1,818,885 $2,937,053 $4,755,938 Counts taken from June 2012 Experience Reports

22 There are major differences in the Pools/Trusts to examine.
In Conclusion There are basically two options for a municipality in insurance buying – Public Procurement/Consultant Route Trust and Pool Route There are major differences in the Pools/Trusts to examine.

23 Thank you!


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