'Strange' scenario haunts school district budget

JANESVILLE — They call it "The Gap."

They also call it a mystery.

The Gap is about $3 million this year. That's the amount the Janesville School District over-estimated the cost of its self-funded employee health insurance plan last year.

The overage was the biggest in 10 years.

The money gets plowed back into the district's coffers. Having extra money is a good thing, but teachers have complained.

Teachers point out that The Gap cuts into funds that could be boosting their salaries, because of the way the state requires that teacher pay and benefits be bargained.

The Gap has been an open sore in recent contract negotiations, so school board member Tim Cullen asked the administration to explain what's happening.

That's what Tuesday's meeting was about. Members of the teachers union as well as school board and administration were at the table to hear from the district's health-coverage consultants.

The consulting company is Mortenson, Matzelle and Meldrum, also known as M3. The district pays M3 $36,000 a year for its services.

M3 sent three men to explain The Gap. These are men used to actuarial tables and statistical analyses. They used words such as "phenomenal," "startling" and "astounding" to describe the situation.

"A confluence of very strange things occurred," said risk manager Robert Karp.

One of those strange things was unusually large savings from discounts through The Alliance, a health-care buying cooperative the district belongs to. No one is sure why.

The teachers and district have worked for five years on improving employees' health, teacher Jim Reif said. Could that be the reason?

Employee health programs work, but they don't account for one of the biggest factors creating The Gap: the fact that employees had so very few high-cost health catastrophes, Karp said.

M3 asked The Alliance and the health plan administrator, URM, to analyze the situation. Neither could explain the dearth of high-cost claims.

M3 account executive Kevin Clougherty said one factor could be an active district-employee committee that shares information about costs with employees. That effort results in employees becoming wiser consumers of health care, saving on costs, he said.

But that can't totally explain The Gap.

Could it be the exodus of older staff being replaced by younger people, asked school board member Lori Stottler.

That has an impact, but it doesn't explain the $1.4 million in claims that the insurance administrator declared ineligible for payment in the last year, Karp said.

Employees don't appear to be absorbing those ineligible claims, so they're being absorbed by the providers, are being deemed medically unnecessary or are being paid by Medicare or Medicaid.

In the end, the consultants couldn't promise that The Gap wouldn't appear again a year from now. But their projections are based on the two previous years' claims experience, they said, so the recent dip in claims should reduce their projection.

The district already has dialed down its insurance estimate for the coming year, and there's a proposal on the table to cut $300,000 more from the insurance budget in an effort to ease the tax burden.

One thing is sure, the M3 consultants said: If the district bought insurance rather than set up a self-insured plan, and if the employees' good health delivered millions of dollars in savings, the district would never see a penny of it.

Instead, the over-estimates have kept district finances in great shape.

The Gap, Clougherty said, "has been a gold mine for this district for over three years."