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Quick Start for:
A. Cash and Investment Management
B. Risk Management
C. Fixed Assets
D. Bond Issuance and Indebtedness

School districts and their employees face many risks and uncertainties that could lead to catastrophic financial losses. Since the safe, efficient operation of schools is a vital public interest, these risks must be managed effectively to reduce the risk of loss. Effective risk management involves:

  • identification of risk;
  • classification of identified risks;
  • evaluation of identified risks in terms of frequency and severity;
  • management of risk through avoidance, reduction, deductibles, or insurance;
  • development, maintenance, and monitoring of loss prevention programs and practices.

CURRENT SITUATION

EPISD's risk management functions are divided between two units. A project engineer in the Planning, Engineering, and Construction Unit is responsible for monitoring property, casualty, liability, and school insurance coverages. Employee health and workers' compensation insurance responsibilities are split within the Human Resources Unit between the director of Employee Benefits and the director of Risk Management. The director of Risk Management is responsible for the workers' compensation function and oversees the district safety program. The director of Risk Management is not involved in other risk management areas such as employee health or property and casualty insurance.

The district accounts for health care and workers' compensation costs in separate internal service funds. These funds account for contributions made from the general fund to cover claims costs, professional and contracted service fees, supplies and materials, and other operating expenses.
Exhibit 6-9 presents actual workers' compensation operating results for fiscal 1996 through 1998 and the budget for 1999 and shows the percentage change between years. Exhibit 6-10 presents actual health care operating results for fiscal 1996 through 1998 and budgeted operations for fiscal 1999.

Exhibit 6-9
Workers' Compensation Internal Service Fund
Fiscal 1996 through 1998
($ In Thousands)
REVENUE 1995-96 1996-97 Change Between Years 1997-98 Change Between Years 1998-99 Budget Change Between Years
Total Revenue $3,874 $3,683 (5%) $4,094 11% $3,547 (13%)
 
EXPENSES              
Workers' Compensation claims 3,952 3,284 (17) 3,485 6 3,125 (10)
Purchased Services 464 379 (18) 361 (5) 420 (16)
Supplies and Materials   .7 - 1 43 - -
Other Operating Expenses 2 .3 (85) .6 100 2 233
Total Expenses 4,418 3,664 (17) 3,848 5 3,547 (8)
 
Net Income (544) 19 103% 246 119% - -
 
Ending Fund Balance $1,497 $1,516 1% $1,763 16% 1,763 -
Source: EPISD.

Exhibit 6-10
Health Care Internal Service Fund
Fiscal 1996 through 1998
($ In Thousands)
REVENUE 1995-96 1996-97 Change Between Years 1997-98 Change Between Years 1998-99 Budget Change Between Years
Total Revenue $20,030 $19,318 (4%) $24,130 25% $21,942 (9%)
 
EXPENSES              
Health care claims 15,471 21,101 36 20,349 (4) 23,236 14
Purchased Services 1,411 1,399 (1) 1,404 - 1,642 17
Total Expenses 16,882 22,500 33 21,753 (3) 24,878 14
 
Net Income $3,148 $(3,182) 1% $2,377 174% (2,936) (224%)
 
Ending Fund Balance $7,358 $4,176 (43%) $6,553 57% $3,617 (44%)
Source: EPISD.

Workers' Compensation

EPISD self-funds its workers' compensation program. This means that the district assumes the risk of workers' compensation losses and pays all claims rather than paying an insurance company to assume the risk. Several years ago, the district determined that it was more cost-effective to self-fund rather than to carry workers' compensation insurance with a commercial carrier. The self-funded workers' compensation insurance program provides all the necessary elements of a commercial plan, including program administration, claims processing and review, loss control/risk management consultation, medical bill auditing, and excessive claims coverage. The district also maintains excess workers' compensation insurance, which limits its exposure to worker's compensation claims to $500,000 per accident, and carries employers' liability of $1 million.

To assist the district in controlling its claims cost, its third-party administrator (TPA), Lindsey Morden, in addition to providing claims processing services, also provides a monthly report of loss statistics. One section of this report is a multi-year analysis of the district's claims by various indicators such as "Nature of Loss" and "Day of Loss." These reports provide a wealth of useful information to assist the district in managing and monitoring its workers' compensation claims.
Exhibit 6-11 summarizes these indicators and the occurrences with the highest frequency as a percentage of claims and claims cost.

Exhibit 6-11

Workers' Compensation Claim Indicators

Accident Years 1995-1998
Indicator Highest Frequency Percent of Claims Percent of Cost
Month of Loss April 11% 12%
Day of Loss Tuesday 2 21
Gender Female 65 63
Nature of Loss Strain 28 44
Single Body Part Lower Back 12 18
Single Occupation Professional & Teachers 26 20
Work Experience Over 10 Years 39 41
Age 40-49 34 33
Cause Slips, Falls 13 17

Source: Lindsey Morden.

FINDING

EPISD has significantly reduced its amount of workers' compensation claims payments since the 1989-90 school year. Claim payments have fallen by 81 percent from $7.2 million in 1989-90 to $1.3 million in 1997-98. The estimated total cost of these claims fell 64 percent, from $7.3 million to $2.6 million, over the same period. The total cost of workers' compensation claims equals actual payments plus an estimated reserve for future payments on open claims. As claims are paid, the claim reserve is reduced accordingly. As expected, reserves are larger for recent years because anticipated expenditures have not yet been incurred as they have for earlier years. Estimated reserves totaled $2,445,982 at August 31, 1998. Exhibit 6-12 presents a nine-year history of EPISD's workers' compensation claims, reserves, and payments. Exhibit 6-13 depicts the decline in claims cost plus a nine-year trend for filed claims. Exhibit 6-14 shows the decline in average cost per claim since 1989-90.

Exhibit 6-12
Workers' Compensation Claims, Reserves, and Payments
Fiscal 1990-1998
1989-90 through 1997-98 Fiscal Year Filed Claims Amount Paid Claim Reserves Total Cost Average Cost per Claim
1990 523 $7,209,891 $60,236 $7,270,127 $13,901
1991 553 5,518,072 81,848 5,599,920 10,126
1992 560 4,397,826 89,078 4,486,904 8,012
1993 655 4,350,715 82,210 4,432,925 6,768
1994 619 3,110,886 102,194 3,213,080 5,191
1995 620 2,471,454 118,243 2,589,697 4,177
1996 658 2,616,196 135,342 2,751,538 4,182
1997 657 2,354,333 499,989 2,854,322 4,344
1998 672 1,334,757 1,276,842 2,611,599 3,886
Total 5517 $33,364,130 $2,445,982 $35,810,112 $6,491
Source: Lindsey Morden.

picture

Source: Lindsey Morden

As Exhibit 6-13 shows, while claims costs were falling, the number of filed claims rose slightly. This increase in filed claims correlates to increases in the number of employees. Since fiscal 1990, total employees have risen by 16 percent while filed claims have averaged around 8 percent of total employees. However, the decrease in costs was so significant that the average cost per claim declined dramatically, as shown in Exhibit 6-14.

The district attributes this success to its self-funded workers' compensation plan and the work of its TPA, which assists the district with monitoring its claims. Moreover, the district's philosophy is that injured workers should receive, on a timely basis, every benefit they are entitled to under the law, "but not one penny more." As such, the district has adopted the following four-pronged strategy for handling workers' compensation claims:

  • Investigation of every accident
  • Resolution of safety problems
  • Constant contact with injured workers
  • Regular review of claim issues

COMMENDATION

EPISD has significantly reduced the cost of its workers' compensation claims over the past nine years.

FINDING

An El Paso physician was recently indicted in a scheme to defraud the Texas workers' compensation system and insurers of more than $15 million through fraudulent medical bills. Seventy-two district employees were under this physician's care at some stage of their recoveries from work-related injuries. One of these employees also is under investigation for allegedly defrauding the state workers' compensation fund. The employee, injured in 1997 while working for the district, was receiving simultaneous payments from both the district and a former employer. On September 21, 1998, the district participated in a contested case hearing conducted by the Texas Workers' Compensation Commission (TWCC) to discontinue income benefit payments to this employee. As of October 18, 1998, the district had paid about $66,800 in income and medical benefits on behalf of this employee. Moreover, from 1996 through 1998, the district had paid some $117,000 to medical firms owned by the physician. The risk manager told TSPR that since the doctor's arrest, employees who were under the doctor's care either have returned to work or have changed doctors.

Fraud costs the state workers' compensation fund millions of dollars each year, resulting in higher insurance premiums and lost jobs. TWCC has developed fraud indicators that can be used to alert employers of potentially fraudulent claims. These indicators do not guarantee that fraud has occurred, but may indicate that a claim should be reviewed more closely. The following is a list of employee fraud indicators developed by TWCC:

  • Injuries that have no witness other than the worker.
  • Injuries occurring late Friday or early Monday.
  • Injuries not reported until a week or more after they occur.
  • Injuries occurring before a strike or holiday or in anticipation of layoff or termination.
  • Injuries occurring where the worker would not usually work.
  • Worker history of workers' compensation claims.
  • An attorney relationship with a health care provider that appears to be a partnership in handling workers' compensation claims.

These fraud indicators could easily be incorporated into the district's initial claims review process and in an annual fraud review of all workers' compensation claims. The TPA provides monthly detailed reports presented in a variety of ways that could be used to facilitate such a review. In addition, the TPA provides special reports upon request.

Recommendation 67:

Coordinate with the Internal Audit Unit to conduct comprehensive fraud reviews of workers' compensation claims at least annually.

Texas law prohibits employers from discharging or discriminating against an employee for filing a good faith workers' compensation claim, hiring an attorney, or participating in a workers' compensation proceeding. However, as a matter of prudence, the risk manager, in coordination with the district's Internal Audit Unit and TPA, should review claims at least annually using fraud indicators such as those developed by TWCC. For example, claims could be scored based upon criteria developed from the indicators. Claims that score high should be selected for further scrutiny. The district already performs an annual review of high-dollar claims; a fraudulent claims review could easily be performed with the assistance of the Internal Audit Unit.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The director of Risk Management and the Internal Audit director coordinate to develop a workers' compensation claims fraud model based upon TWCC fraud indicators. April 1999
2. The director of Risk Management uses the model to evaluate all new claims and coordinates with Internal Audit to conduct a comprehensive fraud review at least once a year. April 1999

FISCAL IMPACT

This recommendation could be implemented with existing resources.

Employee Health Insurance

EPISD self-funds three health insurance programs for its employees, meaning that the district assumes the risks of employee medical care and pays all claims rather than paying an insurance company to assume the risk. The programs include a Preferred Provider Organization (PPO), an Exclusive Provider Organization (EPO), and a Hospital Indemnity Plan (HIP). The difference in these plans has to do with the cost of health care services and how such services are delivered to plan participants. In general, the PPO requires participants to use health care providers within a specified network; participants incur additional costs if they go outside of the network. The EPO is similar to the PPO in that care is delivered within a specified network, but a primary care physician must coordinate the care. Participants in EPOs may not go outside of the network for care unless it is for a life-threatening emergency. Finally, the HIP provides a stipulated daily benefit of $75 during hospital confinement up to a maximum of 365 days per plan year. This plan is designed for employees who may have comprehensive coverage under another group plan such as a spouse's health plan. Young Insurance Agency, the health plan's third-party administrator, administers each of these plans.

In addition to basic health insurance, the district offers a variety of health care and benefit options to its employees (Exhibit 6-15).

Exhibit 6-15
Health Care and Benefit Options
Available to EPISD Employees
Description Features Cost
Life Insurance Provides basic coverage of $3,000 Group Term Life insurance and $2,000 Accidental Death & Dismemberment coverage to each employee. Dependent coverage is also available in limited amounts. Basic coverage is provided at no cost to employee. Additional coverage equal to 1.5 times the employee's annual salary may be purchased for 21 cents per $1,000 of coverage. Dependent coverage may be purchased by the employee for 76 cents per $1,000.
Dental Plan Provides for discounts on scheduled procedures performed by dentists participating in the network. Total cost is borne by the employee and varies depending upon the dental procedure performed.
Vision Plan Provides a yearly eye exam and one pair of covered lenses or frames. Employee pays $7.70 per month for employee only, up to $18.45 per month for an entire family.
Cancer & Hospital Intensive Care Plan Employees may participate in one of two plans that offer various benefit options depending on need. Total cost is borne by the employee and varies depending upon the type of coverage chosen.
Disability Insurance Provides income protection for employees who are unable to work due to a long-term disability. Total cost is borne by the employee and varies depending upon annual gross salary and timing of benefit payments.
Tax-Sheltered Annuity An employee retirement plan that allows employees to make tax-favored contributions to a self-directed annuity account. No cost is associated with this benefit.
Flexible Benefit Plans Allows employees to make pre-tax contributions to accounts out of which medical premiums and expenses are paid. No cost is associated with this benefit.
Savings Bonds Employees may purchase U.S. Savings Bonds through a payroll deduction program. No cost is associated with this benefit.
Source: EPISD.

FINDING

Young Insurance Agency acts as TPA for four of the largest governmental entities in El Paso: the City of El Paso, El Paso County, El Paso ISD, and Ysleta ISD. All of these entities maintain self-funded health plans. Young currently is under investigation by the District Attorney's Office and the Texas Department of Insurance for allegedly receiving undisclosed prompt-payment fees from local hospitals. Allegations are that Young received percentage fees from hospitals for quickly paying medical bills under arrangements that were never disclosed in agreements with the governmental entities. As TPA, Young is responsible for processing and paying health care claims made under the plans and providing other services such as utilization review. Utilization review seeks to contain health care costs through detailed examinations of the amount, timing, and appropriateness of health care services.

Through interviews with the associate superintendent of Support Services and the executive director of Human Resources the review team learned that EPISD has taken a "wait and see" attitude toward the investigation. Meanwhile, health care services for district employees are continuing uninterrupted. The Texas Department of Insurance also is reserving judgment in the case until the District Attorney's Office completes its investigation. The executive director of Human Resources stated that the district was not aware of the prompt-pay agreements prior to the allegations. Furthermore, they were not disclosed in the payor agreement between the district and Young.

The district has a payor agreement with Young through an affiliate known as Advantage Care Network, Inc. Advantage and Young are owned and operated by the same individual. Access to various health care providers is made possible through the payor agreement. Under its terms, the district has access to Advantage's preferred and exclusive provider system, which allows the district to offer cost-efficient health care services to district employees and their dependents. Failure to disclose prompt-payment agreements appears to be in violation of payor agreement provisions. Section 10.1.5 of the Payor Agreement states:

Advantage shall not charge its Providers any fee which is prohibited by law and which has not been disclosed to the District.

If the TPA's alleged failure to disclose prompt-payment fees violates this provision, the district must be prepared to consider resultant legal ramifications.

Recommendation 68:

Consult with outside legal counsel regarding the implications of the allegations against the TPA and examine the district's options pending the outcome of the investigation.

The district should obtain a written legal opinion from its attorneys regarding the implications of the investigation and its possible outcome. Several implications must be considered depending on the outcome, including possible breach of contract, the ability of the TPA to continue a satisfactory level of service, and a shift to another TPA if the allegations prove to be true. Moreover, depending on the outcome, the TPA might be required to give the district all or some percentage of the prompt-payment fees the TPA received from health care providers.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The interim superintendent directs the associate superintendent of Support Services to arrange a meeting with the district's attorneys to discuss the implications of the TPA investigation. April 1999
2. The superintendent requests that the attorneys outline the legal implications for the district based on possible outcomes of the investigation. April 1999

FISCAL IMPACT

This recommendation could be implemented with existing resources. Although there could be a fiscal impact depending on the outcome of the investigation, it cannot be estimated before that time.

FINDING

As part of its payor agreement with Advantage Care Network, Inc., the district pays fees for access to PPO and EPO health care providers with whom Advantage has negotiated discounted rates. The district also has negotiated a risk-sharing arrangement with Advantage. Under the terms of this arrangement, the access fees either are increased or partially reimbursed to the district, depending upon whether actual claims costs fall below or exceed projected targets. Exhibit 6-16 summarizes target levels and associated penalties and rewards for claims incurred during plan year October 1, 1996 through September 30, 1997.

Exhibit 6-16

Risk Sharing Arrangement Penalties/Rewards
Actual Claims Cost as a Percentage of Target Penalty/Reward
Greater than or equal to 108% Advantage pays the district 50% of total fees charged.
Greater than or equal to 106% and less than 108% Advantage pays the district 30% of total fees charged.
Greater than or equal to 104% and less than 106% Advantage pays the district 20% of total fees charged.
Greater than 96% and less than 104% No payment
Greater than 94% and less than or equal to 96% The district pays Advantage an additional 5% fee.
Greater than 92% and less than or equal to 94% The district pays Advantage an additional 15% fee.
Less than or equal to 92% The district pays Advantage an additional 25% fee.

Source: Towers Perrin.

The district's plan actuary calculates the penalty/reward amount based upon data provided by the TPA. The actuary prepared a preliminary calculation for the 1996-97 plan year on July 15, 1998 that showed the district due a refund of $171,000. Although the risk sharing arrangement provides that payments "shall be made no later than 30 days from the date on which the completed forms shall have been delivered to both the District and Advantage," the district had not received payment as of January 29, 1999. Representatives of Advantage told district personnel that the records required to finalize the calculation had been seized in an investigation of the TPA by the District Attorney's Office and the Texas Department of Insurance.

Recommendation 69:

Aggressively pursue the $171,000 owed to the district under its risk-sharing arrangement with Advantage Care Network, Inc.

According to the risk-sharing arrangement calendar, the district should have received its 1996-97 plan year payment by July 1998. The district should pursue payment of these funds plus penalties and interest, since they have a legal right to collect them. The fact that the information required to finalize the computation has been seized in an investigation should not preclude the district from receiving its reward. Moreover, the district's actuaries concluded in their report that ""it is doubtful that any of the above listed items [information required to finalize their calculation] will reduce the claims cost to a lower penalty level."" The district should collect its reward based on the preliminary calculation. Any adjustments to the preliminary calculation can be made after the investigation or after records required to finalize the calculation have been released by the authorities.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The executive director of Human Resources instructs the director of Employee Benefits to request immediate payment from Advantage Care Network, Inc. April 1999
2. The director of Employee Benefits informs Advantage Care Network, Inc. that the district wishes to collect its reward. April 1999
3. The director of Employee Benefits continues to monitor the investigation and requests an adjustment of the reward calculation, if any, based upon the outcome. April 1999 and thereafter

FISCAL IMPACT

The implementation of this recommendation would have a one-year fiscal impact equal to $171,000, assuming rewards for future plan years are paid in a timely manner.

Recommendation 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
Aggressively pursue the $171,000 owed to the district under its risk-sharing arrangement with Advantage Care Network, Inc. $171,000 $0 $0 $0 $0

FINDING

EPISD plans to reduce its health care fund balance by 44 percent during the 1998-99 school year. The fund balance of the health and insurance fund is the excess or shortfall of plan assets over plan liabilities. A positive fund balance indicates that the health plan is solvent; a deficit indicates that the plan is inadequately funded. The fund balance increases or decreases each year by the amount that plan contributions exceed or fall short of claim costs and operating expenses. A key challenge for the district is to maintain an adequate fund balance to pay current and future health care claims. To help meet this challenge, a professional actuary estimates health claim costs and plan contributions each year.

The firm of Towers Perrin provides actuarial services for EPISD's self-funded health insurance fund. The actuary reviews the fund annually and recommends adjustments to district and employee plan contributions based on actual claims experience, market trends, and actuarial assumptions. In their actuarial report for the 1998-99 plan year dated May 1998, the actuaries wrote:

To maintain the plan's fund balance at the September 30, 1998 level, EPISD must increase its medical plan rates by 3.25%.

The actuaries projected the September 30, 1998 fund balance to be $4.3 million, net of reserves for claims incurred but not paid of $2.7 million as of September 30, 1998. At August 31, 1998, the actual fund balance was $6.6 million (Exhibit 6-10).

The district had been considering changing from a self-funded to a fully insured plan, on the theory that the district could save money by using the entire $6.6 million fund balance in the health care fund for salaries or other expenditures. The Finance, Budgeting, and Accounting Unit did not favor changing to a fully insured plan and depleting the entire health care fund balance. As an alternative, they recommended, in a memo to the interim superintendent dated August 17, 1998, to "lower the fund balance by half to approximately one and one half months of expenditures which equates to approximately $3,000,000."

The Finance, Budgeting, and Accounting Unit cited several risks connected with their alternative approach:

Rate Stabilization - Rates could significantly increase in future years as there would be no reserves. Even with the above alternative, we believe that rates will have to be increased in 1999-2000.

Shortfall - If the fund balance is depleted or dropped by the amount above, then who would be responsible for paying for any excess claims both in fiscal year 1998-99 and beyond if the district remains self-funded? Would the employee share in that shortfall?

One Time Source of Funds - Please keep in mind that this is a one time source of funds and will not be available in future years.

While it is impossible to predict what the district's 1998-99 health claims experience will be, historical trends indicate that this area is very volatile and unstable. Exhibit 6-17 shows percentage changes in the district's claims experience compared to national trends for plan years 1993-94 through 1997-98. (The plan year is from October 1 to September 30.) The district's claims experience has fluctuated dramatically compared to national trends. According to the district's actuaries, this is a surprising pattern because "typically, a group of EPISD's size has more stable experience."

Exhibit 6-18 shows the correlation between claims experience and fund balance. During the 1994, 1996, and 1998 plan years, favorable claims experience led to large increases in the fund balance. However, increased claims in 1995 and 1997 brought the fund balance down to just about $4 million at the end of 1997.

picture Source: Towers Perrin.

If the above claims trend continues, the district is due to have high claims in 1999 at a time when the fund balance is projected to be at its lowest level in years.

Recommendation 70:

Develop a policy to maintain the health plan fund balance at safe levels and make the budget modifications and health plan contributions needed to maintain a safe fund balance, as projected by the actuaries.

The district should take immediate steps to mitigate the risks of partially depleting the fund balance in the heath care fund. Historical trends indicate that claims may be high during the 1999 plan year; the district should not risk reducing the fund balance to dangerously low levels. A policy should be implemented to maintain the fund balance at safe levels for as long as the district operates a self-funded health plan.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The interim superintendent directs the executive director of Finance to draft a board policy designed to the health care fund balance at safe levels. April 1999
2. The interim superintendent reviews and approves the draft. April 1999
3. The Board of Trustees reviews and approves the policy. April and May 1999
4. The interim superintendent presents the budget modifications to the board for approval. June 1999
5. The board implements the policy and appropriate administrators are made aware of the policy by the interim superintendent. July 1999

FISCAL IMPACT

This recommendation could be implemented within the existing budget.

FINDING

Health care plans are difficult to compare because of their different features as well as the variance in the cost of medical care from one region of the state to the other. Health plan features that can affect comparisons include the type of plan; nature of benefits provided; the manner in which services are delivered; the extent of provider network; and cost-sharing provisions such as deductibles, co-insurance, and copayments. Exhibit 6-19 provides a comparison of key features of EPISD's health care plans with those of its peer districts. Comparisons are made using in-network costs. Exhibit 6-20 compares EPISD and peer health plan premiums for employee and dependent care coverage.

Exhibit 6-19
Selected Health Plan In-Network Features
EPISD and Peer Districts
Type of Plan Deductible Copayments* Maximum Annual Out of Pocket Drugs**
El Paso ISD
-Choice Care PPO
-Choice Care EPO
 
None
None
 
$15-$50
$10-$100
 
$1K/person $3K/family
$1K/person $3K/family
 
$9-$18
$5-$10
Ysleta ISD
-Ysleta Health Plan
-Prudential HMO
 
None
None
 
$15-$50
$10-$200
 
$500/person $1,500/family
None
 
$5-$15
$5-$10
Dallas ISD
-HMO
-PPO
 
None
None
 
$15-$100
$15/10%
 
$1K/person $2K/family
$1K/person $2K/family
 
$5-$25
$5-$15
Corpus ISD
-Open Access Option
-Point of Service Option
-Gatekeeper Option
 
None
$500 person/
$1,000 family
None
 
$15-$50/10%-50%
30% for most services
$10-$50/20%-50%
 
$2K/person $4K/family
$5K/person $1.5K/family
$2K/person $4K/family
 
$5-$25
50%
$5-$25
Houston ISD
-HMO Point of Service
-HMO 20 Option
-Option 3 HMOs
 
MethodistCare MCI 25
 
None
None
None
 
None
 
$10-$25
$20-$75
$5-$40
 
$25-$100
 
$4K/person
$2K/person $4K/family
$650-3.7K/person 1.5K-2K/family
$2K/person $5K/family
 
$5-$10
$5-$10
$5-$10
 
$10-$40

Source: EPISD.
* Varies based upon type of service provided. Amounts and percentages represent minimum and maximum range.
** Costs depend upon whether prescription is generic or brand name; generics costs less. Amounts given represent minimum and maximum ranges.

Exhibit 6-20
Monthly Health Care Premiums
EPISD and Peer Districts
  Monthly Monthly Employee Cost
  Type of Plan Employer Contribution Employee Only Employee & Spouse Employee & Children Employee & Family
El Paso ISD
-Choice Care PPO
-Choice Care EPO
 
$204.20
$173.57
 
$0
$0
 
$216.98
$184.43
 
$156.05
$132.64
 
$373.05
$317.09
Ysleta ISD
-Ysleta Health Plan
-Prudential HMO
 
$197
$197
 
$197
$197
 
$171
$156
 
$144
$124
 
$235
$205
Dallas ISD
-HMO
-PPO
 
$110.00
$110.00
 
$49.00
$124.00
 
$221.00
$323.00
 
$179.00
$275.00
 
$269.00
$379.00
Corpus ISD
-Open Access Option
-Point of Service Option
-Gatekeeper Option
 
$105.00
$105.00
$105.00
 
$49.20
$51.06
$31.52
 
$190.64
$194.22
$156.78
 
$224.58
$228.60
$186.88
 
$326.84
$332.08
$277.42
Fort Worth ISD
-Exclusive Provider HMO
-Comprehensive Provider HMO
-Point of Service Option
 
$116.00
$116.00
$116.00
 
$2.68
$12.79
$56.22
 
$161.56
$185.33
$268.61
 
$140.97
$160.40
$244.60
 
$245.86
$278.51
$402.27
Houston ISD
-HMO Point of Service
-HMO 20 Option
-Option 3 HMOs
-MethodistCare MCI 25
 
$86.66
$86.66
$86.66
$86.66
 
$24.13
$0
$0
$0
 
$72.54
$24.97
$37.71
$9.99
 
$118.28
$22.38
$34.22
$8.96
 
$182.49
$74.95
$99.95
$57.44

Source: Texas School Performance Review and EPISD.

EPISD spends more per employee for health insurance than most peer districts and the state and Region 19 averages. For school years 1994-95 through 1996-97, EPISD's annual health insurance expenses averaged $2,136 per employee, compared to $1,530, $1,398, and $1,900 for the peers, the state, and Region 19, respectively (Exhibit 6-21 and 6-22).

Exhibit 6-21
Annual Health Insurance Costs Per Employee
1994-95 through 1996-97 School Years
District 1994-95 1995-96 1996-97 3-year
Average
Ysleta ISD $2,227 $2,252 $2,266 $2,248
El Paso ISD 1,959 2,355 2,095 2,136
Houston ISD 1,900 2,101 2,256 2,085
Socorro ISD 1,827 2,044 1,681 1,851
San Antonio ISD 1,726 2,094 1,680 1,833
Austin ISD 1,460 1,411 1,504 1,458
FT. Worth ISD 1,086 1,072 1,127 1,095
Dallas ISD 875 851 1,000 909
Corpus Christi ISD 691 785 795 757
Peer Average w/o EPISD $1,474 $1,576 $1,539 $1,530
Region 19 Average $1,740 $1,963 $1,999 $1,900
State Average $1,364 $1,401 $1,429 $1,398

Source: Texas Education Agency and Texas Association of School Boards.

As Exhibit 6-21 shows, both EPISD and Ysleta, the two largest school districts in El Paso, are experiencing higher-than-average health care costs.

Exhibit 6-22
Annual Health Insurance Contribution Per Employee
EPISD and Peer, Region, and State Averages
1994-95 through 1996-97

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Source: Texas Association of School Boards

EPISD's health insurance plan year begins on October 1 of each year. The current contract with the TPA ends on September 30, 1999. The district plans to issue an RFP in early 1999 to determine if it should continue to self-insure or adopt a fully funded health care plan. Ysleta ISD will be issuing an RFP at the same time.

Recommendation 71:

Collaborate with YISD on a joint RFP for health care coverage.

EPISD should consider entering into an interlocal agreement with YISD for health care coverage. The task of providing affordable quality health care options to employees is a difficult challenge for most employers. Combined, EPISD and YISD have about 14,000 employees. This large pool of potential plan participants would give both EPISD and YISD formidable purchasing and bargaining power that neither would have on their own. In addition to negotiating lower costs, both districts should be able to negotiate rates that are guaranteed over a three- or four-year period. If the attempt at a joint RFP with Ysleta is not successful, EPISD should release one on its own or explore options to issue a combined RFP with other large employers in the El Paso area, such as the city or the county.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The executive director of Human Resources contacts the YISD director of Risk Management to propose issuing a joint RFP for health care coverage. April 1999
2. The executive director of Human Resources forms a health coverage RFP committee consisting of individuals from Human Resources, Finance, and Purchasing to develop RFP specifications. April 1999
3. The committee develops bid specifications and publishes the RFP. April and May 1999
4. Purchasing receives, reviews, tabulates, and analyzes bids as they are presented. June 1999
5. The Board of Trustees awards the bid to administer the health plan. July 1999
6. Human Resources begins to prepare employees for the changeover to the new health care administrator if the present administrator is not selected. July - October 1999

FISCAL IMPACT

If EPISD is successful in its attempt to issue a joint RFP with YISD, the combined districts would have tremendous bargaining power. If costs per employee were reduced to the Region 19 three-year average of $1,900, as shown in Exhibit 6-21 above, EPISD would save $1,589,445 per year, as follows:

EPISD three-year average
Region 19 three-year average
Savings per employee
1997-98 Employees
Estimated Savings
$2,136
1,900
$236
8,151
$1,923,636

Recommendation 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
Collaborate with YISD on a joint RFP for health care coverage. $1,923,636 $1,923,636 $1,923,636 $1,923,636 $1,923,636

Property and Casualty Insurance

Property and casualty insurance includes coverage for facilities, vehicles, equipment, personal injury, professional and general liability and student travel. Exhibit 6-23 provides a detail of EPISD's property and casualty policies currently in force.


Exhibit 6-23
EPISD Property Casualty Coverage
Type of Policy Coverage Description Limits Deductible Annual Premium
Boiler and machinery Damage due to explosion $1M $500 $20,895
Boiler and machinery-equipment breakdown Mechanical breakdown at 120 N. Stanton $23.5M $1,000 $3,500
Texas dwelling policy #3 Fire coverage for 52 custodian dwellings Replacement value $100 wind/hail $250 all peril $12,318
Standard fire policy Building, contents, and computers $816,671,510 $100K $212,398
Warehouse general liability Dyer St. warehouse leased property $500K general; aggregate $500K per occurrence None $1,424
Commercial crime policy Employee theft or embezzlement $500K $2,500 $5,800
Police officer's bond Officer liability $1K/bond None $50/officer
Auto/bus policy Fleet/equipment damage/liability $100K/$300/$100K $5,000 liability/$500 physical damage $296,806
School board errors and omissions School board liability $5M each loss and aggregate None $41,063
Student travel insurance Student, staff, parent accident policy $25/visit 5 visits/injury None $850
Health occupations professional liability Students $3M aggregate/$1M per occurrence None $5,133
School-to-Work program Where program students are working $1M general aggregate $250 $2,597

Source: EPISD.

FINDING

EPISD's Operations Unit oversees the district's property and casualty insurance programs. TSPR was told that property and casualty insurance programs were the responsibility of the Human Resources Unit until about five or six years ago; they were transferred to Operations because the former superintendent was not satisfied with how Human Resources was administering them. The assistant superintendent of Operations retired in July 1998, after which property and casualty insurance became the responsibility of a project engineer in the Operations Unit.

The district has contracted with an outside risk management firm to assist the project engineer with his insurance responsibilities because he lacks insurance expertise. The firm will review the district's Insurance and Bond Review Program. The project engineer told the review team that the firm will evaluate all of the district's property and casualty policies over the next 12 months, including contractor insurance requirements. They will make recommendations regarding insurance specifications; adequacy of coverage; specific policy provisions; cost; contractor compliance; and inadequate, duplicated, or unnecessary coverages. According to the risk management contract, costs to evaluate the programs will not exceed $25,000 during the evaluation period. After the evaluation period, the district will assess the risk management firm's performance and may enter into a long-term contract with the firm. The district believes that future contracts could be funded out of savings from the firm's recommendations.

Property and casualty insurance is a risk management function that typically resides in the risk management department of most school districts. The director of Employee Benefits has prior experience analyzing risks exposures and preparing insurance specifications and bids for various liability risks in addition to purchasing insurance for errors and omissions, bonds, employee dishonesty, builder's risk, property, boilers and machinery, and other risks.

Exhibit 6-24 provides a summary of proposed services contained in the risk management firm's contract. These services all are within the scope of the director of Employee Benefits' experience.

Exhibit 6-24
Proposed Services of Risk Management Firm
Service Frequency
Risk management contract review Ongoing
Interface with EPISD staff on insurance issues Ongoing
Design and handle RFPs On request
Risk management review of current insurance policies. On request
Review of losses and retention levels On request
Insurance due diligence on major contracts Specific projects
Position paper i.e. outside groups using EPISD
facilities, admitted versus non-admitted paper, etc.
  Specific projects
Technical insurance support at board meetings As needed
Preparation/review of safety manuals On request
Management safety training On request
Environmental consultation On request

Source: EPISD.

Recommendation 72:

Transfer property and casualty insurance responsibilities and duties from the Operations Unit to the Risk Management Section.

The district should consolidate similar risk management functions under one umbrella. Consolidation of similar functions allows greater control and promotes process efficiency. In addition, grouping develops specialists and allows them to develop their expertise in a given area. Of course, Risk Management should continue to receive support and cooperation from the Operations Unit with respect to issues related to facilities and construction contracts.

IMPLEMENTATION STRATEGIES AND TIMELINE
1. The associate interim associate superintendent for Operations coordinates with the executive director of Human Resources to transfer property and casualty insurance responsibilities to the Risk Management Unit. April 1999
2. The associate interim associate superintendent for Operations and the executive director of Human Resources direct the Personnel Administrator Director to revise the job descriptions of the project engineer after insurance responsibilities have been reassigned. April 1999
3. The executive director of Human Resources instructs the Personnel Administrator Director to revise job descriptions within the Risk Management Unit to reflect property and casualty insurance duties and responsibilities. May 1999
4. The executive director of Human Resources assigns property and casualty insurance duties and responsibilities to a position within the Risk Management Unit. May 1999

FISCAL IMPACT

The risk management firm should continue to be retained as a consultant under the current $25,000 contract. However, the cost of future contracts, if any, should be less because the scope of services may be reduced. It is impossible to estimate the savings from future contracts since the contracts have not been negotiated.