Banking on Savings, Council Approves a Near 500% Increase for Insurance Brokerage

City of Statesboro department heads recommended a new health insurance brokerage firm to the city council Tuesday night, but before the city sees any savings, they’ll first fork out almost 500% more in broker fees.

The health, life, and disability insurance brokerage package for the City of Statesboro was sought through the RFQ bidding process by City Manager Randy Wetmore, HR director Jeff Grant, and other department heads as part of a staff-initiated search for cost-effective insurance savings programs.

A committee was formed to evaluate all of the bids submitted, which originally included quotes from four brokerage firms. After the first round of evaluation, one was eliminated and three made presentations to the committee for further evaluation and ranking.

The committee ultimately recommended Shaw Hankins, which was the resolution before council on Tuesday night. Director of Purchasing Darren Prather told council that the firm seemed to focus on the major problems and issues the city has in the health service field while offering direct resolutions to reduce costs. Prather said a main issue is prescription medications and the costs associated with them as well as medical network charges culminate in a high cost for the year. Shaw Hankins

Human Resources Director Jeff Grant addressed council saying vendors were pressed with 31 questions during the presentations along with nearly a dozen firm-specific questions from the committee. Grant said experience, consulting ability, ability to negotiate, technology, service model, implementation, compliance and resources, responsiveness, understanding the scope of the bid, and references were all key factors in deciding whose bid to accept.

The final three for consideration were as follows:
1. Capstone Benefits Consulting, LLC — $6,000.00
2. Shaw Hankins — $5,376.00
3. Glenn Davis and Associates $1,024.00

Grant told councilmembers that Shaw Hankins currently has a portfolio of 54 local governments, including Bryan County and the Bulloch County Board of Education, which has been a client since 2012.

Shaw Hankins will help the City of Statesboro to go paperless, by integrating software into the same platform, helping with renewals, offering an online portal for benefits, and offering help with an enrollment team, a technology specialist, and their director of wellness initiatives. Grant said Shaw Hankins has solutions to the problems the City of Statesboro has.

Cost

But it’s expensive. The monthly cost for Shaw Hankins services is $5,376, an increase from the $1,024 with the current vendor.

Mayor Moore asked how, if at all, switching brokers will affect employees, to which Grant replied that employees will not be impacted by the move. The monthly cost has no correlation to the premiums or plans, but goes directly to the broker who will bid out insurance services for the city. Moore asked if there were any savings anticipated from a switch to a new company, despite not knowing what next year’s claims will be. It is nearly impossible to predict auto accidents, cancer, broken bones, and other illnesses that will ultimatley be in the city’s claim package.

Pushback

Early in the discussion, Councilman Travis Chance questioned the staff recomendation. “Our fixed costs are going up $50,000 a year, from what I’m looking at here. It’s $1,024 from our current vendor versus $5,376. Now those are fixed costs and those are things that we can’t control…Our fixed costs are going up 500%. So is the technology package worth the 500% increase? Is that what you’re telling me?”

Grant said, “I believe the technology, I believe the resources Shaw Hankins is able to provide us as well as the aggresive plan-designed strategies to address some of those areas that we are in control of.”

Chance pushed back again, asking if the vendor now was doing something that led to the search for a new broker “Is the current vendor doing a substandard service? Is that why? I’m trying to figure out what the 500% increase is,” he asked.

Grant did not have an answer, but he did say the staff has been discussing this for ‘quite some time’ and the strategies were initiated by staff. “We are the ones that pushed. It’s proven. I spoke to Bryan County. Shaw Hankins saved them $100,000 last year. Or close to $100,000 last year.”

A presentation from the broker

Jonathan Shaw and Tammi Starkey of Shaw Hankins made a presentation to council to discuss how the firm will reduce costs for the City based on an analysis completed during the bidding process. Shaw said the network the City of Statesboro is currently on, IBG – which has roughly 75,000 members- is one of the bigger drivers of costs. “You can control the negotiated discount. With your network, IBG goes and negotiates these contracts with these providers. You look at a national type carrier, a Humana, a United Healthcare, a Blue Cross, we’re talking about 2-3 million members. When they go to a hospital, a lab, through the leverage of their membership, they’re able to drive down those discounts. So where you’re receiving a 30% discount on those claims currently, the discount for those four carrier ranges from 50-60%.”

What does that mean? If the city has $1 million in claims, the current carrier would negotiate those prices down 30%, or to $700,000, while a national carrier could get the city to $400,000 or $500,000 for every million dollars in claims. “The previous negotiations have left significant money on the table,” Shaw said.

But Shaw Hankins is not the only company that can contract the city of Statesboro with a national carrier. Any insurance broker can do that. So, what is the benefit of the $5,376 a month?

“The savings we are going to create are going to pay for themselves,” Shaw told the council. How much? Shaw says upwards of $1 million.

Tammy Starkey added, “We can evaluate which pharmacy management companies are going to provide the best discounts on the medications, that are going to have the best interests of the city in mind in their contracting,” she said. The savings could be 30-40%.

A sealed deal?

But there are no guarantees and that had some councilmembers concerned, at least for a little while.

Given the instability of the healthcare industry and the politicization of the costs of services, no one can predict what claims or costs for plans will look like next year, let alone in five years. The national carriers are constantly changing just like the smaller carriers. Additionally, the discounts can fluctuate as can the negotiated contracts with companies, though Starkey said she believes they will hold where they are.

More pushback

Chance said, “I do know that whenever I got here, the company that has had it for 10 years, we were in a $900,000 deficit with the health insurance fund whenever I walked in the door and since that time, it has gotten – even though they have not negotiated the best rate in the last 12 months, from what I’m hearing – it has gone completely the opposite way to a positive. If we have consistently moved in the right direction, and we are now at an additional $40,000-$50,000 fixed costs, that gives me concern.”

Boyum chimed in on Chance’s comments, commenting, “I don’t think we can give all the credit to our broker.”

Councilman Jeff Yawn asked why the fixed costs are so much more, which Shaw said was the proposed service fee for various value-added services. “A million dollars is an astronomical number. How can you be so confident?”

Starkey said it’s possible because of the firm’s experience and Shaw added the estimate is ‘conservative,’ insinuating more savings could be seen, and that he stands behind the projections.

Moore asked Grant if the references cited by the firm actually saw the projected savings originally predicted by Shaw Hankins. Grant said it wasn’t a question that he asked, but he was aware Bryan County saved $100,000 in 2016. Shaw was quick to say $1 million won’t be the year over year projection, but in the first year, given their analyses, the belief is that $1 million could be saved.

City Manager Randy Wetmore said the city will receive more services for paying more. “You can bet we’re going to be watching them whether or not they’re going to save us that kind of money that they’re talking about.”

Moore wanted to know if the other firms offered projected savings in their bids, but Wetmore said it wasn’t a requirement for RFQs. Chance asked if the other firms “shot themselves in the foot” by not answering a question they weren’t even asked?”

Wetmore defended the city’s process in seeking a firm, saying “It’s up to them to make the presentation. We don’t have to ask all the questions. Part of it is based on their intiative and their plan for us. So, anybody could have said whatever they wanted to tell us.” Ultimately, it was only Shaw Hankins that offered a cost-savings analysis for the city.

Chance again pressed the process, saying the decision to seek bids on the service at all should have first been brought before council. “It was due, it was in the budget, and I thought that was one of the reasons I was hired, to keep those things moving. Other things that we bid out, we don’t bring everything before the board before we bid something out. I’m sorry if that was supposed to have been done. This is a contract that needs to be renewed by the first of the year,” Wetmore said.

Ultimately, both Yawn and Boyum said they trusted the city employees who sat in on the presentations with the vendors. Chance agreed that councilmembers rely heavily on the staff to make the best decisions for the public.

Moore was very focused on the cost to the city and to the employees, and even said ahead of the vote that she wished a requirement for bidding would have been a discussion on cost savings for the city. “It’s about service and it’s about money. But I would like to have known what the other two firms said they could have saved. And we don’t have that information.”

After a lengthy discussion topping 45 minutes, Chance asked if the Council wanted to vote. Boyum made the motion to award the contract to Shaw Hankins, which was seconded by Yawn. The council voted 4-0. Councilman Riggs was absent. “You better save us some money,” Boyum said.

The PDF from the council pack begins on page 69. If you’re reading on a mobile device and cannot view the PDF, click here. [Meeting video below the PDF]

http://bulloch.allongeorgia.com/wp-content/uploads/sites/4/2017/09/09-19-2017-Council-Packet.pdf

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