Deficit may grow due to insurance claims


NAUGATUCK — The school system’s looming $1 million deficit may grow even bigger due to a high number of costly health insurance claims.

The school board, which is trying to negotiate concessions from school unions to make up an anticipated $1.07 million shortfall, had already tapped 40 percent of its budgeted amount for health insurance claims by Sept. 30, three months into the fiscal year.

The board went back to a self-funded insurance policy last year to save on up-front costs, and budgeted $8.3 million to cover all claims. At the end of last month, the school system already had spent $3.4 million, or 40 percent, of that amount, said Wayne McAllister, borough controller and newly appointed school business manager.

The Board of Education finances health insurance for the roughly 750 full-time district employees but hires Anthem Blue Cross to manage the account.

In self-funding its health insurance coverage, the school board pays for claims processed by Anthem rather than paying a premium to cover employee health insurance claims.

Under the traditional plan that covers municipal employees, the borough pays a set premium fee to the insurance company, which covers the individual claims.

Borough officials compare a self-funded insurance policy to a high deductible on car insurance: It’s great if you only need minor repairs, but it can be costly if you have a major accident.

McAllister said he is talking with Anthem Blue Cross to pin down what the school system’s anticipated total insurance costs will be by the end of the fiscal year, June 30.

Because of the anticipated shortfall, the school board has yet to come up with an itemized spending plan for its $56 million allocation from the borough. It is seeking concessions from school unions to make up the difference. If concessions do not make up the difference, the board will likely have to lay off employees.

The school board was scheduled to hold a workshop on Monday to announce it plans to save money, but has postponed that meeting because of ongoing union negotiations. The board also wanted to give McAllister time to “investigate options with regard to health care costs and other long-term obligations,” Mayor Bob Mezzo, who is also a school board member, said on his blog. He would not comment on what options are being investigated.

The “tri-boards” of mayor and burgesses, finance and education were supposed to meet Tuesday; that meeting also has also been postponed, for the same reasons.

When the tri-boards meet, which Mezzo said will likely happen in two weeks, the self-funded insurance policy will no doubt be a major talking point. The decision was controversial when the school board decided to revert to that policy last year.

The school board and Tindall-Gibson said it was good idea because it saved about $800,000 in up-front premium costs.

The joint boards of mayor and burgesses and finance, and the teachers’ union, disagreed because of past problems the school system had with self-funded insurance.

Between 2002 and 2005, the school board racked up $4.5 million in medical insurance deficits. The borough used money from its fund balance money that is left in the borough’s budget after it has paid all its expenses to cover the deficits.

“Clearly this has been more than a one-year concern and any time you’re dealing with a self-funded system, there are some variables with regard to costs,” said Mezzo, adding that teachers agreed to health insurance givebacks in their 2009-12 contract that will save the borough about $1 million over that time.