How DSST Public Schools Took Control of its Health Insurance Costs
For close to 15 years, Denver-based DSST Public Schools tolerated life under a fully insured health benefits plan, with all the financial strain and uncertainty it brought. But it was yet another notice from their insurance carrier warning of a massive annual premium increase that finally pushed the organization’s leadership to seek a better way of doing business.
Ashley Wiegner, Chief People Officer for the 16-charter school organization, says DSST was driven by leadership’s desire to end a destabilizing and often frustrating cycle of steep premium hikes, insurance carrier-hopping and painful fiscal tradeoffs.
“Every year there was a big surprise,” Wiegner explained. “Either we’d get an unexpectedly large [health insurance] bill or a relatively less large bill. It felt out of control.”
DSST’s experience is all too common among charter management organizations according to Marco Rafanelli, CEO of the charter school group purchasing organization BuyQ. In 2019, BuyQ published the results of a national charter management organization (CMO) health benefits survey that found that the vast majority (87%) of CMOs with 100 or more employees still rely on fully insured plans to provide health benefits to their staff despite the financial pressures these plans are putting on their organizations. This puts charter management organizations in stark contrast to the broader business community which have increasingly turned to self-funded plans. According to the Kaiser Family Foundation, 67 percent of covered workers were covered through self-funded plans in 2020, and that percentage increases significantly – to 84% – among employers with 200+ employees.
“Our research shows that the charter school community’s hesitancy to embrace self-funding is substantially impacting their ability to provide competitive benefits to their teachers and staff,” said Rafanelli. “Until charter leaders start taking a strategic approach to this area of their operations, they are going to continue to struggle with dramatic and unpredictable annual cost increases and eroding health benefits which will limit their ability to compete for top talent.”
Plan Primer: Fully Insured vs. Self-Funded
A fully insured plan is the traditional way employers have structured group health plans, with employers purchasing an insurance contract from, and paying a set premium to, an insurance carrier. With a self-funded plan, instead of purchasing insurance from a carrier, employers administer their own health plan, paying employee health claims directly, usually up to a pre-determined limit beyond which stop-loss insurance can provide coverage. In exchange for taking on that responsibility and some managed risk, employers benefit from several compelling advantages, including:
- greater insight into and control over their benefit costs
- greater flexibility to design plans and benefits most valuable to their staff
- long-term cost savings that can be redirected back into their operating budget to enrich teacher compensation, curriculum and other mission-critical areas.
Self-funded plans aren’t suitable for every charter school, but for those like DSST that want to better manage their short and long-term health insurance costs, benefits like these have become too compelling to ignore. So much so that in 2021, Wiegner and Gary Clark, head of HUB International’s Charter School Practice, guided DSST’s leadership team through the process of switching from a fully insured to a self-funded plan, a journey that took persistence, an education on how self-funded plans work, and an openness to change for the long-term good of DSST, its staff and its students.
Founded in 2004, DSST today is among the leading STEM (science, technology, engineering and math) schools in the United States, with about 7,000 students and 900 employees. As fast as DSST has grown since its inception, so too have its health benefits needs. To meet those needs, it did as most CMOs have traditionally done: purchase a fully insured health plan from an insurance carrier.
Several years ago, a substantial premium increase notice from their insurance carrier arrived at DSST’s doorstep, prompting leadership to switch fully insured carriers, which in turn required a change in provider networks that proved highly unpopular with employees. A year later, facing yet another double-digit premium increase and employee dissatisfaction with the provider network, Clark recounted, the organization found itself again shopping the fully insured market. The result was a return to the previous carrier and provider network. But that resulted in another double-digital premium increase, and then, the latest rate cap having expired, another proposed hike from the carrier, this one for a jaw-dropping 53 percent.
It was time for DSST leadership to get serious about the self-funded option that Clark had been touting.
Climbing the Learning Curve
As rocky as DSST’s experience with fully insured plans was, persuading members of the leadership team to okay the shift to a self-funded approach wasn’t easy. Clark and Wiegner worked diligently to educate leadership about self-funded plans, and in particular about how stop-loss insurance (purchased to underpin the self-funded plan) limits risk exposure by creating a ceiling to protect the organization from catastrophic losses due to unexpectedly high claims in a given policy year.
Getting leadership to view the move as part of a longer-term cost-containment, talent-attraction and talent-retention strategy also was critical to getting buy-in, Clark said. “It’s important to understand that this is more about the third, forth, and fifth-year delta, not just the first-year delta, that some years will be better than others, and that in certain years, you may even have a surplus.”
Eventually, said Wiegner, “It became clear to them that the only way we could possibly save money [on health benefits] would be with a self-funded plan.”
Clark and Wiegner also met proactively with employees to explain the rationale behind the move and how they would benefit from it. The groundwork for a successful transition to a self-funded plan had been laid.
A Sustainable Solution
DSST officially implemented its self-funded health plan July 1, 2021. Under the plan, employees get to stick with their current Aetna provider network if they choose, an important employee-satisfaction consideration, explained Wiegner. As Clark pointed out, “Most of the changes with the plan aren’t visible to employees.”
Critical to the successful management of a self-funded plan, DSST now has access to a broad array of tools to better manage claims, including incentives to get employees to choose certain preferred providers and prescription drugs, and to encourage healthier lifestyles and greater use of preventive care. HUB Charter also connected DSST to a stop-loss insurance captive that allows self-funded charter schools to join together to more affordably purchase insurance against catastrophic claims.
As the end of the first plan year comes to a close, DSST is already seeing its strategy pay off in a big way. After less than 12 months in HUB’s self-funded plan, DSST was able to beat its expected claims costs by an astounding $700,000, which has allowed the network to pay out teacher bonuses, a move that is certain to drive employee satisfaction, retention and boost their ability to deliver on their academic mission. Further, the 2022 self-funded plan cost is projected to be $1.05 million lower than a 2022 projected fully insured renewal.
“In the end, this is why we do what we do,” said Clark. “Our goal is to free up money from health insurance costs so schools can re-direct those funds to other areas of compensation.”
Wiegner notes that the self-funded approach has also led to greater transparency and the ability to use data to refine and improve the benefits program over time. According to Clark, the prescription drug plan has been especially effective at driving claims costs down, accounting for as much as $500,000 in savings. To top it off, the savings and enhanced features have come without any additional administrative burden on DSST staff.
As Wiegner looks to the long term, she projects premium increases averaging 6 percent or less annually, with the potential for surpluses like the one realized this year along the way.
HUB’s experience with other self-funded programs suggests that DSST’s first year savings should be sustainable, added Clark. “Over the course of three or four years, all the data we see with our population of charter school clients points to a lower spend with self-funded plans over time.” Ultimately, Wiegner said, having a self-funded plan puts DSST in a better position to keep health benefit costs in line with per-pupil revenue, to provide the level of compensation needed to compete for and hold onto top talent, and to fulfill its academic mission without the compromises and trade-offs that are all too common for schools that are beholden to insurance carriers and their fully insured plans.