Long-Term Cost Control fora Self-Funded Public Entity

The Challenge

As a self-funded municipal employer, the client offered multiple medical plan options, including a PPO and an HDHP with HRA. However, the employer lacked a complete picture of how plan design, employer contributions (to HRAs), and employee premium differentials were impacting actual total cost.

Compounding the issue, the PPO plan housed nearly all high-cost claimants despite its higher employee contribution—resulting in continued financial strain.

Client Profile

• Organization: Mid-size Municipal Government
• Plan Type: Self-Funded | Medical, Rx, Stop-Loss
• Covered Lives: 650–750 (varied over 6 years)
• Initial State: Facing typical medical/Rx plan cost increase pressures yearover-year, desiring a solution that improves benefits for employees and controls cost long term

Our Approach

We conducted a comprehensive plan performance review using a multi-layered analysis:

• Calculated true cost by plan incorporating fixed costs, claims, City funded HRA contributions, and employee contributions
• Leveraged predictive analytics to assess underlying risk profile of plans and actuarial value by plan, using the client’s own demographic and claims experience
• Identified misalignment: The HRA plan was priced with lower employee contributions and a high employer HRA funding which created a situation where the HDHP/HRA cost the employer as much as the PPO, while structured to drastically incentivize employees to the HDHP
• Noted that high-cost claimants were concentrated in the PPO, despite financial incentives to migrate elsewhere
• Vetted an Accountable Care Organization (ACO) model – identified that over 45% of all facility claims went through the hospital system (1 of 5 systems in the geographic area) that serves as anchor for the ACO
• Collaborated with leadership to introduce the ACO model to replace the PPO, taking advantage of favorable facility pricing – improving plan pricing for the 45% of claims organically running through the anchor hospital system
• Restructured contributions to create a truly aligned differential between plan options— lowering ACO contributions while modestly increasing HDHP employee contributions

Results that Matter

Despite market pressures, this client saw:

• A projected 10% total plan cost savings in year one, with no benefit reductions
• Enhanced plan design in the ACO plan: $0 cost for PCP, virtual, and several outpatient services
• A better-aligned contribution strategy that more equitably reflects member cost to the plan + Improved ability to manage high-cost claimants within a coordinated care environment

What This Means for Clients Like You

• Stop-loss and claims volatility can be managed with data-driven insight and intentional benefit design
• Perceived “lower-cost” plans may not always be the most cost-effective once employer contributions to HRA or HSA are factored in
• Re-balancing plan incentives and network structures can generate savings without shifting cost to employees
• Collaborative, long-term planning builds internal buy-in and supports sustainable reform

Power Metrics

• 10% projected savings with no takeaways
• 45% of facility spend historically redirected into lower-cost ACO network
• Contribution differential narrowed by 10% across HDHP/HRA vs PPO replacement
• Copay-based plan members retained access while improving cost control mechanisms increasing HDHP employee contributions
• After 3 full years, client has saved $6.5 million

Summary

This case highlights the power of actuarial modeling, cost alignment, and network strategy in reshaping a self-funded plan’s financial trajectory. By identifying hidden cost drivers and taking a surgical approach to plan design, we helped this municipal client implement a more sustainable benefits structure—one that aligns with member behavior, optimizes plan value, and sets the foundation for future savings.