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Unexpectedly high insurance claims hint at future financial dangers

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The last few months of 2007 were tough for El Paso County workers and their families: One person needed coronary bypass surgery. Another needed treatment for leukemia. A premature baby was born.

And since the county is self-insured, those claims will add to a tough year for the county budget. County finance director Nicola Sapp says large medical claims from last year and the first part of 2008 put the county on track for medical expenses to climb nearly $3 million over budget for 2008.

When combined with a general sag in revenue and other growing expenses, the county's looking at an $8 million shortfall that could mean drastic cuts for many departments, or even the sale of some parks.

Imad Karaki, director of the county's employment and benefits office, says the budget situation would likely be even worse if the county were not self-insured.

"It's vastly cheaper than going with an HMO," or health maintenance organization, Karaki says.

The county stopped buying private insurance about seven years ago, he explains. Even with costs rising for medical expenses, he says, the county would likely have to pay $5 to $7 million more each year than it does now for private insurance.

As things stand, the county is looking at a growing gap between medical expenses and revenues. Karaki points to a graph showing total medical and prescription costs leaping $4 million over revenues for 2008 and nearly $10 million by 2012.

Something has to give. Karaki says the county aims to increase revenues both by using more county funds to cover medical costs and by charging employees higher premiums, possibly building a significant reserve within four years. How much premiums might increase is still up in the air, Karaki says, but one thing is clear.

"Single employees [will be] picking up a larger burden," he says.

As things stand, county health benefits appear desirable. Single employees pay $13 each month for the least expensive medical plan. Kids bring the total cost to $74, a spouse to $98, and a whole family to $201.

For $5 a visit, employees and their families can get routine treatment for everything from influenza to wart removal at two local clinics run by the county and the city of Colorado Springs.

With the county facing years of tight budgets, Karaki says, most county employees are paid far less than they would be elsewhere, making it hard to keep qualified people. So, Karaki says, "The only way we can keep some of our employees is the benefits package."

Self-insurance can lead to unexpected costs in a bad year, but it's a popular tool among county and city governments. Allen Chapman, executive director of County Technical Services, a Colorado nonprofit, says most large Front Range counties are self-insured.

For smaller governments, his organization also administers a health care pool, which works by spreading risk among 38 members. The largest member, Chapman says, has about 450 employees.

El Paso County has nearly 1,800 employees and insures more than 4,000 people when family members and retirees are included. It pays a private insurer to administer the program and to cover claims once they top $200,000.

Karaki says the only problem now is that the county has no wiggle room when unexpected things happen. "This," he says, "is really the county running out of money."

lane@csindy.com

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