1983-03-16 Regular Meeting La Porte City Council

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j 0 0 I 6 to adverse loss experience is also greater. The self-insurance are retained by the self -insured. stable, this is generally the most cost-effective cash flow benefits of If losses remain program available. The Summary of Lowest Cost Proposals reflects the estimated cost of each proposal at expected cost and at maximum cost. The main issues to consider in choosing the optimal proposal are the estimated cost, maximum cost, cash flow advantages, and the degree of fluctuation in cost which is acceptable to the City of La Porte. In evaluating estimated cost from this Summary, the difference between the lowest cost (Fred. S. James ASO Plan) and the highest cost (Strum/ - Hartford Minimum Premium Plan) is $15,124. However, there is much greater difference in the potential maximum cost. The Blue Cross/Blue Shield conventional plan offers the least amount of fluctuation in cost and the most even cash flow, but it does not allow for any savings if losses are lower than expected or any cash flow advantages. The esti- mated total cost is $9,699 higher than the lowest cost alternative (ASO) if you consider the amount of claims to be paid in subsequent years in the ASO program. However, the nature of the cash flow of an ASO plan is such that the claims incurred in year one but paid in subsequent years becomes a part of the subsequent year cost. Therefore, the lag in claims payment can be viewed as a "permanent" deferral. From this perspective, the difference in expected cost between the Blue Cross/Blue Shield plan and the Fred. S. James plan is $105,362 in year one but would be fairly close to the same cost in subsequent years if losses remain at expected levels. If losses increase, claims paid in the ASO plan will cause an increase in total cost, but second year premiums in the insured plan would also increase. In effect, an organi- zation the size of the City of La Porte will ultimately pay most (if not all) of its own losses plus expenses under any of these plans -- the difference is primarily one of timing. It is our opinion that the City of La Porte should select either the Blue Cross/Blue Shield plan or the Fred. S. James plan, depending on the degree of risk and fluctuation in cash flow the City is comfortable with. �k -2- 4