To bundle healthcare benefits or to unbundle? That was an issue that the city of Fort Collins had not yet grappled with by 2016, though it had the flexibility, with a self-funded program, to go either way. By choosing “unbundled” for its pharmacy benefits, the city saved a bundle—more than $1 million a year in costs.
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Just as importantly for the longer term, though, the deliberations successfully forged an effective team of internal and external HR and benefits experts who put Fort Collins on a path for higher-level thinking about benefits, helping to establish it as a public sector employer of choice.
Fort Collins is the largest city in northern Colorado and home to 150,000 within the city boundaries and another 300,000 in the surrounding region. Its employee benefits program has 1,900 benefit-eligible and 4,000 total plan members, including those covered through intergovernmental agreements.
As renewals approached, the city issued a request for proposals (RFP) for its medical plan, budgeted at approximately $17 million, with pharmaceutical benefits budgeted at $4 million. The RFP was a legal requirement, but it was time to take a hard look at the benefits program anyway.
Rising Costs
As Teresa Roche, Fort Collins’ Chief Human Resources Officer, noted, there was a growing discomfort with rising costs. A priority was to do a better job of controlling them in a way that didn’t require employees and plan members to take on a greater share of the financial burden.
A particular area of concern was high prescription costs—no surprise, given its 8% inflation rate in the United States. City management stressed another important priority: Any proposed changes in benefits must not disrupt plan members. Furthermore, it was key to maintain members’ smooth and uninterrupted access to maintenance and specialty drugs through both in-person and mail-order channels.
The Fort Collins employee benefits program is self-funded, meaning the city pays for actual and unanticipated healthcare claims instead of paying a predetermined monthly fee to an insurance carrier. One of the advantages of self-funding is the increased flexibility it gives employers to unbundle specific plan components—pharmaceutical benefits among them—to improve on prices and services.
Paying a Bundle for Bundled Benefits
It’s not uncommon, though, for some self-funded organizations to instead opt to bundle their benefits services through one, integrated vendor, saving on administration costs and, ostensibly, creating efficiencies.
Fort Collins was more in that camp than on the other side: It had contracted with a pharmacy benefits manager (PBM) that was partnered with the city’s third-party administrator, and both those organizations were owned by a major insurance carrier. That meant the city’s benefits were, in effect, bundled, and the price being paid was high.
Unbundling the Savings
HUB International was chosen as the broker of record, with one of the goals being to negotiate improved terms with independent PBMs. After a year under the pharmacy carve-out with a new PBM, the city experienced $1.2 million in savings on prescription costs—without missing much of a beat in the delivery of services.
The successful unbundling of Fort Collins’s pharmacy benefits was low-hanging fruit just waiting to be harvested. But it also represented a win for a new way of thinking of benefits at Fort Collins, according to Roche, who had joined the city as the Chief Human Resources Officer early in the process.
She took on the role after a background in high-tech HR, a totally different environment than the public sector. Roche knew she needed to hire a benefits leader who knew this space exceedingly well in both the private and the public sectors and who had experience with key players in the field. Now, with Joaquin “Keen” Garbiso as the Senior Manager for Benefits, she has the team to lead in this space, along with the savvy that her internal and external teammates bring to the party.
“We’ve made a commitment to total comp reviews. We are doing smarter analytics and financial projections, and budgeting for outcomes on a two-year cycle,” Roche recounts. “And, more importantly, we have a benefits philosophy where we didn’t before. That’s how we ensure we have the benefits lineup that attracts and retains exceptional talent—and sets Fort Collins apart from the crowd as an employer.”
Shawne Cihak is an account executive for HUB International’s employee benefits practice. She has over 20 years of experience in the insurance industry, having worked for three consultant firms and an insurance carrier.