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South Country Health Alliance makes significant budget cuts, some costs may shift to counties

South Country Health Alliance made significant cuts in November in order to stay afloat in the health insurance market, according to a member of the insurers joint powers board.

Wadena County Commissioner Bill Stearns shared some news regarding South Country Health Alliance (SCHA) at the Wadena County Commission meeting Monday, Nov. 26, news he'd been hoping to share for several weeks. Stearns spoke about the SCHA joint powers meeting Nov. 1 in Little Falls. At that meeting the board learned that SCHA had appealed to the Department of Human Service (DHS) to make changes to its reimbursements.

"DHS told South Country they were paying their providers too much money and needed to cut costs," Stearns said.

So SCHA agreed to cut costs. That included a total reduction of 19 employees for 2019. Eleven of those 19 positions were jobs that were either open and they chose not to fill or would have been new positions for 2019, according to SCHA Chief Executive Officer Leota Lind, who was contacted by phone after the meeting. Another major reduction came when they decided to make reductions to providers.

"Unfortunately, we did have to implement some provider rate reductions," Lind said. That means hospitals and counties that receive payments from the insurer will get less in 2019.

Some cuts were already planned for 2019 including the administrative budget, Lind added. Cuts to the claims processing vendor brought a savings of $2 million and a $600,000 cut to an internal management program were part of that plan.

Other cuts to IT and consulting brought further cuts. What does not take a cut are members, according to Lind, who said most members of the insurance group don't pay a premium.

A total amount cut from SCHA's budget was not disclosed, but the reason for the cuts was attributed to an increase in claims and more high-cost claims in 2018 than expected.

One example Lind shared was six transplants in a quarter. Transplants are costly operations and two transplants in that time period is more typical, Lind said. SCHA's Chief Financial Officer Scott Schufman said another area of unusual increases was in high-cost pharmaceuticals.

While the state was seeing an average increase of 1-2 percent in medical claims, in SCHA's network it was 6-8 percent, or in the ballpark of $15 million more than expected from medical claims, Schufman said. In a smaller network like SCHA, just two or three members using high-cost specialty drugs can throw the budget out of balance, Schufman said. Another trend this past year was in those that had been members at least 12 months. Those members were making more claims.

It's not clear why all these elements came together this year, but Lind notes that healthcare is volatile. Even so, in the 17 years the SCHA has been serving, only four of those years saw losses.

"Do we know that we'll have losses? Definitely," Lind said. "Do we know the extent? Not yet. Our goal will not change, that we will be at or better than break even for 2019," Lind said of the budget once it's finalized in January. They won't have their final year-end totals until March.

County costs

Stearns shared further about what these changes might mean for the member counties. He said counties may have to pay the salary of the person holding the "Connectors" position in public health.

"So there's a small hit to the budget," Stearns said of the cost diverted to the county.

Stearns further discussed how SCHA may have to withhold payments for May and June in an effort to "solve a cash flow problem." In that time period, it was discussed that all counties make an interest-free loan to SCHA in May and June, which would be paid back in July.

"The only way to make it work is through an interest-free loan that would be paid back within five days of receiving the state money," Stearns said. The good news is, the timing of money coming in was right to pay that back.

"The timing is right, the idea is wrong," Stearns said.

Stearns was asked what cost Wadena County may have to pay into this. Stearns was unsure but went out on a limb saying about $1.8 million, as the counties will all have to bring in about $20 million for the short-term loan.

Stearns explained further that the Legislature is the one that is withholding the funds from SCHA during those months. Members of the Legislature were asked if this practice can be stopped. Stearns had reason to be optimistic about that being a reality because he said the response from them was that they didn't know the withholding was still taking place.

"There's possibly some hope," Stearns said.

Cash call

Stearns also brought up the idea that there may be a cash call from the counties. Again, Stearns was unsure what that cost may be, but suggested an amount under $400,000, if there was one.

"That won't be known until they close out the books for Dec. 31, which is probably February or March," Stearns said. "We do know something is going to have to be done, if it continues. Counties may say, 'no, we are tired of putting money in.'"

At that point the counties would give notice to the state that they will cease to business with the provider, and counties have 150 days to wind down affairs and pull out. Counties would then have to request proposals from other insurance providers.

"Care coordination as it's delivered would look very different in our county if it wasn't delivered by South Country," according to Human Services Director Tanya Leskey.

Hearing the idea that counties may have to pay more into this insurer, commissioner Dave Hillukka said he would not be in favor of giving them more money. He added that he wouldn't have a say as he is the outgoing commissioner in January, welcoming in new commissioner John Kangas.

Stearns added that Wadena County has paid in over $800,000 to the provider in the past and with $23 million in SCHA reserves, the provider would be able to pay claims even if the counties cease business with them.

SCHA is a county-based health plan serving 12 counties in Minnesota, which was formed in 2001. There are more than 41,000 members in those counties offered seven different programs through SCHA. Stearns is one of 11 board members on the joint powers committee, made up of county commissioners from the served counties.

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