Berkshire Health Group Sets 7% Rate Hike for Fiscal 2025
NORTH ADAMS, Mass. — Municipal entities that use Berkshire Health Group will see a 7 percent increase in the cost of health insurance in fiscal year 2025.
That was the decision of the BHG board at a two-hour meeting Monday morning at the Charles H. McCann Technical School.
By a 6-1 vote with four voting units absent, the board decided on an increase that will maintain coverage for employees in the member units while drawing down the health group's roughly $16 million reserve by about $480,000.
The reserve is held by the joint purchase group in order to absorb higher than expected health insurance claims in any given year. In the current fiscal year that ends on June 30, for example, the board Monday discussed a potential $2.7 million hit to the reserve due to medical inflation and higher than expected claims.
This time last year, when the FY24 renewal rate for members was adopted, the board's advisors were projecting a $110,000 draw down from the surplus.
"I have a lot of faith in Blue Cross and Gallagher [Benefit Services] to project as well as anyone, but it means no one can project accurately," Mount Greylock Regional School District Assistant Superintendent Joseph Bergeron said of the higher hit to the reserve in FY24.
Gallagher's Joseph Anderson presented the board with three different rate scenarios for FY25, showing the effect of increases of 8 percent, 9 percent and 10 percent. At 8 percent, GBS forecast the group would utilize about $147,000 of its reserve in the coming fiscal year. At 9 or 10 percent, it would have added to the reserve — by $189,000 and $524,000, respectively.
The 7 percent increase on which the board landed represents a major spike from the 1 percent rate hike approved for FY24 or a slightly lower rate increase, depending on how member units dealt with the rate increase the board approved for FY23.
Two years ago, in January 2022, the board voted an 8 percent premium increase for FY23 but included a one-month "rate holiday" for members. That allowed the BHG units to have an effective increase of 0 if they chose to fully utilize the rate holiday and spread the savings over the whole year; in FY24, anyone who did not budget for the increased cost the year before had to account for the 8 percent hike (FY23) and the 1 percent hike (FY24).
In Monday's discussion, Bergeron noted that the rate holiday created "complexities" for municipal budgeting.
Stephen Wentworth, a member of Lanesborough's Finance Committee who attended Monday's meeting as a guest, noted that in the FY23 budget cycle, the town administrator in Lanesborough and town manager in Williamstown each tried to fully account for the 8 percent increase in their budget but got pushback from elected and appointed board members.
On the other hand, BHG Board Chair Sharon Harrison, who represents the Berkshire Hills Regional School District, argued in favor of the rate holiday approach, which allows flexibility for group members.
"That's why the group moved to the premium holiday, so the rates stayed relevant to the market, but each unit was realizing a savings through the premium holiday," Harrison said.
The group's treasurer, accountant James Kelley, not a voting member of the board, agreed that the premium holiday was "the preferable way to get the money back."
Initially, the board had on the table a motion to set an 8 percent rate increase with a one-month rate holiday, mimicking the FY23 vote.
Bergeron argued that a 7 percent increase would remove the complexity of the rate holiday and, at the end of the day, leave more money in the reserve than the initial motion.
"This [8 percent hike/rate holiday plan] immediately wipes $2.8 million or $2.9 million off the books," Bergeron said. "I would rather start to show more intent of lowering [the reserve] but lowering it gradually."
McCann Tech Superintendent James Brosnan, who made the initial motion, withdrew it, and Bergeron immediately moved for the 7 percent increase for all active health plans.
A couple of board members indicated that they had concerns about going below the low-end recommendation from GBS, 8 percent. And one member, Lyndsay Patenaude representing the town of Lenox, voted against the final motion.
Patenaude pointed to projections from Blue Cross Blue Shield that showed even higher cost projections for FY25 than the numbers from GBS.
"I'm a little nervous that Blue Cross is in the 12s," Patenaude said. "I'd rather be a little closer to Blue Cross than under. I think 8.5 percent [increase] is the right answer, but that's me. … That's why I'm hesitant about the 7 percent."
While the Berkshire Health Group Board has 11 voting members (representing the towns of Adams, Great Barrington, Lanesborough and Lenox and six regional school districts, Berkshire Hills, Central Berkshire, Hoosac Valley, Mount Greylock, Northern Berkshire Regional Vocational and Southern Berkshire), it has 31 total "units," a number that includes those 11 plus 20 smaller entities.
The operating principle for the group is that by pooling their purchasing power, the individual units can achieve lower costs by distributing risk across a wider pool of employees.
At Monday morning's meeting, the BHG board members reviewed a three-page memo dated Jan. 19 from the chairs and vice chairs of the Lanesborough and Williamstown Finance Committees.
Wentworth, the Lanesborough Fin Comm chair, and Melissa Cragg, the Williamstown Fin Comm chair, attended Monday's meeting as guests of the board.
The memo argued that Berkshire Health Group should consider applying more of its reserve to premium reduction than it has in recent years because the reserve has grown well beyond the threshold specified in the BHG policy adopted in August 2012 and posted on the group's website.
In FY23, the most recently completed fiscal year, the group's "uncommitted fund balance" stood at more than $17.3 million. The 2012 policy called for a reserve of "10 to 15 percent of total annual claims expenses based on claims from the prior 12 months." Fifteen percent of the prior year's claims in FY23 was $5.3 million, the memo noted, a difference of about $12 million.
"We would encourage you to consider … establishing a practice or policy that applies a significant" portion of the excess, say a third or a half, to premium reduction," the four town Finance Committee members wrote. "Or, alternatively, maybe you take a third to half and spread it over two years [of premium relief], giving you time to see how things are going and, if necessary, recalibrate."
The BHG's advisors cautioned against spending down the reserve too much.
Anderson of Gallagher Benefit Services talked about a different purchasing group that had spent its reserve down to zero in order to avoid premium increases and needed to hit members with a 13.5 percent increase in one year to catch up, precipitating the breakup of the group.
Both Anderson and Heidi Fountain of Blue Cross Blue Shield of Massachusetts cautioned that medical inflation outpaces other sectors of the economy and costs in any one year are volatile.
"The more gene therapies and biologicals come into play, the more risky that money becomes," Fountain said. "I saw with another joint purchase group, they had a child treated with gene therapy, and it was $7 million. … It's wonderful that we have these gene therapies. The child will have a wonderful life. But it will come at a cost."
Kelley, the treasurer, told the board that Berkshire Health Group's own experience is that it saw costs overrun projections by 18 percent and 11 percent in back-to-back years.
"Medical inflation continued to go up, even in those years where you had a 0 percent increase [in premiums]," Fountain said.
Bergeron said that the board needs to reevaluate whether the 15 percent of claims rule is the appropriate level of reserve funding.
"If someone walks in and hears our target is $5.5 million and we have $17 million, great," Bergeron said. "We have $12 million more than we need. But if our target should actually be $11 million, that's very different. Maybe over the next couple of months, we should talk about what the reserve percentage should actually be."
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