Budget director praises efficacy of reserved health fund

According to Anthony Ferrucci, finance director for Warwick Public Schools, having a restricted fund balance dedicated to controlling the costs of increasing premiums and other healthcare related costs has saved the district millions of dollars in potential healthcare cost increases since 2012.

This fund, sometimes referred to in a disparaging way by critics of the school administration as a “slush fund” that can be dipped into frivolously, is one of 20 such funds set up by municipalities and public school entities – known collaboratively as WB Community Health, which purchases health insurance from Blue Cross for its members at competitive rates, and is based in Warwick.

Ferrucci explained how, in light of Blue Cross announcing this past summer that insurance premiums could rise by as much as 12.1 percent, being a member of the collaborative and having a dedicated fund that can mitigate increases in premiums without requiring special budgetary attention is hugely beneficial to the district, and to the taxpayers.

“In theory, if they’re [Blue Cross] announcing 7 to 10 percent increases every single year and they’re negotiating these contracts, then in the last six years our costs should have gone up between 42 and 60 percent,” Ferrucci said. “Back in 2012 our family plan was $1,310. Our current family plan is $1,670. That’s $360 over the course of six years – about a 25 percent increase over the 6-year cycle. That’s a 4.5 percent increase in premiums, which is about half of what Blue Cross is claiming its costs are…So I think our participation in WB Health is phenomenal in managing our health costs under the current models and access points that we have, and I’m really proud of the results that this organization has done.”

Ferrucci explained how at one time, the fund had a surplus of about $3.3 million, which has stirred some controversy in the past as budgets ran tight, and especially when staffing has been cut to mitigate costs and close budgetary shortfalls.

However he continued to say that the department has used $1.4 million of that surplus over the years to balance premium costs, meaning they aren’t passed onto the employees and taxpayers to such an extreme degree, and the reserve fund now sits around $1.8 million.

“I’d say that puts us in a precarious position,” Ferrucci said when asked by Superintendent Philip Thornton what he thought about the idea of using the fund for other school-related costs. “Because if our plans go up by that 10 percent that they are talking about, then we’ll have to pay that 10 percent back and also increase our premiums on a go-forward basis. Literally, we could be facing a 20 percent hike… We have not had to absorb that kind of cost in our operating budget in the last six years. So it would be foolish in my opinion to raid this particular account.”

School committee chairwoman Beth Furtado also cautioned against using the account for other means besides a safeguard against healthcare costs.

“If we had an employee or two employees with a catastrophic illness, the fact that we have that money sitting would offset the costs of our exposure,” she said.

“Those types of events do happen, and those types of events are what makes the premiums escalate and become budget-burdened,” Ferrucci said, agreeing. “But because we have a surplus on file, we are enabled to be able to build up to those costs over a two or three-year window, and in some cases those costs would stabilize. So we’re able to ride out that storm because of the success of this.”

Ferrucci also mentioned that the fund balance is placed into investments, though he didn’t specify the type of investment, with earnings that are credited to the schools to further help decrease the burden on employees paying into the system.

School committee member David Testa has been an outspoken defender of the healthcare fund, and didn’t change his message on Tuesday night.

“I think six years has proven this is the right thing to do,” he said. “This is good budgeting, plain and simple. If you can’t see that, then you don’t understand budgeting, in my view.”