Medical Self-Insurance Fund
2022-2027 Financial Plan
Introduction
The City of Minneapolis (the City) is self-insured for its medical insurance. Beginning January 1, 2018, the Medical Plan is no longer insured by Medica. The City is self-insured and will use its own fund to pay for employees’ medical expenses and contracts with Medica for administrative services.
Historical financial performance
This fund originated in 2018. Over the last three years, the Medical Self-Insurance Fund had an increase in net position from $5.5 million at the end of 2018 to $22.2 million at the end of 2020. The increase was primarily due to a sharp decline in elective care during the pandemic which reduced health care expenditures in 2020. The increase is also due to a decrease in an adjustment for unpaid claims. The 2020 unpaid claims are $6.5 million, representing a decrease of $600,000 from the 2018 unpaid claims of $7.1 million. This was the predicted payout as determined by Deloitte.
For the year ending 2020, the cash balance was $28.5 million, an increase of $14.7 million from the 2018 cash balance of $13.8 million. The 2020 target cash reserve was $29.2 million, an increase of $1.4 million from $27.8 million in 2018. The fund was below the target, by a negative $724,000 in 2020. This is an increase of $13.3 million from the 2018 target of a negative $14.0 million.
Revenues
The 2021 revenues for the Medical Self-Insurance Fund are projected to be $67.9 million, or $3.3 million less than the budgeted revenue of $71.2 million. The primary reason for the decrease is because medical premium revenue was lower than expected.
Expense
The projected expenses for 2021 are $63.4 million or $7.8 million less than the budgeted amount of $71.2 million. The primary reason for the decrease is due to a $7.2 million decrease in medical claims and a $594,000 decrease in contractual services and materials. This reduction in expenses is due to a decline in elective care during the pandemic, which in turn reduced health care expenditures in 2020. It is carrying over into 2021.
Net position and cash balance
The net position in 2021 is projected to be $26.7 million, an increase of $4.5 million from a budgeted amount of $22.2 million at year end 2021. The increase in net position is primarily due to a decline in elective care as described above.
For the year ending 2021, the cash balance is projected to be $33.0 million, an increase of $4.5 million from the budgeted amount of $28.5 million. The 2021 target cash reserve is projected to be $23.7 million and the fund is projected to be above its target by $9.3 million.
2022 Budget
Revenues
The 2022 budgeted revenue is $74.7 million, an increase of $6.8 million from the 2021 projected amount of $67.9 million and an increase of $3.5 million from the 2021 budgeted revenue of $71.2 million. The increase in the 2022 budget amount is primarily due to an increase in medical premiums and staff increases.
Expenses
The expense budget for 2022 is $74.9 million, an increase of 18.0% or $11.5 million from the projected 2021 expenses of $63.4 million. The primary reason for the increase is due to a $10.6 million increase in medical claims and a $713,000 increase in contractual services.
The 2022 expense budget reflects an increase of 5.2% or $3.7 million from the 2021 budgeted expense of $71.1 million due to a $3.4 million increase in insurance claims and a $168,000 increase in contractual services.
Transfers
There are no transfers budgeted in 2022.
Debt Service
This fund does not have any long-term debt.
Net position and cash balance
The financial reserve policy relating to the internal service funds states that the net position for the Self-Insurance Funds should not fall below zero. The net position at year-end 2022 for the Medical Self-Insurance Fund is projected to be $26.6 million, representing a decrease of $123,000 from the 2021 projected net position of $26.7 million. The decrease in net position is primarily due to transferring 1 FTE of the Finance - Controller division from the Risk Management Self-Insurance Fund of $123,000.
The financial reserve policy states that the Medical Self-Insurance Fund shall maintain a minimum cash balance of 35% of total annual claims. For year ending 2022, the cash balance is projected to be $32.9 million, a decrease $123,000 from the 2021 projected amount of $33.0 million. The 2022 target cash reserve is projected to be $24.9 million, an increase of 5.0%, or $1.2 million from the 2021 projected amount of $23.7 million. The fund is projected to be above its target by $9.3 million in 2021 and $8.0 million in 2022.
Medical Self-Insurance Fund financial plan
