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Lockton warns Simsbury of large medical claims; board reviews reserve targets
Summary
Lockton consultant reported five members exceed Simsbury’s $275,000 stop‑loss threshold and a recent spike added about $400,000 in monthly claims; the Board discussed reserve policy, stop‑loss attachment points and whether referendum timing should change to reflect stop‑loss data.
Seth LaVigne, a Lockton consultant advising the Town of Simsbury, told the Board of Finance on May 19 that the town’s self‑funded health plan is facing several unusually large claims and that the town should reassess its reserve targets and monitoring triggers. “Simsbury currently has five claimants that exceed the stop loss amount of $275,000 per member per year,” LaVigne said, and he added that from March to April the plan gained four additional claimants over $125,000, which added roughly $400,000 in claims for the month.
LaVigne explained that a self‑funded plan places liability for claims on the employer while stop‑loss insurance caps the town’s exposure. He recommended holding reserves for incurred‑but‑not‑reported (IBNR) claims in the 8.5%–11% range and an additional 7%–9% to cover large‑claim volatility, describing a combined practical target range of roughly 15.5% on the low end to 20%–25% at the high end depending on risk tolerance. “If we budgeted for the projected increase plus 20% of expected claims in reserves, that is a good place to be,” he said.
Board members pressed for clearer monitoring and timing to support budget decisions. Chair Lisa Heavner asked how the town could avoid the mid‑budget surprises that forced a reduction of a planned $1 million reserve draw last year; LaVigne said actuaries provide trend information in December and that Lockton’s stop‑loss information typically does not finalize until mid‑April, limiting how early the town can lock in figures for a January referendum.
Dr. Lalitha Shivaswamy asked what the board could do to ensure solid numbers before approving a budget for referendum. LaVigne recommended quarterly reviews with actuarial input, noting Simsbury’s enrollment size limits the usefulness of very short‑term (monthly) trend calls. He also cautioned that lowering the stop‑loss attachment point from $275,000 would increase the town’s premium for stop‑loss coverage.
The Board did not take a formal vote on insurance design at the meeting; members asked staff to provide draft policies and further analysis. Finance Director Amy Meriwether said she would share the town’s existing policy with Lockton for review. The Board signaled interest in clarifying reserve notification thresholds and whether referendum timing should be adjusted to allow stop‑loss data to be final before budget approval.
Next steps: staff will share existing insurance policy language with Lockton for feedback and return with options on reserve targets and monitoring triggers for Board consideration before the FY28 budget cycle.
