Lockton warns Simsbury board that several very large health claims drove reserve shortfall; recommends 15.5% floor and contingency steps

Simsbury's consultant on the town—mployee health plan told the Board of Finance that a sudden cluster of very large medical claims — especially high-cost cancer treatments and new pharmacogenomic drugs — has pushed the town's self-funded plan reserves below the level advisers expected.

"Simsbury being self-funded means that Simsbury is more or less taking on liability for the claims of their entire population," Lockton consultant Seth Levine told the board. Levine said Simsbury currently has five individual claimants above the $275,000 individual stop-loss threshold, and that four additional claimants over $125,000 added roughly $400,000 to claims in one month.

Levine walked the board through how self-funded plans are rated retrospectively and why that compounding effect matters for budgeting: shortfalls and unexpectedly large claims in the current year are carried into the next year's rate-setting process. He recommended that the town formally hold incurred-but-not-reported (IBNR) reserves of about 8.5—1% plus 7—% for large-claim fluctuation, noting that guidance commonly results in combined reserve guidance in the 15'5% range. "A bottom would be 15 and 1/2% probably," he said.

The consultant also warned that lowering the current $275,000 stop-loss deductible is generally possible only at a significant marginal cost and that middle-layer reinsurance is usually available only through captive arrangements that reduce long-term savings. He said the stop-loss market often does not firm pricing until March claims are posted, and actuary trend guidance typically becomes reliable in December, which constrains how early the board can finalize precise premium assumptions.

Board members asked about the implications for next year's budget. Levine said that, given current large-claim activity, a 14% premium increase baked into FY27 assumptions is "absolutely needed" as a conservative planning number, while longer-term trend assumptions remain in the high single digits to low double digits depending on claims experience.

Why it matters: The town self-insures to capture long-term savings versus fully insured coverage, but that model concentrates the risk of very large individual claims on the municipality. The board will need to decide how much of the current reserves to use to smooth next year's rate versus holding deeper contingency and whether to pursue policy changes (middle-layer reinsurance, captive arrangements) that change predictability at the expense of some long-term savings.

What's next: Lockton committed to provide sample reserve-policy language and a recommended monitoring trigger; the town expects initial renewal projections to appear in November ecember and final stop-loss pricing to be available after March claims are posted.