School districts and cities in a local insurance group face surprise assessments as claims skyrocket.

Local school districts, private schools and cities participating in the Municipalities, Colleges, Schools Insurance Group, known as MCSIG, are facing an unprecedented $6.7 million assessment, after the agency faced steep medical claims in October and November. The assessment was approved by the MCSIG board on Wednesday, Dec. 11.

Member agencies must pay their assessments—which range from $928 to $1.24 million, depending on the size of the district—by Jan. 17. It’s a surprise expense that likely no district budgeted for and it could mean either more money out of employees’ pockets or reduced services to students and residents, or a combination of both.

MCSIG is a joint powers authority with nearly 30 participating school districts and municipalities inside and outside Monterey County to operate and maintain health insurance for their employees. When claims come in, MCSIG pays on those claims to health care providers, using money from premiums.

In October, MCSIG had claims totaling $11.6 million, according to a report to the board by Executive Director Neddie Sarmiento. Only three claimants had claims of over $500,000; anything above $500,000 is reimbursed by a third party stop loss insurance company. MCSIG is only receiving a $463,230 refund from that insurer; the rest of the $11.6 million must be paid by the JPA.

MCSIG was already operating at a deficit, Sarmiento said. The new claims doubled that deficit from $6.8 million to $12 million.

“There has been a remarkable increase in claims” that range from $25,000 to the $500,000 stop loss level, she said. “For example, July through September, the average monthly JPA claims of $25,000 averaged $2.9 million. But the October claims above $25,000 were $7.9 million.

“This increase is driven by unusually high medical claims, and of course Monterey County is expensive as well, so that adds to that,” Sarmiento said. The claims are for conditions that include cancer, diabetes, sepsis and kidney disease.

“Quite a few members are very ill,” she said.

The magnitude of the deficit and a depletion of cash prompted an emergency meeting of the MCSIG Executive Committee on Monday, Dec 9. There they agreed to ask the full board to approve the $6.8 million in assessments, following rules of the JPA agreement.

“This is the best and current solution to bring immediate funds to the pool,” Sarmiento said.

Several MCSIG members asked questions, grappling with the unexpected expense.

“Obviously this amount that we’re all required to expend is not in our budgets. What do my colleagues at MCSIG recommend? Do we pass it on to our employees? Do we just absorb it?” asked Jessica Guzzi, executive director of Monterey Bay Charter School, which faces a $22,883 assessment.

“That is something you’ll have to figure out, however you figure it out,” said Steve McDougall, president of MCSIG board. “Either you pass it on to your employees and have them pay for it through negotiations or you basically take it away from the students of Monterey County and the services that are provided, if you’re not a school district but a local government participant.”

The large claims are spread among all the member districts and municipalities, said Tom Edwards, a consultant with Keenan & Associates. That being said, the claims coming from districts and municipalities within Monterey County are the driver of the high costs, he said, adding that some costs of medical conditions have doubled since a couple of years ago.

Another Keenan & Associates consultant, Bordan Darm, reported that $16 million was paid out in claims over $25,000 over four months, from July to October. Of that $16 million, $6 million was paid to Salinas Valley Health and $4 million went to Community Hospital of the Monterey Peninsula, with the rest going to other providers.

That Monterey County hospital prices are some of the highest in the state has been a major sticking point for local unions, which have used that fact to lobby the California Office of Health Care Affordability board to regulate the three largest hospitals, SVH, CHOMP and Natividad. An investigation is currently underway by OHCA staff, and the OHCA board is expected to discuss possible limits on hospital spending at its next meeting in Sacramento on Monday, Dec. 16.

“We need everyone in this room and online to start recognizing that these local hospitals are driving this deficit,” said Kati Bassler, a MCSIG board member and president of the Salinas Valley Federation of Teachers. “People get sick everywhere but these rates are not normal that we are being charged and we have to start being united together to fight these rates, because we can’t afford to do this again.”

Prescription drug costs should also be considered, Darm said during the meeting. The top four drugs being prescribed currently are for weight loss and diabetes: Wegovy, Ozempic, Zepbound and Mounjaro, making up 25 percent of MCSIG’s prescription drug costs. It’s possible MCSIG will have to limit access to those drugs, as many companies have done, to control costs, he said.

Districts that do not have the money for their assessments by Jan. 17 can apply for a hardship and pay over time.