Lawmakers agree to draft legislation on insurance solutions for childcare providers

After months of hearing from childcare providers about changes they want to see in order to stay open and recruit more staff to address statewide shortages, the Economic Affairs Interim Committee agreed Tuesday to move forward with drafting legislation to try to fix one of the identified problems — providers facing steep increases in liability insurance or having their coverage dropped altogether.

It’s the first forward action the 10-member committee that includes seven Republicans has taken on addressing childcare and Montana’s workforce, one of the committee’s tasks during the interim.

Parents, providers and government officials have all said during the course of six meetings over the past nine months that parents need reliable childcare in order to work, but childcare providers have struggled to stay open because of increased costs in insurance, tight margins, and the inability to pay workers a high enough wage to retain them for long or to hire new staff.

The Department of Labor and Industry reported earlier this year nearly 70,000 Montana parents could not work full time last year due in part to their lack of childcare.

In March, the committee rejected a proposal from Rep. Jonathan Karlen, D-Missoula, to craft a package of bills for next year’s legislative session that would include expanding the eligibility for Montana’s childcare scholarship program, implementing childcare tax credits for parents and providers; and exploring trust accounts and public-private partnerships.

But the committee members have also been given presentations about providers’ struggles to obtain or keep their liability insurance and two possible models – captive insurance or reinsurance – that have caught the eye of providers and the state auditor’s office as possible solutions.

After the March meeting, Zero to Five Montana, a Helena-based early childhood policy and advocacy organization, in April surveyed providers across the state on how much their liability insurance had gone up, if they had been dropped by insurers, and if they would be interested in joining a business liability insurance pool.

About 85% of the 228 childcare providers that responded to the survey said they were interested in joining an insurance pool; most of them said their main desire would be to get more affordable insurance options or to get better coverage than they currently receive.

The survey included group providers, childcare centers and family, friend and neighbor providers, covering all types of childcare settings. Of the 228 facilities that responded in the survey, 57% said their annual liability insurance premium rate had increased during the past year, and about one in three said costs had gone up at least $1,000.

Just 18% of providers said they were satisfied with their insurance experience, and many of them reported facing increased costs because their facilities are considered higher risks by insurers because of their locations, if they have pets present, if they take the children out for enrichment activities, or if they care for children with special needs despite them having no history of claims.

For childcare centers, which serve more than 16 children at a time, the average annual rate increase during the past year was $1,859. For centers it was $503 and for family, friend and neighbor facilities, rates increased on average $269.

Angie Armour, the executive director of Raise Montana, another childcare advocacy group that worked with Zero to Five Montana and Deputy Insurance Commissioner Frank Cote to try to come up with insurance solutions, said insurance companies often have different standards than state licensing requirements and the group was looking into ways that providers could form an association of sorts to set standards that insurers would accept in terms of risk.

Lawmakers passed bills last year to loosen licensing requirements for small childcare providers and to allow for more lax staff-to-child ratios at daycares in an effort to open more slots for children, which presenters at Tuesday’s meeting said could be another factor in insurers pulling out of childcare altogether or charging providers more based on heightened risks.

“There is this really kind of Catch-22. You want to be able to help get as many kids with a daycare facility so that parents can go to work. And if there aren’t enough daycare facilities, then the tendency is to say, well, let’s just relax the rules,” Cote said. “Well, that’s not how insurance companies work.”

He said those companies still look at their own business and decide that those standards might not meet their own, then raise rates to ensure they are still profitable in the event they do have to pay out high-cost claims.

“An insurance company is in the business to be in business,” Cote said. “They have to make money over time, and if they’re continuing to lose money over time, they’ll remove themselves from that particular risk, or remove themselves entirely from the market.”

Dena Johnson, a sales executive with the insurance company Marsh & McLellan, explained that insurance policy underwriters care about a provider’s commitment to standards and they want better than the minimum.

“I want to know the daily practices – is there overlap? What is going on with the kiddos? What’s your training? What’s your turnover?” she explained. “Really understanding what’s happening because it’s not a matter of if, but when, something could happen and what are the safety nets in place that are going to keep that from happening.”

Cote told lawmakers that after talking with Zero to Five Montana and Raise Montana, they agreed that a captive insurance program, in which a company is created to insure risks for its parent company or an association of companies, was not yet feasible because those involved need more information on how many providers might want to join and establish some sort of baseline for their premiums.

He said the organizations seemed interested in forming an association of some sort, however, and the committee voted to move forward with the reinsurance idea, which would mirror what the Montana Reinsurance Association does with health insurance.

That association, funded by federal grants and insurance premium assessments, reimburses insurers for a portion of high-dollar claims they incur during the year, which Cote and the association say have led to premium rates on the individual health insurance market decreasing by about 10%.

Moving forward with that idea but on the childcare insurance side could allow providers to align their standards, strategies, and premiums while helping offset costs for insurers and making them more comfortable with providing coverage, several of the speakers said.

“So, these are the criteria. Yes, here’s the minimum state requirements, and then to be an accredited member of the association you also have to be better, and this is what you do,” Johnson said, explaining how it could work. “So, everyone that’s a member has standardized training and they participate in continuing education and we have site visits and all the other things.”

After approving Karlen’s request to work on legislation surrounding the reinsurance program idea, the committee rejected every other proposal.

Karlen proposed a bill be drafted changing the eligibility requirements for the Best Beginnings Scholarship to 85% of the state median income instead of 185% of the Federal Poverty Level, which was previously suggested as a solution to provide more parents with help in obtaining child care, but that was rejected by every Republican.

He also had another proposal to write a child tax credit bill rejected in a 5-5 vote, with Committee Chair Rep. Josh Kassmier, R-Fort Benton, and Senate Majority Leader Steve Fitzpatrick, R-Great Falls, supported along with the three Democrats on the committee.