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Home My WebLink AboutCOW 2015-05-11 Item 2 - Powerpoint Presentation Shown at Meeting - Health Plan Financial Review / Cadillac Tax Overview (State of the City's Health Care Plan)Presented by: Douglas Evans R.L. Evans Company, Inc. ACTIVE EMPLOYEE PLAN Acct 502 Self- funded Medical /Rx, Dental and Vision Program Healthcare Management Administrators (HMA), a subsidiary of Regence BlueShield, provides Administrative /Claims Processing services Stop loss Insurance purchased through Sun Life (2015 Individual Deductible = $175,000) Roger Burton FSA MAAA FCA — Provides annual actuarial review to set funding rates; required by Washington Administrative Code (WAC) Medical Claims (PEPM) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 -Medical Claims 24 mo Trend 14% ti3 3 ° � ° N a o ° � ° ti° N. ti ti ti ti N N 4\' Fes2 lP 06S- Oec >ao <IQ lac Q�� 4,‹ aJ >�� >�\ PJ� 5eQ O�� °� Oe° Jan Feb Mar Apr May Jun Jul Aug Sep 2014 $1,200 $1,454 $1,403 $1,381 $714 $777 $1,197 $827 $1,026 Oct Nov $759 $759 Dec $822 502 - Active Employees' Plan Dental Claims (PEPM) $300 $250 $200 $150 $100 $50 $0 Dental Claims 24 mo Trend -3% rig 1 --FP ■-■ 14, ti3 ti3 tib ti3 ti3 ti3 ti3 ti3 ti3 ti3 ti3 ti3 ti� ti� tik), ti� ti° ti° ti� t‘ 'ate c<e 4ac' Pic' aJ �� 4o �eQ o�� • �o� Oec ,a6 <<e� ac' P9c 4\aJ �� O c) Oe \..0 Oec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 $107 $112 $124 $249 $115 $125 $137 $110 $207 $123 $95 $160 502 - Active Employees' Plan Prescription Claims (PEPM) $400 $350 $300 $250 $200 $150 $100 $50 $0 Rx Claims 24 mo Trend 5% *Ai V y 4 ti° ti° ti° ti° ti° Sao J\ ti°` N.°‘ ti°` q.9 4`,c P4S\ �J‘ Q0' 49 06: 0e <<`P P lac P�aA Q\)% 49 06 Oec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 $203 $218 $204 $209 $221 $218 $200 $210 $346 $142 $224 $321 502 - Active Employees' Plan Vision Claims (PEPM) $8 $6 $4 $2 $0 Vision Claims 24 mo Trend -14% • • ti3 ti'' ti3 ti3 ti3 ti3 4 4, ti4 4, ,4 4 4, 4 4 , 40 4\aP9t 4\$,-\ 415. � ` e \>° cf. ><4.2, \SPQ �< ` 4\1> cp O pe Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 $8 $15 $5 $9 $3 $5 $10 $5 $8 $4 $5 $5 502 - Active Employees' Plan Premium Funding* vs. Expense $1,800.00 $1,600.00 $1,400.00 $1,200.00 $1,000.00 $800.00 $600.00 $400.00 $200.00 • �u.UU 2007 2008 2009 2010 2011 2012 2013 2014 Vision Claims $6.00 $5.83 $5.21 $6.11 $5.82 $5.52 $6.46 $6.94 Dental Claims $132.82 $133.08 $140.85 $142.51 $150.81 $134.05 $142.10 $138.78 Rx Claims $158.46 $176.90 $168.53 $159.25 $158.42 $175.73 $209.60 $226.28 Medical Claims $616.22 $620.24 $603.71 $724.15 $666.78 $818.57 $753.37 $1,025.93 SL & Admin $97.36 $109.36 $106.64 $119.61 $138.24 $146.13 $128.86 $165.08 Premium $1,205.00 $1,332.53 $1,486.33 $1,489.95 $1,201.69 $1,204.82 $1,179.28 $1,171.52 0 * Premium Funding does not include interest earnings on reserves. Vision Claims - Dental Claims Rx Claims Medical Claims - SL & Admin Premium 502 - Active Employees' Plan Expenses — 2014 Plan Year Vision Claims $26,646 Dental Claims 1% $557,480 9% Stop Loss $324,867 _5% Admin $308,893 5% Rx Claims $868,670 15% Medical Claims $3,938,532 65% 502 - Active Employees' Plan Cost Drivers For a plan our size, we expect claim costs to fluctuate year -to -year We purchase stop loss insurance to protect us from a catastrophic event that could impact our plan Recent large claim activity (med & rx) has affected our utilization costs 2011 2012 2013 2014 peci 1 Deductible $125,000 $125,000 $150,000 $150,000 Claims >50% of Specific Deductible Level $607,979 $820,262 $602,910 $695,123 5 6 5 5 Claims >100% of " peci is Deductible Level $ $164,437 $ 264,106 $55,710 $156,219 1 2 High -cost services for our group most recently (2013 vs 2014) were emergency room ( +54 %), surgical facility fees ( +176 %), hospital room & board ( +169 %), and miscellaneous outpatient services (71 %) Funding Expense & Analysis Actual (YE 2014) & Projected $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 * gh _ 2007 2008 2009 2010 2011 2012 2013 2014 Proj2015 Expenses —Funding — Premium Funding does not include interest earnings on reserves. 502 - Active Employees' Plan Reserves Analysis Actual (YE 2014) & Projected Reserves $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Cumulative Reserves 2007 2008 2009 2010 2011 2012 2013 2014 Proj 2015 $1,725,219 $2,809,836 $4,549,442 $5,708,894 $6,490,580 $6,432,636 $6,129,594 $4,752,150 $3,229,019 City's Reserve Goal (2.5x) $1,074,532 $1,190,640 $1,167,751 $1,155,647 $1,076,500 $1,638,250 $1,669,250 $2,261,750 $2,450,500 City's Reserve Goal in 2011 and '12 was 2.5 times the Actuary's Calculated IBNR Liability. Prior to this it was 30% of plan expenses. * Reserves include interest earnings. 502 - Active Employees' Plan LEOFF 1 RETIREE (LIR) PLAN Acct 503 Self- funded: Administration similar to Active Plan - City also has liability for non - insured Long Term Care (LTC) Expenses and qualified expenses not covered under health insurance contract. As members get older, more likely to incur LTC expenses. - City insures a portion of LTC risk through separate insurance policies - As members turn 65 (and enroll on Medicare), City's liability for health plan covered expenses decreases; currently 33 out of 39 are Medicare - eligible. Funding Expense & Analysis(LIR) Actual (YE 2014) & Projected $2,500 $2,000 $1,500 $1,000 $500 $0 * Premium dit 2007 2008 2009 2010 2011 2012 2013 2014 Proj2015 -Funding Expenses Funding does not include interest earnings on reserves. 503- LEOFF 1 Retirees Reserves Analysis (LIR) Actual (YE 2014) 84 Projected $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 so Cumulative Reserves 2007 2008 2009 — Reserves 1 $840,700 $1,052,969 $1,348,761 2010 2011 $1,657,049 $1,822,186 2012 2013 2014 $1,896,324 $1,963,861 $679,534 Proj 2015 $505,275 - City's Reserve Goal (2.5x)1 $129,147 $111,024 $97,401 $83,117 $91,005 $83,800 $88,800 $114,300 $138,500 * Reserves include interest earnings. 503- LEOFF 1 Retirees Cost Drivers (LIR) Following is the recent Leoff I Retiree large claim activity (med & rx) that has affected our utilization costs Specific Claims ( 50 %+ of Specific Claims > 100% of Specific Deductible Deductible Level Deductible Level S # $ # 2011 $125,000 $0 0 $0 0 2012 $125,000 $0 0 $0 0 2013 $150,000 $432,601 2 S208,565 1 2014 S150,000 $1,069,003 3 5698,410 1 High -cost services for this group most recently (2013 vs 2014) were anesthesia ( +120 %), hospital room & board ( +107 %), intensive care ( +1028 %), and outpatient surgery ( +342 %) What is the Cadillac Tax? Effective January 1, 2018 the ACA imposes a tax on plans offering premium coverage. Goal is to discourage overuse /abuse of healthcare system and help finance uninsured coverage. All employer- sponsored plans potentially affected, regardless of employer size. Guidance on how the tax will work remains vague Cadillac Tax Basics 40% excise tax on the value of insurance (and related benefits) if it exceeds preset thresholds: $10,200 annual limit for individual coverage - $27,500 annual limit for family coverage $11,850/$30,950 for retirees and high -risk professionals (e.g., police, fire, linemen) High risk employees must make up a majority of plan participants for employer to qualify for higher threshold. Thresholds may be adjusted for 2018 Based on inflation factors involving the federal employees health plan and on age factors for a specific group versus national average. After 2018 thresholds increase based on CPI What is Included? Tax calculation will include the value of employer and employee contributions made on a pre -tax and after -tax basis for.... Medical /Rx * Healthcare Flexible Spending Account (FSA) Employer and Employee (Section 125) Contributions to Health Savings Account (H SA) Health Reimbursement Arrangement (HRA) — including VEBAs Worksite clinics * Calculation excludes stand -alone dental and vision coverages Calculation Example Tax calculated separately for each employee /retiree 2015 rate for family coverage = $1,912 * 12 mo = $22,944 Medical Inflation at 8% per year: 2016 - $24,778 2017 - $26,762 2018 - $28,903 (Exceeds $27,500 threshold by $1,403) In 2018, $1,403 subject to 40% excise tax Total tax owed for this employee = $561 Challenges ACA and other laws are increasing plan cost: Elimination of annual dollar limits and all lifetime limits Extending coverage for children to age 26 Removal of pre- existing condition limitations Mental Health Parity New rules on who must be offered coverage (employee eligibility) Projected cost shifting by providers to account for increased Medicaid and Medicare enrollment Inclusion of all copays, deductibles & coinsurance in the Out -of- Pocket Maximum (prior to 2014 only coinsurance applied to OOPM) Healthcare inflation expected to accelerate in current economic climate Final Regulations will not likely be available until late 2016 Unknown if Congress will change any of the provisions, though, appears unlikely that this will be repealed Considerations No one wants to send money to D.C. for a tax on benefits Opportunities for lowering current benefit costs (subject to bargaining) Best long -term solutions (Trends) High Deductible Health Plan with Health Savings Accounts (consumer- directed health plan designs) Some contributions to HSAs are not included in Cadillac Tax Thresholds `Skin in the game' encourages consumerism Providing input to DOL through AWC /League of Cities QUESTIONS 0