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Home My WebLink AboutFS 2016-10-18 Item 2B - Budget Review - 2017-2018 Biennial Budget: Employee Health Care and LEOFF I Retiree Self-Insured Health Care PlanCity of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance & Safety Committee FROM: Peggy McCarthy, Finance Director BY: Vicky Car1sem°Depmty Finance Director DATE: October 12, 2016 SUBJECT: Self-insured Healthcare Plan and LEOFFU Retiree Self-insured Healthcare Plan 2017-2018 Proposed Budgets ISSUE As provided for iO the budget process approved bv the Finance and Safety Committee, Council Committees will be reviewing budget sections prior to review by the full Council. The Self- Insured Healthcare Plan and LEOFF I Retiree Self-insured Healthcare Plan funds Vf the budget are ready for review by the Finance and Safety Committee. BACKGROUND The Self-Insured Healthcare Plan fund (fund 5O2) accounts for the City's self-insured healthcare plan. The fund receives contributions OD behalf Ofthe employees through premiums charges to their respective organization units. Healthcare claims, program administrative fees and a Wellness Program are expensed in this fund. The LEOFF I Retiree Self-Insured Healthcare Plan fund (fund 503) receives contributions on behalf of retired LEOFF I employees through their respective organization units (police and fire). Healthcare claims and program administrative fees are expensed in this fund. DISCUSSION Based on our recent actuarial report, itis projected th@i0ur5O2fundcootwi||aee8OiOCr88SHOf over 8% for 2O17. Expenses have been budgeted conservatively, although over the past few years our claims experience and cost have increased resulting in a drawdown of the fund balance. It is anticipated that actual expenses may be lower otthe end of the year as our claims experience typically levels off during the last few months of the year. The City's reserve goal is 2.5 times |BNH (incurred but not reported o|aima\.|tia projected tha1vvevvi||ad||meetour reserve goals at the end of the biennium. |n addition, based on the latest actuarial report, revenue for fund 5O3io projected todecreaoe 52.7S%in2O17 and nV change in2O18. The fund currently has @ healthy fund balance and iS significantly above the required |BNH of $211 thousand. Funding was reduced to bring the fund balance down closer to the required |BNR. Expenses have been conservatively budgeted. RECOMMENDATION Staff recommends that the Finance and Safety Committee forward these sections of the budget OO to the Committee of the Whole for [eVi8vv. If there are no recommended Changes. Council consensus will be requested to move this departmental budget forward to the final budget package iDNovember. ATTACHMENTS Draft Self-Insured Healthcare Plan Fund 2017-201O Proposed Budget Dra0LEOFF | Retiree Self-Insured Healthcare Plan Fund 2017-2018 Proposed Budget El DEPARTMENT: Finance FUND: Self Insured Healthcare Plan FUND NUMBER: 502 RESPONSIBLE MANAGER: Peggy McCarthy POSITION: Director Description This fund accounts for the City's self-insured healthcare plan. This fund receives contributions onbehalf of the employees through premiums charged to their respective organization units. Healthcare claims, program administrative fees and a Wellness Program are expensed in this fund. 2015-2D16 Accomplishments * Made plan changes consistent with the Affordable Care Act including offering participation in the plan toCounci|members. Strategic Goal 5 ° Adopted an actuarial based rate setting and reserve funding policy and procedures in response to changes in state law governing self-insured healthcare plans. Strategic Goal 5 * Made changes in funding level to reduce plan overfunding and achieve balance between annual premium charges and maintenance of reserve levels. Strategic Goal 5 2017-2018 Outcome Goals * Continue to respond to, and in oonnpk/, with the Patient Protection and Affordable Core Act (PPACA). Strategic Goal 5 + Review and adjust plan benefit structure k>avoid paying the "Cadillac tax.^an annual 40%excise tax On plans with premiums exceeding $10.200 for individuals or $27.500 for families (not including vision and dental benefits) starting in 2020. Strategic Goal 5 2017-2018 Indicators of Success + A premium structure that adequately funds the plan and maintains a smooth and predictable premium trajectory iaaohieved. Strategic Goal 5 * Plan is structured such that the PPACA excise tax is not assessed. Strategic Goal 5 + A balance is maintained between Plan benefits and City priorities. Strategic Goal 5 Revenue and Expense Summary Self Insured Healthcare Plan Unrestricted Actual Projected 1 1,175,682 Budget 506,792 2016 -17 2017 -18 -99.09°% 2014 2015 2016 2016 2017 2018 %Change %Change Operating Revenue Employer Trust Contributions $ 4,436,091 $ 4,900,091 $ 5,385,317 $ 5,416,244 $ 5,999,527 $ 6,474,405 10.77% 7.92% Employee Contributions 61,380 111,823 112,415 81,020 77,000 77,000 -4.96% 0.00% Employee Benefit Programs 950 1,955 1,893 1,200 1,200 1,200 0.00% 0.00% Investment Earnings 166,583 36,436 102,220 95,565 96,000 96,000 0.46% 0.00% Total Operating Revenue 4,665,004 5,050,306 5,601,846 5,594,029 6,173,727 6,648,605 10.36% 7.69% Operating Expenses Self- Insured Medical Claims 4,668,252 3,260,074 4,145,206 4,365,218 4,200,000 4,424,000 - 3.78% 5.33% Dental Claims 557,481 614,537 567,279 506,213 565,000 583,978 11.61% 3.36% Prescription Claims 868,671 900,448 1,000,697 680,551 1,050,000 1,084,400 54.29% 3.28% Vision Claims 26,648 28,491 28,739 21,710 30,000 32,300 38.19% 7.67% Stop Loss Reimbursements (139,960) (21,234) (67,224) (75,000) (75,000) (75,750) 0.00°% 1.00% Prescription Fees (31) - - - - - 0.00°% 0.00°% TPA Admin Fees 201,521 216,443 179,369 184,061 220,000 237,200 19.53°% 7.82°% Excess Loss Premiums 324,868 387,649 406,338 407,185 523,000 564,350 2844% 7.91% IBNR Adjustment - - (28,500) 77,000 149,500 117,750 94.16°% - 21.24°% Professional Services 29,365 16,859 29,171 31,900 32,000 32,000 0.31°% 0.00°% Miscellaneous 2,505 24,510 8,296 6,700 7,000 7,000 4.48°% 0.00°% Wellness Program 17,392 13,763 18,029 18,000 18,000 18,000 0.00°% 0.00°% Total Operating Expenses 6,556,711 5,441,541 6,287,399 6,223,538 6,719,500 7,025,228 7.97°% 4.55°% Indirect cost allocation 75,500 119,964 120,703 120,703 123,117 125,579 2.00°% 2.00% Total Expenses 6,632,211 5,561,505 6,408,102 6,344,241 6,842,617 7,150,807 7.86% 4.50°% Beginning Fund Balance 4,460,344 2,493,137 1,981,938 2,344,927 1,175,682 506,792 - 49.86°% - 56.89% Change in Fund Balance (1,967,207) (511,199) (806,256) (750,212) (668,890) (502,202) - 10.84°% - 24.92°% Ending Fund Balance $ 2,493,137 $ 1,981,938 $ 1,175,682 $ 1,594,715 $ 506,792 $ 4,589 - 68.22°% - 99.09% Unrestricted 2,493,137 1,981,938 1 1,175,682 1,594,715 506,792 4,589 1 -68.22°% -99.09°% IBNR reserve 2,260,000 1,947,500 1 1,919,000 1 1,919,000 2,068,500 2,186,250 7.79°% 5.69°% N. Expenditure Detail - Benefits and Services Employee benefits costs include medical, vision, and dental claims for all employees and dependents. Services includes broker fees, other healthcare plan fees, and Wellness program costs. Self Insured Healthcare Plan 11 Actual Projected Budget Account Number 2014 2015 2016 2016 2017 2018 502.00.517.370.25.00 Benefits - Self insured medical claims $4,668,252 $3,260,074 $4,145,206 $4,365,218 $4,200,000 $4,424,000 502.00.517.370.25.01 Benefits - Dental claims 557,481 614,537 567,279 506,213 565,000 583,978 502.00.517.370.25.02 Benefits - Prescription claims 868,671 900,448 1,000,697 680,551 1,050,000 1,084,400 502.00.517.370.25.03 Benefits - Vision claims 26,648 28,491 28,739 21,710 30,000 32,300 502.00.517.370.25.04 Benefits - Stop loss reimbursements (139,960) (21,234) (67,224) (75,000) (75,000) (75,750) 502.00.517.370.25.05 Benefits - Prescription fees (31) - - - - - 502.00.517.370.25.06 Benefits - TPD Admin fees 201,521 216,443 179,369 184,061 220,000 237,200 502.00.517.370.25.07 Benefits - Excess loss premiums 324,868 387,649 406,338 407,185 523,000 564,350 502.00.517.370.25.10 Benefits - IBNR adjustment - - (28,500)1 77,000 149,500 117,750 Total Benefits 6,507,449 5,386,409 6,231,903 6,166,938 6,662,500 6,968,228 502.00.517.370.41.00 Prof Svcs - Broker fees 29,365 16,859 29,171 31,900 32,000 32,000 502.00.517.370.49.00 Misc - Other healthcare plan fees 2,505 24,510 8,296 6,700 7,000 7,000 502.00.517.900.49.01 Misc - Wellness program 17,392 13,763 18,029 18,000 18,000 18,000 Total Services 49,262 55,132 55,496 56,600 57,000 57,000 Total Benefits and Services $6,556,711 $5,441,541 f $6,287,399 $6,223,538 $6,719,500 $7,025,228 11 DEPARTMENT: Finance DIVISION: N/A FUND: LEOFF I Retiree Self-Insured Healthcare Plan FUND NUMBER: 503 RESPONSIBLE MANAGER: Peggy McCarthy POSITION: Director Description This fund accounts for the City's self-insured healthcare plan for Law Enforcement Officers and Fire Fighters (LEOFF 1) retirees. This fund receives contributions on behalf of retired LEOFF I employees through their respective organization units. Healthcare claims and program administrative fees are expensed in this fund. 2015 — 2016 Accomplishments ♦ Made plan changes consistent with the Affordable Care Act including offering participation in the plan to Councilmembers. Strategic Goal 5 ♦ Adopted an actuarial based rate setting and reserve funding policy and procedures in response to changes in state law governing self-insured healthcare plans. Strategic Goal 5 ♦ Made changes in funding level to reduce plan overfunding and achieve balance between annual premium charges and maintenance of reserve levels. Strategic Goal 5 2017 — 2018 Outcome Goals ♦ Optimize use of Medicare insurance coverage to manage plan costs. Strategic Goal 5 ♦ Continue to analyze and revise funding structure to achieve a smooth and predictable premium trend. Strategic Goal 5 2017 — 2018 Indicators of Success ♦ A smooth funding trend is achieved. Strategic Goal 5 ♦ Reserves levels are maintained. Strategic Goal 5 ♦ Costs are managed and stabilized. Strategic Goal 5 F-F� Revenue and Expense Summary LEOFF 9 Self Insured Healthcare Plan Unrestricted Actual Projected 1 1,210,204 Budget 872,246 2016 -17 2017 -18 - 40.74% 2014 2015 2016 2016 2017 2018 % Change % Change Operating Revenue Employer Trust Contributions 300,000 950,656 598,782 565,000 265,000 265,000 - 53.10% 0.00% Other - 278,744 - - - - 0.00% 0.00% Investment Earnings 598 226 2,191 3,340 3,340 3,340 0.00% 0.00% Total Operating Revenue 300,598 1,229,626 600,974 568,340 268,340 268,340 - 52.79% 0.00% Operating Expenses Self- Insured Medical Claims 1,245,047 186,627 170,040 264,183 250,000 265,000 - 5.37% 6.00% Dental Claims 36,806 29,804 29,543 33,874 34,000 36,040 0.37% 6.00% Prescription Claims 151,479 149,571 154,937 147,183 160,000 169,600 8.71% 6.00% Vision Claims 6,499 7,714 5,134 6,499 8,000 8,480 23.10% 6.00% Stop Loss Reimbursements (601,315) (67,395) - - - - 0.00% 0.00% Prescription Fees (2) - - - - - 0.00% 0.00% TPA AdminFees 17,126 17,346 18,307 18,196 20,000 21,200 9.91% 6.00% Excess Loss Premiums 17,798 20,597 22,472 25,101 25,000 26,500 -0.40% 6.00% Long Term Care Insurance 12,187 12,187 11,294 25,064 14,000 14,840 - 44.14% 6.00% IBNR Adjustment - - (30,000) 27,100 11,250 8,750 - 58.49% - 22.22% Retiree Medical Reimbursement 20,901 11,757 16,124 19,800 20,000 20,000 1.01% 0.00% Retiree Medicare Reimbursement 27,039 27,057 33,530 33,000 33,000 33,000 0.00% 0.00% Professional Services 15,865 5,840 2,208 5,183 18,000 6,000 247.29% - 66.67% Miscellaneous 500 500 250 800 500 500 - 37.50% 0.00% Total Operating Expenses 949,930 401,606 433,840 605,983 593,750 609,910 -2.02% 2.72% Indirect cost allocation 9,906 11,186 11,408 11,408 12,549 13,804 10.00% 10.00% Total Expenses 959,836 412,792 445,248 617,391 606,299 623,714 -1.80% 2.87% Beginning Fund Balance 896,882 237,644 1,054,479 255,032 1,210,204 872,246 374.53% - 27.93% Change in Fund Balance (659,238) 816,834 155,726 (49,051) (337,959) (355,374) 588.99% 5.15% Ending Fund Balance $ 237,644 $1,054,479 L$1,210,204 $ 205,981 $ 872,246 $ 516,872 323.46% - 40.74% Unrestricted 237,644 1,054,479 1 1,210,204 1 205,981 872,246 516,872 1 323.46% - 40.74% IBNR reserve 285,750 221,250 191,250 191,250 202,500 211,250 5.88% 4.32% 9 Expenditure Detail - Benefits and Services Employee benefits costs include medical, vision, and dental claims for LEOFF I members. Services includes broker fees and other healthcare plan fees. LEOFF 1 Self Insured Healthcare Plan 10 Actual Projected Budget Account Number 2014 2015 2016 2016 2017 2018 503.00.517.200.25.00 Benefits - Self- insured medical & dental $1,245,047 $ 186,627 $ 170,040 $ 264,183 $ 250,000 $ 265,000 503.00.517.200.25.01 Benefits - Dental claims 36,806 29,804 29,543 33,874 34,000 36,040 503.00.517.200.25.02 Benefits - Prescription claims 151,479 149,571 154,937 147,183 160,000 169,600 503.00.517.200.25.03 Benefits - Vision claims 6,499 7,714 5,134 6,499 8,000 8,480 503.00.517.200.25.04 Benefits - Stop loss reimbursements (601,315) (67,395) - - - - 503.00.517.200.25.05 Benefits - Prescription fees (2) - - - - - 503.00.517.200.25.06 Benefits -TPA admin fees 17,126 17,346 18,307 18,196 20,000 21,200 503.00.517.20025.07 Benefits - Excess loss premiums 17,798 20,597 22,472 25,101 25,000 26,500 503.00.517.200.25.08 Benefits - Long term care 12,187 12,187 11,294 25,064 14,000 14,840 503.00.517.200.25.10 Benefits - IBNR adjustment - - (30,000) 27,100 11,250 8,750 503.00.517.200.25.20 Benefits - Medical,dental, life, optical 20,901 11,757 16,124 19,800 20,000 20,000 503.00.517.200.25.21 Benefits - Medical,dental, life, optical 27,039 27,057 33,530 33,000 33,000 33,000 Total Benefits 933,565 395,266 431,381 600,000 575,250 603,410 503.00.517.200.41.00 Prof Svcs - Broker fees 15,865 5,840 2,208 5,183 18,000 6,000 503.00.517.200.49.00 Misc - Plan document fees 500 500 250 800 500 500 Total Services 16,365 6,340 2,458 5,983 18,500 6,500 Total Benefits and Services $ 949,930 $ 401,606 $ 433,840 $ 605,983 $ 593,750 $ 609,910 10