CY 2016 3rd Quarter Actuarial Forecast Update

Board of Trustees Meeting

December 1, 2016Forecast prepared by The Segal Company

Initial version dated 11-3-16

Presentation Overview

• Forecast Update Schedule

• Updated Assumptions: CY 2016 3rd Quarter Forecast Update vs.

Authorized FY 2016-17 Budget

• CY 2016 Forecast: CY 2016 3rd Quarter Forecast Update vs. Authorized

FY 2016-17 Budget

• Premium increases for CY 2018 and CY 2019

• Forecast Progression

• Summary Graphs

• Future Outlook

2

Actuarial Forecast Update Schedule

• The Plan’s actuarial consultant updates the forecast quarterly and

at the end of each calendar year and fiscal year

• Updates take into account more recent information:

• Actual financial results and cash balance

• Membership data, including the impact of enrollment

changes

• Claims experience

• Changes in anticipated costs or revenues

3

Forecast Assumptions Maintained in the Update

CY 2016 3rd Quarter Update vs. Authorized Budget

• Membership trends

• 1% annual decrease in actives

• 1% annual increase in retirees

• Trend assumptions

• 7% medical trend

• 8.5% pharmacy trend

• 3% administrative trend from FY 2016-17 budgeted amount

• Board-approved benefit design for CY 2017

• Tobacco attestation wellness premium credit on the Traditional 70/30 Plan for active employees

• Increased cost-sharing in Traditional 70/30 Plan

• Changes to Enhanced 80/20 Plan (higher deductible, value-based copay design)

• Status Quo in CDHP

• Single Medicare Advantage carrier

• Custom closed formulary for prescription drug benefits

• Board-approved premium increases for 2017

• Cash reserves are balanced to the Target Stabilization Reserve (TSR) as of December 31, 2019

4

Forecast Assumptions Changed/Revised in the Update

CY 2016 3rd Quarter Update vs. Authorized Budget

• Membership data based on actual September 2016 enrollment data (rather

than March 2016)

• Anticipated claims expenses based on actual experience through September

2016 (rather than March 2016)

• Cash balance begins from actual total as of September 30, 2016 (instead of

March 31, 2016)

• Forecasted membership numbers for active employees use seasonality

factors to more closely represent monthly shifts in membership (for example,

lower membership during summer months)

• 2016 quarterly rebate estimates adjusted to reflect recent experience

• Pharmacy costs under the new PBM contract (starting January 1, 2017)

include the most recent rebate guarantee offers from CVS/Caremark

• Interest earnings updated to reflect actual experience over the most recent

12 months

5

Calendar Year 2016 Comparison of Models

CY 2016 3rd Quarter Update vs. Authorized Budget

Calendar Year 2016

CY 2016 3rd

Quarter

Update(per Segal 11-3-16)

Authorized

Budget(per Segal 7-5-16)

Difference:

Increase/

(Decrease)

From Budget

Beginning Cash Balance $1.015 b $1.015 b $0.0 m

Plan Revenue $3.171 b $3.167 b $4.4 m

Net Claims Payments $2.896 b $2.919 b ($22.6 m)

Medicare Advantage Premiums $194.9 m $193.8 m $1.1 m

Net Admin. Expenses $191.8 m $210.1 m ($18.3 m)

Total Plan Expenses $3.283 b $3.323 b ($39.8 m)

Net Income/(Loss) ($111.6 m) ($155.8 m) $44.2 m

Ending Cash Balance $903.6 m $859.4 m $44.2 m

2018 & 2019 Premium Increases 3.14% 3.74% (0.60%)

6

Current Forecast: Progression

Forecast Progression

Change in

2018 & 2019

Premium

Increases

Projected

2018 & 2019

Premium

Increases

CY 2016 1st Quarter Update 3.74%(August BOT)

Plan Experience in 2016 Q2 (mostly a membership impact) +0.16

CVS 8/24/2016 Rebate Guarantees -0.25

Plan Experience in 2016 Q3 -0.41

Interest Earnings Updated for Most Recent 12 Months -0.10

Total Change in 2018-2019 Premium Increases -0.60 3.14%(December BOT)

7

$2,165 $2,135$2,198 $2,194 $2,181 $2,156

$753 $736 $748 $725 $737 $740

$0

$500

$1,000

$1,500

$2,000

$2,500

CertifiedFB15-17Budget

CY 2015 Q3Update

CY 2015 Q4Update

AuthorizedFY16-17Budget

CY 2016 Q2Update

CY 2016 Q3Update

($ Millions)

Medical Claims Pharmacy Claims

8

Forecast Comparisons: Calendar Year 2016 Claims

Forecast Comparisons: Ending Cash Balance December 31, 2016

$676

$772 $765

$859 $868

$904

$400

$500

$600

$700

$800

$900

$1,000

CertifiedFB15-17Budget

CY 2015 Q3Update

CY 2015 Q4Update

AuthorizedFY16-17Budget

CY 2016 Q2Update

CY 2016 Q3Update

($ Millions)

9

Forecast Comparisons: Ending Cash Balances in FB15-17

$9

41

$8

23

$6

76

$5

17

$9

84

$8

97

$7

72

$6

46

$1

,01

5

$8

99

$7

65

$6

90

$1

,01

5

$9

82

$8

59

$8

44

$1

,01

5

$9

53

$8

68

$8

53

$1

,01

5

$9

53

$9

04

$8

91

$0

$200

$400

$600

$800

$1,000

$1,200

December 31, 2015 June 30, 2016 December 31, 2016 June 30, 2017

($ Millions)

Certified FB15-17 Budget CY 2015 Q3 UpdateCY 2015 Q4 Update Authorized FY16-17 Budget*CY 2016 Q2 Update* CY 2016 Q3 Update*

Actual = $1,015 Actual = $953

10

*Forecasts include the Board’s approved benefit design for 2017

Projected Cash Balance/12% Legislative Reserve Floor

CY 2016 3rd Quarter Forecast Update

11

$0

$200

$400

$600

$800

$1,000

$1,200

$ M

illio

ns

Month Ending Cash BalanceFB 2015-17

Projected Cash Balance (CY16Q3 Update) Actual Cash Balance

FY15-16 12% Reserve Floor FY16-17 12% Reserve Floor

The cash balance will not dip below

12% of projected annual expenses

Summary/Future Outlook

Based on CY 2016 3rd Quarter UpdateRelative to the Authorized Budget (FY 2016-2017), the CY 2016 3rd Quarter Update

projects:

• a higher cash balance at the end of 2016 and the end of FY 2016-17,

• lower medical claims costs, and

• higher pharmacy claims costs in the longer term

• The $890.9 million cash balance projected for June 30, 2017:

• Is $46.8 million higher than the Authorized FY 2016-17 Budget projection

• Exceeds the 9.0% target stabilization reserve amount by $631.0 million

• Equates to 13.3 weeks of projected FY 2017-18 operating expenses

• The CY 2016 3rd Quarter Update projects the need for 3.14% premium increases for

January 2018 and 2019. This is lower than the Authorized FY 2016-17 Budget (3.74%)

and remains below the 4% target set in the State Budget

12

13 13

Certified FB 2015-17 BudgetPage 1 (CY)

(Segal 10-13-15)

14 14

Certified FB 2015-17 BudgetPage 2 (FY)

(Segal 10-13-15)

15

CY 2015 Q3 UpdatePage 1 (CY)

(Segal 11-6-15)

16 16

CY 2015 Q3 UpdatePage 2 (FY)

(Segal 11-6-15)

17

CY 2015 Q4 UpdatePage 1 (CY)With Board’s 2017 Benefit

Design(Segal 5-12-16)

18

CY 2015 Q4 UpdatePage 2 (FY)With Board’s 2017 Benefit

Design(Segal 5-12-16)

19

Authorized FY16-17 BudgetPage 1 (CY)With Board’s 2017

Benefit Design(Segal 7-5-16)

20

Authorized FY16-17 BudgetPage 2 (FY)With Board’s 2017

Benefit Design(Segal 7-5-16)

21

CY 2016 Q2 UpdatePage 1 (CY)With Board’s 2017

Benefit Design(Segal 8-26-16)

22

CY 2016 Q2 UpdatePage 2 (FY)With Board’s 2017

Benefit Design(Segal 8-26-16)

23

CY 2016 Q3 UpdatePage 1 (CY)With Board’s 2017

Benefit Design(Segal 11-3-16)

24

CY 2016 Q3 UpdatePage 2 (FY)With Board’s 2017

Benefit Design(Segal 11-3-16)