COUNTY OF KANE Employee Benefits

Renewal Presentation 2014

Agenda

• Medical Plan Performance • BCBS Medical Renewal • Medical Marketing Summary • Alternative Funding Review • ACA Update • Retiree Management Strategy

Medical Plan Performance

Medical Plan Performance

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

2008 2009 2010 2011 2012 2013

Premium

Claims

Medical Loss Ratio the relationship of claims paid by the carrier to premiums paid by the County

Current Year: Claims: $13,051,907 Premiums: $14,193,720

Medical Plan Performance

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Trend

Increase

Healthcare Trend / Healthcare Inflation

Medical Plan Performance Actualized Value of Trend Increases versus

Actual Renewal Increases

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Trend

Actual

Trend PEPM increase: 120.50%

Actual PEPM increase: 56.22%

BCBS Medical Renewal

• Initial renewal: 13.8% plan increase • Includes 4.5% load due to ACA

– BCBS’s Estimated Health Insurer Fee – $5.25 per member per month Reinsurance Fee

• Negotiations yielded lowered increase of 5.6% to plan plus 3.6% to ACA, for an overall 9.2%

BCBS Renewal

• ACA-imposed costs are not new – they have been included in renewal rates each year since 2011

• Increases include charges for: – Age 26 Dependents – Women’s Preventive Care Services – Elimination of Lifetime Maximums – Preventive Care/Wellness Visits

BCBS Renewal

BCBS Renewal ACA Cost History

1.1%

0.5% 0.5%

3.6%

1.0%

2.5% 3.1%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2011 2012 2013 2014

ACA Fees

Increase

9.2%

BCBS Renewal Loss Ratio / Renewal History

Current PPO Plan Design In-Network Out-of-Network

Deductible $600 single $1,800 family

$1,200 single $3,600 family

Out-of-Pocket $1,500 single $4,500 family

$3,000 single $9,000 family

Coinsurance 80% 60% Office Visit Co-pay $25/$45 60% Annual Wellness Visit 100% 60% Prescription Generic: $10

Brand: $40 Non Pref Brand: $60

75% after copayment

Current HMO Plan Design In-Network

Out-of-Pocket $1,500 single $3,000 family

Office Visit Co-pay $25 primary $45 specialist

Annual Wellness Visit 100% Inpatient Co-pay $250 ER Co-pay $250 Prescription Generic: $10

Brand: $25 Non Pref Brand: $40

The County offers HMO Blue Advantage and HMO Illinois; plan designs are the same, but HMOIL has a larger network and higher premium

Medical Plan Utilization

Deductible Satisfaction: 2011 Calendar Year ($300 Single/$900 Family) 1,440 members enrolled 373 Satisfied (26%) 2012 Calendar Year ($500 Single/$1,500 Family) 1,360 members enrolled 484 Satisfied (35%) Out-of-Pocket Satisfaction: 2011 Calendar Year ($750 Single/$2,250 Family) 1,440 members enrolled 132 Satisfied (9%) 2012 Calendar Year ($1,000 Single/$3,000 Family) 1,360 members enrolled 111 Satisfied (8%) PPO Claims Cost (Copays, Deductible, Out-of-Pocket, etc) 2011 Calendar Year $6,941,553 $953,873 (13.7%) 2012 Calendar Year $7,382,472 $1,663,140 (22.5%)

PPO Plan Provisions

Medical Plan Utilization

Services/1,000 Cost/Service Services/1,000 Cost/ServicePPO Emergency Room Admissions: 170 $1,146 187 $852 BCBS PPO Benchmark 209 $825 204 $793

HMO Emergency Room Admissions: 157 $790 200 $761 BCBS HMO Benchmark 196 $847 206 $824

PPO Inpatient Admissions: 64 $18,039 62 $14,749 BCBS PPO Benchmark 71 $13,505 73 $12,680

HMO Inpatient Admissions: 67 $11,650 74 $11,202 BCBS HMO Benchmark 69 $12,294 71 $12,093

PPO Outpatient Cases: 1,575 $768 1,598 $710 BCBS PPO Benchmark 1,660 $672 1,645 $640

HMO Outpatient Cases: 514 $1,308 576 $1,154 BCBS HMO Benchmark 616 $1,171 592 $1,159

Pharmacy UtilizationPPO HMO PPO HMO

Total Pharmacy Paid $1,449,429 $959,207 $1,489,688 $821,953

Generic Dispensing Rate 74% 79% 67% 77% BCBS Benchmark 76% 78% 71% 74%Paid per Prescription $78 $78 $77 $69 BCBS Benchmark $70 $79 $71 $77

2012 Plan Year2013 Plan Year

PPO and HMO Plan Provisions

Medical Marketing Summary

Medical Marketing • Current – Blue Cross Blue Shield of IL

Annual Premium: $14,219,652 • Initial Renewal

Annual Premium: $16,181,964 Change from Current: $1,962,312 / 13.8%

• Negotiated Renewal Annual Premium: $15,527,878 Change from Current: $1,308,226 / 9.2%

Medical Marketing • Alternative – Humana

Annual Premium: $16,364,334 Change from Current: $2,144,682 / 15.08%

• Alternative – United Healthcare Annual Premium: $16,816,301 Change from Current: $2,596,649 / 18.26%

• Aetna and Cigna declined to quote

Alternative Funding Strategy

Alternative Funding Strategy • Kane has successfully modernized plan

design and implemented widely participated in wellness programs

• These are two key considerations in a review of Funding Alternatives

• Alternative Funding means “other financial methods to funding costs associated with providing medical benefits.

Alternative Funding Strategy • The prevailing Alternative Funding method is

partial self-funding. • Self-funding has several advantages:

– Total plan design flexibility – Avoid certain costly ACA provisions, including

certain taxes (Insurer Fee) – Cashflow due to not “pre-funding” claims – Reap rewards of claim mitigation strategies

• Of course, there is a price for all of this… risk. Good planning can mitigate this.

To accomplish this most effectively while still endeavoring to maintain current provider discount levels – leaving open the option of participating in an HMO – we narrowed the options to:

• Cost Plus for HMO • Administrative Services Only (ASO) for PPO

Alternative Funding Strategy

Alternative Funding Strategy Cost Plus HMO • Uses a stop-loss level of $205,000 • Mature Projection yields:

– Expected spend of $6,880,438 – Maximum spend of $7,477,338

• Fully-Insured HMO renewal - $6,737,570

Alternative Funding Strategy ASO PPO • Uses a stop-loss level of $205,000 • Mature Projection yields:

– Expected spend of $7,999,686 – Maximum spend of $9,098,842

• Fully-Insured PPO renewal - $8,790,307

Alternative Funding Strategy

Program Total Insured Renewal

Expected Self-Funded Exposure – Mature

Maximum Self-Funded Exposure – Mature

HMO $6,737,570 $6,880,438 $7,477,338 PPO $8,790,307 $7,999,686 $9,098,842 Total $15,527,877 $14,880,124 $16,576,180

Alternative Funding Strategy

*Premiums and claims are represented on a calendar-year basis. Large claimants have been capped based on a $205,000 proposed stop-loss level.

YearFully-Insured

Premium Paid* Claims*ASO PPO

Claims + Fixed Costs YearFully-Insured

Premium Paid* Claims*Cost Plus HMO

Claims + Fixed Costs2012 $8,315,082 $7,328,009 $8,000,071 2012 $5,851,820 $3,482,683 $6,319,5882011 $8,848,549 $6,854,501 $7,526,563 2011 $5,935,511 $3,506,238 $6,343,1432010 $9,071,537 $7,237,785 $7,909,847 2010 $5,876,606 $3,201,585 $6,038,4902009 $9,410,519 $7,659,683 $8,331,745 2009 $4,901,526 $3,151,355 $5,988,260

HMOPPO

YearFully-Insured*Premium Paid Claims*

Self-Funded PPO/Cost Plus HMO

Claims + Fixed Costs Net Gain/(Loss)2012 $14,166,902 $10,810,692 $14,319,659 ($152,757)2011 $14,784,060 $10,360,739 $13,869,706 $914,3542010 $14,948,143 $10,439,370 $13,948,337 $999,8062009 $14,312,045 $10,811,037 $14,320,004 ($7,959)

$1,753,444

SUMMARY

Alternative Funding Strategy

Questions on Self-funding?

Affordable Care Act Update

Affordable Care Act

Provision Effective Date Necessary Response

Individual Mandate January 2014 Most individuals must be covered by a health insurance program as of January 1, 2014.

Insurance Exchanges January 2014 Insurance Exchanges become a means for

purchasing Health Insurance.

Transitional Reinsurance Fee January 2014

A temporary fee will be assessed on a quarterly basis from 2014 to 2016. The fee will start as $63 per covered life per year, and reduce each year, to $24 in 2016.

Health Insurer Fee (“Premium Tax”) January 2014

A permanent fee will be assessed as a percentage of premium, to help fund premium tax credits and cost-sharing subsidies for individuals who purchase coverage through an exchange. The Transitional Reinsurance Fee and Health Insurer Fee will total approximately 3-4.5% of premium.

Current Provisions

Affordable Care Act

Provision Effective Date Necessary Response

Employer Mandate January 2015 (delayed from January 2014)

Employers with over 50 employees must provide coverage to all full-time employees working at least 30 hours per week.

Penalty for Not Providing Coverage

January 2015 (delayed from January 2014)

Based on full-time employee population of 1,238, the annual penalty would be 1,208 (eliminate first 30 employees) x $2,000 = $2,416,000.

Insurance that is “too expensive”

January 2015 (delayed from January 2014)

If an employee pays more than 9.5% of their income for insurance, he/she will be eligible for a subsidy at the public insurance exchange. Based on the lowest annual cost for single coverage on the HMO Blue Advantage of $292.32, there are no eligible employees currently in danger of surpassing the 9.5% threshold. If the minimum cost of coverage for an employee is greater than 9.5% of his/her salary, the County will face a $3,000 penalty for each employee who receives a subsidy at the exchange.

Future Provisions

Retiree Management Strategy

Retiree Management Strategy • ACA will provide guaranteed coverage for all

people • Estimation is that private market and

exchange policies will be more expensive for younger people

• However, rate compression guidelines set forth in the ACA may reduce costs for older individuals in the private/exchange market

Retiree Management Strategy • Current loss ratio for entire plan is 91.96% • Current loss ratio for retiree categories is

175.84% • Removing retiree premium and claims

reduces overall loss ratio to 88.82% • Current IMRF regulations still require the

offering of employer-sponsored plan to qualified retirees

Retiree Management Strategy • County could undertake

communication/education campaign this fall to help current retirees see the potential benefits of personal insurance – Personal choice of plan design – Potentially lower rates – Possible subsidy eligibility

Retiree Management Strategy • If County remains fully-insured, it will

recognize the benefit of retiree migration on subsequent renewal

• If County moves to a self-funded arrangement, it will recognize the benefit immediately

Thank you!