health care cost and the city of arlington health benefit employee / retiree discussion april 2004
TRANSCRIPT
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Health Care Costand the
City of Arlington Health Benefit
Employee / Retiree Discussion
April 2004
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Overview Budget Overview
Global Health Care Condition
City of Arlington Health Plan
Workforce Demographics
Long Term Liability
Provision of Health Benefit, 2005 & Beyond
Discussion
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Budget Overview
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Positive Developments
Sales tax allocations for three of the last four months are up
Amount budgeted for sales tax can be achieved with flat receipts for the remainder of the fiscal year
Positive end-of-year fund balance projected
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Caution Required
Recent sales tax increases have been less than the prior year decreases for the same period
A persistent structural problem remains
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Deficit Recovery Projection
$(30,000,000)
$(25,000,000)
$(20,000,000)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
5% Revenue Grow th 4.5% Revenue Grow th 4% Revenue Grow th
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Fiscal Year 2005
Avoid further program cuts, service level reductions and layoffs
Restore training and professional development
Minimize further erosion of our competitive pay position
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Health Care
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Global Health Care Cost of health care
Frequently in the news Driven recent changes in legislation Organizations are aggressively pursuing solutions
Market Perspective National League of Cities - “Health care is the
top financial pressure facing cities nationwide”
USA Today – “The rising cost of medical inflation isn’t just a temporary blip but the beginning of a new era that will force employers and employees to make some tough choices.”
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Drivers of Health Care Cost Traditional low or no premium HMOS
Result - reduced consumer incentives to consider alternative lower-priced doctors and/or services
Market Consolidation
Malpractice Law Suits
Skilled Health Care Worker Shortage
“Wellness” is losing ground to medication as the solution
Source: Health Futures Inc.
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Prescription Drugs Kaiser Family Foundation - Three
factors drive the increases in prescription drug spending Increased number of prescriptions
74% increase over last 10 years
Changes in types of drugs used
New drugs replacing old and R&D spending increased from $10 to $32 Billion in last 10 years
Manufacturer price increases for existing drugs
7.3% average annual increase over past 10 years
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City of Arlington
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City FY 2004 Operating Budget
Total Budget $ 312,893,138
Salaries & Benefits $ 157,237,506
Benefits $ 39,695,533
Health Benefits $ 16,144,480
Retiree Health Benefits $ 2,758,823
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Health Benefit % Payroll2002 11.7%
2003 12.5%
2004 13.7%
In 2003, double digit average increases in trend continued. At the current rate of increase, it is projected that the cost of health care coverage will average 25% of wages or more in less than five years for many plan sponsors.
The Segal Group, Segal Health Plan
Cost Trend Survey
For the city this would be $29.3M if this projection is applied to present payroll.
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COA Health Care IncreasesYear EE Premium City Premium Total % Increase
2000 $1,860,497 $8,422,269 $10,282,766 24%
2001 $2,378,394 $10,503,963 $12,877,357 25%
2002 $2,621,683 $11,511,182 $14,132,865 10%
2003 $2,943,630 $14,253,235 $17,196,865 22%
2004 $4,842,637 $17,169,350 $22,011,987 28%
2005 Regional Trend = 18%
• Premium rates are set prior to the plan year. Total actual contributions may vary based on actual enrollment.
These numbers have been changed since the presentation to employees and retirees. The original numbers were projections. These modified numbers are actuals.
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Recent Adjustments
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2003 Strategies Adjustments
Self Funded New Claims Administrator
United HealthCare Open Access Model No primary care physician No referral required to a specialist Fewer restrictions on prescription
formulary Expanded Network
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2003 Results $1 million annual cost avoided
Health Fund Activity
$3.06 million deficit
City contributed $1.58 million over & above premium amount
$1.48 million was pushed into FY 2004
Dollars Flowing Out ▲ Dollars Flowing In ▼
Utilization Revenues
Access to Care Migration
Claims RIF Effect
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2004 Strategies Plan Design Changes
Increased Physician, prescription, and ambulance co-pays
Added Co-insurance on hospital, out-patient, emergency room and
other related services
Introduced Maximum out-of-pocket expense on the HMO plans
Subsidized The PPO plan at the same level as the HMO plan
Eliminated One HMO and one PPO plan
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2004 Results
Cost Sharing Changes:
City Contribution : 83% to 78%
Employee / Retiree: 17% to 22%
6 Largest Metroplex City Comparison
Average 2003 City Contribution: 62%
$198M = total health care costs
$123M = total employer share
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2004 Results 2004 rates appear to be adequate to Fund
Claims and expenses
Required reserve amount, and
The remaining $1.48 million 2003 deficit
Adjustments in 2003 and 2004 Strengthened the health fund
Increased access to quality health care
Assisted in managing long term liability
Maintained a competitive plan design in an evolving market
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Comparative Market Value
Hay comparison data
Among Public & Private Employers, Arlington’s plan is above the 75th percentile in value.
Value Components
• Employee monthly premium
• Co-pays
• Deductibles
• Out-of-pocket maximums
• Employer contributions
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Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year
worth of premiums – EE Only
$3,276$3,181$3,180
$2,820$2,740$2,731
$2,150$1,908
$1,700$760
$396
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500
Dallas
Ft Worth
Plano
Carrollton
Gr Prairie
AISD
Arlington
Garland
Richardson
Mesquite
Irving
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Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year
worth of premiums – EE + 1
$8,719$5,592
$5,311$4,296
$4,060$3,696
$3,589$3,404
$3,240$2,450
$1,182
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000
AISD
Dallas
Ft Worth
Garland
Gr Prairie
Plano
Carrollton
Richardson
Arlington
Mesquite
Irving
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Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year
worth of premiums – EE + F
$11,115$7,332
$6,192$6,096
$5,140$4,410$4,308
$4,070$3,944
$3,100$1,947
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000
AISD
Garland
Ft Worth
Dallas
Gr Prairie
Carrollton
Plano
Arlington
Richardson
Mesquite
Irving
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Retiree Health Benefit
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COA Retiree Demographics Retiree Breakdown (3/1/04)
467 current retirees & surviving spouses
437 currently eligible for retirement as of 3/1/04
285 additional employees eligible for retirement in the next 5 years
1,189 potential retirees in the next 5 years
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Retiree Health Benefits
Minimum of 10 years of service with City for employer paid health benefit subsidy
10-14 – 60% 25-29 – 90%
15-19 – 70% 30+ - 100%
20-24 – 80%
Dependent subsidy currently = 70%
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Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year worth of
premiums – Retiree + 1
$11,147$6,516
$4,944$4,566
$4,292$4,286
$3,188$3,000
$2,460
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000
Carrollton
Garland
Dallas
Gr Prairie
Richardson
Irving
Arlington
Ft Worth
Mesquite
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Metroplex Cities SubsidiesCity Retiree
SubsidyDependent
SubsidyCity Cost
25 + 1Retiree Cost
25 + 1
Ft Worth 33 – 100% 30-50% $622.20 $ 0.00
Dallas 60% 30% Unknown $162.00
Mesquite 4% per yr of svc
2.6% per yr of svc
$568.78 $163.36
Arlington 60-100% 70% $643.43 $165.69
Gr Prairie
* Mid yr adj.
10-90% 10-90% $688.80 $172.20
Plano $11 per yr of svc
None $275.00 $232.06
Richardson $350.00 None $350.00 $321.00
Irving $168.75 None $168.75 $336.32
Garland $242 per mo None $242.00 $418.00
Carrollton None None $ 0.00 $703.88
Value Rank
2
7
1
3
6
Insf. Data
5
4
8
9
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Projected Retiree Benefit Cost
Calendar
Year
Current Retirees
Future Retirees
Total
2004 $ 2,900,000 $ 100,000 $ 3,000,000
2005 $ 3,400,000 $ 300,000 $ 3,700,000
2006 $ 3,800,000 $ 600,000 $ 4,400,000
2007 $ 4,300,000 $ 900,000 $ 5,200,000
• Current Pay-as-you-go funding:
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Governmental Accounting Standards Board (GASB)
Accounting Standards effective 2007
No more pay-as-you-go funding
Required to account for long term liability on an annual basis
Cities’ long term liability includes:
Current employees’ future retirement benefit
Current retirees’ remaining retirement benefit
Standard requires cities to account for / fund the long term liability now
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Governmental Accounting Standards Board (GASB)
Actuarially projected additional impact on the retirement portion of the health fund as a result of GASB beginning in 2007, based on current benefit design and subsidization = $20M / yr (Total accrued liability = $196M)
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2004 2005 2006 2007 2008 2009
GASB
Pay/Go
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2005 and Beyond Partnership with qualified technical expert
– The Hay Group
Study design and cost sharing approaches
Propose strategy in May/June
Communication
HR Update
Employee / Retiree Meetings
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Consumer Awareness “Employer’s can’t continue to absorb double-digit
health care premium increases year after year and remain competitive in the global marketplace…
Public payers into the healthcare system must hold up their end of the bargain, and health plan enrollees need to become more active consumers with a better understanding of the true costs of care…
Otherwise more working Americans won’t be able to afford their health plans and will join the ranks of the uninsured.”
Kate Sullivan, U.S. Chamber of Commerce Director of health policy. June 2002
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Considerations Medicare Changes
GASB requirements
Retirement Health Savings Plan
Technology
Shared Services Project
New Technology = Increased ability to pursue creative solutions
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Priorities Increase
Options
Consumer Awareness
Reduce
Long-term Healthcare Liability
Proactively pursue
Competitive Cost Containment Measures
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Next Steps
HR / Consultant proposal of options in May/June
Review with City Council
Follow-up Employee/Retiree meetings June/July
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Discussion