Memorandum
City of Lawrence
Human Resources
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TO: |
Diane Stoddard, Interim City Manager |
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FROM: |
Lori Carnahan, Human Resources Manager Michelle Spreer, Benefits Specialist |
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CC: |
Casey Toomey, Assistant City Manager Brandon McGuire, Assistant to City Manager Bryan Kidney, Finance Director Ashley Lonnberg, Senior Accountant Kevyn Gero, Management Intern |
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DATE: |
May 22, 2015 |
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RE: |
2016 Employee Healthcare Plan Budget Memo |
Over the past five years, the City’s healthcare claims costs have averaged a 2.5% increase per year while the national health plan cost increase has averaged approximately 4.6% per year, based on the Mercer National Survey of Employer Sponsored Health Plans. In 2014 the City’s healthcare claims costs increased approximately 4% over 2013 and overall plan costs finished under budget but still increased by approximately 2.4%.
According to the Mercer survey, the City of Lawrence total health plan costs (includes claims and administrative fees) per employee per year, is 7% below the benchmark for other government employers surveyed. Additionally, according to Health Plan Intelligence data provided by Hays Companies, our benefits consultants, the City’s healthcare claims costs are 9% below the Heartland Benchmark, which includes primarily self-funded employers with at least 300 employees in Kansas, Missouri, Iowa and Nebraska.
Annually the Human Resources benefits staff meets with the Healthcare Committee (HCC) and Hays Companies, to discuss plan design and funding of the healthcare plan which includes city and employee/retiree contributions.
Based on these discussions, staff recommendations are outlined below.
Executive Summary
· Staff recommends increasing deductibles for 2016 to $1,200 individual/ $2,400 family with the out of pocket maximum increasing to $2,400 individual/ $4,800 family (includes deductible).
· Staff recommends an overall 4% increase in total employee contributions for 2016.
· Staff recommends a 4% ($313,811) increase in city funding for 2016 to $8,159,105.
· Retiree contributions and COBRA rates will be set once stop loss rates are finalized this fall.
· No plan coverage changes for 2016.
· The plan must comply with Patient Protection and Affordable Care Act (PPACA) regulations in 2015 which include additional fees to be paid directly to Health and Human Services (HHS) and/or the IRS totaling approximately $97,400.
Healthcare Plan Design
Hays introduced staff and the healthcare committee to the term Member Burden in 2010. Member burden is described as the employees’ cost share when factoring in both contributions and their share of medical expenses, such as deductibles and co-insurance. We have monitored member burden over the past several years which has ranged from 24 to 29%, with 2014 ending at approximately 26.8%. The 2016 recommended plan design would take our member burden to approximately 28.9%. We will continue to monitor this number as we recommend changes to the healthcare plan in future years as well.
Attachment A illustrates 3 plan design alternatives for 2016.
· Option 1 – Current plan design and funding with projected 2016 costs.
· Option 2 – Recommended – This includes:
o No plan coverage changes
o Increase in deductible from $1,000 individual $2,000 family to $1,200 / $2,400 respectively and increase Out of Pocket Maximums from $2,000 individual / $4,000 family to $2,400/$4,800 respectively (total impact to employees is approximately $238,000 in claims)
o Increase of 4% to total employee contributions (impact to employees is $66,000)
o Increase of 4% to city funding (total impact to city is $313,811)
· Option 3 – this option illustrates the plan design and employee contribution increases necessary to balance revenues with expenses with no additional revenues from the City.
Cigna HRA programming allows the City to establish a maximum amount of money employees may carry over from their HRA into the next year before new money is awarded. Staff recommends keeping the maximum rollover at $1,900 through 12/31/2016.
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The Healthcare Committee Ongoing Goals and Objectives, Attachment B states that revenues will be split at 65/35 between the city and employees toward the cost of dependent coverage. Because our plan has performed so well over the past several years, staff has not asked for much of an increase in employee, or city, funding. Because of this, the split has become out of balance as our overall expenses continue to increase. Currently the funding split is at approximately 75% city and 25% employee for employee/spouse and employee/child coverage while family coverage is split 79% city and 21% employee. Staff recommends increases to employee per pay period contributions as follows.
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These increases will not get the split up to the stated objective of 65/35 but smaller, incremental changes are much more palatable than large increases in one year.
Fund Balance and Minimum Fund Balance[1]
Maintaining Minimum Fund Balance at 20% of projected plan cost for two years out allows the City to smooth out increases to city funding as well as employee contributions. Having a healthy fund balance allows funding of current and future incentives related to wellness programs.
The fund balance also funds the cost of catastrophic claims, the amount determined by our stop loss contract each year. In 2016 it will be set at 120%; no change from 2015. The 120% represents the amount of claims the city is responsible for paying over the projected costs before stop loss insurance begins paying claims.
Total claims (active and retiree) continue to come in under projected but overall expenses continue to increase year over year. The city was able to add to the fund balance 2010 – 2012. However, in 2013 the city used $85,328 of the total fund balance and in 2014 used $325,267 as shown in Attachment C – Internal Financial Summary.
Attachment D – Plan Funding Modeling projects future trend, to include claims, administrative expenses and stop loss insurance. It is recommended to have “Fund Balance EOY” equal to or greater than “Recommended Minimum Fund Balance” for at least one year beyond the year for which the budget is being prepared; 12/31/2017.
This chart is an illustration of what would happen to our Fund Balance if no changes were made in plan design or funding (revenues from city/employees) beyond 2016. As you can see by the end of 2017, the fund balance falls below the minimum balance required. If changes are not made each year, eventually our fund balance will fall below the minimum required.
Plan growth assumptions are at the bottom of the chart. With incremental increases in funding (both city and employee) and plan design changes, it is projected our “Fund Balance EOY” 2017 will still be above minimum fund balance.
These projections are done early in the year (April) for the following year. With only a few months of claims data, the projections are typically conservative. The 2016 projections will be updated this fall for stop loss quotes, once Hays has more claims data for 2015. They will be updated again in March of 2016 while preparing for the 2017 plan year. This is the cycle that is followed each year.
Patient Protection & Affordable Care Act – PPACA – In accordance with PPACA regulations the healthcare plan was required to pay new fees beginning July 1, 2013. Staff will work closely with Hays and Cigna to ensure all fees are calculated correctly and paid on time to HHS and/or IRS. The fees are included in the cost projections.
· Patient Centered Outcomes fee (aka Comparative Effectiveness Research Fee)
o Funds research that evaluates and compares health outcomes, clinical effectiveness, risks and benefits of medical treatment and services
o Annual fee on insured and self-insured plans from 2013 to 2019
o $2.08 per covered life on the plan for the 2014 plan year, due in July 2015 (approximately $4,400)
o Fee to be determined for future years
· Reinsurance Assessment Fee
o Funding to lessen impact of high-risk individuals entering the individual market
o Annual fee on insured and self-insured plans from 2014 to 2016
o $44 per covered life on the plan for the 2015 plan year (approximately $93,000), due in December 2015
o Fee for 2016 plan year to be determined
· New eligibility rules
o Variable hour employees (part-time, temporary) eligible if average 30 hours/week
o Staff will test hours on a 12 month look back (October – September) each year
o Part time temporary hours are managed to stay below 30 hours/week on a 12 month average. There were 2 employees that averaged 30+ hours/week and offered coverage for the 2015 plan year. Both declined coverage. All part time regular employees are currently eligible for the healthcare plan.
Plan Coverage Changes – The city implemented several plan coverage changes for 2015 for the purpose of balancing member burden both immediately and in future years. These changes were all implemented on the prescription drug plan and included additional step therapy programs, a generic incentive and a new Specialty Drug tier. Staff and Hays Companies will analyze 2015 claims data so we have a better idea of the effect of these changes.
No plan coverage changes are currently planned for 2016.
CHAMP Wellness
The CHAMP wellness committee continues to meet periodically with a focus on Environmental and Policy changes that will further promote a work environment where the healthy choice is the easy choice.
A top “Policy” initiative for 2016/17 is to develop a plan that will move the City of Lawrence to a tobacco free campus. An “Environment” related project for 2015 is to complete the transition of workplace vending machines to 50% healthy food choices at a competitive price.
The wellness committee continues to enhance the onsite programming which includes:
· Community Supported Agriculture (CSA) – working with local farmers to have fresh fruits and vegetables delivered once a week for a period of time – program currently in its third year;
· Walk Kansas and other community events;
· Parks & Recreation discounts;
· Healthy food choices in vending machines and in the workplace;
· Physical environmental changes such as standing work stations, improved break areas and stairs.
The WellCare Clinic, housed at Lawrence Memorial Hospital, is the flagship of the wellness program. The clinic is currently in its 4th program year providing annual biometric screenings, health assessments, wellness advisor visits, flu shots and minor acute care to our employees. At the completion of program year 3 on September 30, 2014 the clinic utilization was at 41% (when calculating on 30 minute client visits), 43% were wellness related with the remaining 57% acute care.
Embedded in the clinic is an incentive program that allows employees to earn money to be placed in the HRA balances at Cigna to help pay for future out of pocket healthcare costs. There is up to $300 annually that employees can earn per program year by remaining tobacco free, achieving healthy outcomes for some biometrics and engaging in healthy activities ranging from annual physicals to community health events to educational activities.
The CHAMP Wellness budget is currently $330,112 and is built into the City’s Healthcare
Plan:
· WellCare Clinic-$208,700
· Triahealth through Medtrak-$ 16,000
· Onsite programming -$105,412
In 2014 the program utilized $175,703 ($142,703 for the WellCare clinic, $16,000 for Triahealth and $17,000 for Onsite programming) with remaining budget rolled into the healthcare plan fund balance.
There is data in the 2014 healthcare utilization reports that can be attributed in part to the focus the City has taken on healthy work environments.
· The 2014 per employee per year cost was 16% below the national norm and 9% below the Hays Heartland norm; this is similar to prior years since 2010. In 2008 the cost was 4% above the norm.
· In 2014 the rate of wellness visits by plan participants is at 8% above the norm. In 2008 wellness visits were 6% below the norm.
· Overall costs increased in 2014 for spouses and dependents; costs for employees decreased. The participation in the city wellness program is 89% employee and 11% spouses.
· When reviewing plan participants with Chronic Illness, there have been improvements in the rates on High Blood Pressure.
Those who have participated all three years (cohort group) in the biometric and Personal Health Assessment at the WellCare clinic have experience the following with regard to their clinical risk factors which include blood pressure, glucose level, high body weight, elevated triglycerides, elevated LDL cholesterol and low HDL cholesterol.
· Lower prevalence of the number of clinical risk factors with an average of 2.42/participant than those who have not participated all three years at 9.91/participant.
· Reduction in risk factors from an average of 2.63 to 2.42 with a reduction in total risk factors from 756 to 698 among the 288 individuals.
· Increase of 5% in the number of participants with zero clinical risk factors from 12% to 19%.
· Decrease of the number of people with 4 or more clinical risk factors from 32% to 28%.
· 72% now have three or fewer clinical risk factors.
Other Post-Employment Benefits (OPEB) Obligations under GASB 45
In 2004 the Governmental Accounting Standards Board (GASB) released Statement 45 (GASB 45) which issued a new set of accounting rules concerning health and other non-pension benefits for retired public employees. These benefits, also referred to as “other post-employment benefits” (OPEB), include non-pension benefits such as life insurance, dental coverage and long-term care, as well as retiree health benefits. GASB 45 strongly encourages public sector employers to set aside funds for OPEB benefits, instead of a “pay as you go” funding method. Employers are strongly encouraged to fully fund OPEB benefits in order to show a more favorable financial statement.
The intent of GASB 45 was to bring governmental accounting standards more in line with private company standards. GASB 45 requires that an actuarial valuation be conducted every two years to determine the annual OPEB liability. There was a valuation and OPEB obligation under GASB 45 for the 2013/2014 fiscal years. The net OPEB obligation will change with each valuation.
The city’s net OPEB obligation as of December 31, 2013 was $4,891,906. The annual required contribution to fully fund its obligation was $1,152,197 in 2013. The city allocated $657,000 in 2013 to the retiree fund and $1,000,000 in 2014 and 2015. It is recommended that the City allocate $1,040,000 to the retiree fund for the 2016 plan year. Retiree contributions in 2014 were $407,533.
Beginning with the 2013 budget, Hays divided out the retiree revenues and expenses from the active employees, also shown in Attachment C. This will allow the City to better track the liabilities under OPEB and assist us in determining where the fund balance for OPEB should be set.
As shown in Attachment D, the retiree fund balance at the beginning of 2016 (based on projected 2015 revenues and expenses) will be approximately $1,241,300. Projected retiree expenses for 2016 are $1,233,000 and projected revenues (from both retiree premiums and city funding) are $1,497,000. This will allow the city to add to the retiree fund balance helping to meet the OPEB obligations.
Transfers to Healthcare Plan
Each year Staff calculates the breakdown of city funding to the healthcare plan for each department to assist them in developing their budgets. Beginning in 2013 staff began allocating and tracking retiree healthcare expenses separately from active employees. With this change the projected actual retiree expense for healthcare has been allocated to each fund based on where the retiree worked while employed. See Attachment E – Transfers to Fund Health Plan 2016.
Current funding plus an additional 4% translates into $8,434.96 per authorized position, $9,080.49 per new authorized position and $19,259.26 per retiree for a total of $8,159,105. These per person amounts reflect total projected plan expenses.
Requested Action:
Approve 4% increase in healthcare plan budget for total city funding of $8,159,105 as outlined in Attachment E – Transfers to Fund Health Plan 2016.