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HomeMy WebLinkAboutIR 10090 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10090 To the Mayor and Members of the City Council Page 1 of 6 r SUBJECT: FIRE FIGHTER HEALTHCARE UPDATE x r�Fa This Informal Report is the fourth in a series of updates regarding the negotiations with the International Association of Fire Fighters Local 440 ("Association") and their proposal to manage a healthcare plan for the benefit of firefighter recruits, actives and pre-Medicare retirees,plus their spouses and dependents. As a reminder, the guiding principles of the negotiation are: • Association will assume responsibility of healthcare for all recruits, active fire fighters and pre- Medicare retirees • Separation of firefighter plan will not have a negative financial impact on the City; Association will cover all transition costs • City's exposure to liability will be minimized to every extent possible • Association assumes all accountability for the success of their plan Below is an explanation to questions about the expenses covered by the City's subsidy as well as the formula for the proposed payment to the Association for members. Structure of Budget • The City has an internal service fund for Health and Life Insurance Benefits. The fund pays for healthcare claims and administration, life insurance premiums, and EAP. The health insurance rate structure is developed to generate enough revenue to cover all of these expenses and be collected from the department/funds in a single transfer. • Annually, life insurance costs approximately $577K. In order for fire fighters to continue to receive this benefit, the City will retain the appropriate portion for fire fighters. • The Association has raised concerns that we are passing the cost of life insurance and EAP onto the employees with this structure. However, the City funds more than 70% of the total expenses to the Fund. The structure is set up for administrative ease. FY 2016 FY 2017 FY2018 ACTUAL ACTUAL (UNAUDITED) BUDGET Total Revenue $ 108,510,577 $ 111,937,646 $ 114,752,105 Personnel Services $ 1,899,151 $ 2,170,134 $ 2,275,079 Claims $ 99,924,266 $ 102,140,313 $ 95,451,363 Life Insurance $ 548,689 $ 570,070 $ 577,007 Employees' Assistance $ 88,992 $ 81,225 $ 112,284 MAPD Premiums $ 7,398,483 $ 8,050,214 $ 9,692,254 Other Contractual (TPA, Viverae, FSA/HSA, Wellness, etc.) $ 7,835,362 $ 6,213,877 $ 6,644,118 Total Expenditures $ 117,694,942 $ 119,225,833 $ 114,752,105 Surplus/(Deficit) ($ 9,184,365) ($ 7,288,188) ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10090 To the Mayor and Members of the City Council Page 2 of 6 r SUBJECT: FIRE FIGHTER HEALTHCARE UPDATE x r�Fa • The budget for FY2018 is actually lower than the expenditures for the prior two years as a result of the significant plan design changes that are expected to result in more than $20 million in savings, offset by the growth trend. While counter-intuitive, the rates for the City and the members increased in FY2018 since the prior two years had used significant portions of fund balance to defray expenses. This use of fund balance occurred outside of the rate setting model. Changes in Composite Rate • The chart below shows the two composite numbers that have been provided to the Association. They are based on identical rate tables that were incorporated into the City's approved healthcare budget for plan year 2018. The only change is the census following open enrollment and the large migration of fire fighters to the high-deductible plan which generates less revenue, but also generates fewer expenses under the City's plan design. Note that City-wide, we expect to generate $6.6 million less in revenue than planned, which we expect to be significantly offset by lower expenses. October 18 Letter November 15 letter City-wide Employee Composite $ 316.31 $ 242.84 City-wide Employer Composite 957.84 $ 775.75 City-wide Gross Composite $1,274.15 $1,018.59 City-wide Employer Composite $ 957.84 $ 775.75 13.3% per Fire-only rate table $ (103.17) Increased # of Dependents $ 249.20 Fire Fighter Only Employer $ 996.53 $ 921.78 Composite (Reflects 13.3% reduction in claims per member but more dependents than City average so higher overall composite cost.) Less: Offsets (Life Insurance, $ (70.40) $ (24.15) TPA increase, EAP, HSA/FSA) Fire Fighter City Contribution $ 926.13 $ 897.63 * Final Rates * Final Rates *2017 Census *2018 Census * Included transition *Shifted lower UHC estimates, higher UHC cost, cost, HSA Contributions HSA Contributions and and Wellness Payout to Wellness Payout in PEPM separate direct-bill ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10090 To the Mayor and Members of the City Council h�T�i7 Page 3 of 6 �i �i7 Y *a SUBJECT: FIRE FIGHTER HEALTHCARE UPDATE #qrF rn Y873 • The composite is used for budgeting purposes only since payments will be made based on actual enrollment each month. The projected composite will evolve due primarily to the Association decision to take on the couples split between Medicare and City plans and the location of several retirees who had not enrolled previously. • Prior references to an "original"rate provided by the City of$1,149 PEPM was not actually provided by the City. Rather, the Association's consultant inferred this figure by taking the October I 81 composite prior to the offsets of$996.53 and restoring the 13.3%reduction for claims experience per member. This is a false comparison since it excludes the census data application that actually increases the fire fighter PEPM revenue above the City-wide composite. • As of the last bargaining session on January 5, 2018, the Association appears to concur with the methodology. Because of the larger number of dependents for fire fighters compared to the rest of the workforce, this actually nets them more funds PEPM than simply dividing the City's claims and administration budget by PEPM which would be similar the City-wide composite of$775.75. • The Association made the decision to continue EAP, Life Insurance, HSA/FSA Administration with the City. This combined with the increased annual cost for UHC for smaller population ($56,400) resulted in a reduction of the subsidy by $287,211 or $24.15 PEPM. • Staff recommends direct billing of costs associated with 2018 Wellness Payout ($143,150), HSA contributions ($347,360) and technology costs (TBD). This avoids ($490,410) or an estimated $41.23 PEPM being incorporated into the composite rate since that will depend on the final transition date. Run-Off Claims and Financial Impact to the Fund • The City budgets for claims expenses on a cash basis and does not budget for Incurred But Not Reported claims (IBNR). Typically, claims lag 1-2 months from the time they are incurred to when we are billed. As a result, the City will continue to receive invoices for 1-2 months after fire fighters shift to the new plan even though we will no longer be receiving premiums that would have covered them. While it is typical with fully-insured plans for those claims to rest with the legacy plan, this will create a deficit in our budget. • The current Healthcare Contract draft protects the City from run-off claims in the future should the fire fighters ever return to the City's plan. • As a compromise, the City has proposed to the Association that the City will retain IBNR. However,we will split premiums from the two extra payrolls that would have occurred after April I since we have 26 pay periods covering 12 plan months. In addition, the City expects to end the discussion regarding life insurance, EAP and wellness costs and include them in the costs conveyed to the Association. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10090 To the Mayor and Members of the City Council h�T�i7 Page 4 of 6 �i �i7 Y *a SUBJECT: FIRE FIGHTER HEALTHCARE UPDATE #qU f Y g 7'.L Since the last update, the City and the Association held a collective bargaining sessions on 12/20/2017 and 1/5/2018. Below is the status of the various tasks. Action Item Responsible Complete Status Part 1. City City The City believes that the Association has accepted the contribution City's methodology. However, the City is awaiting and transition confirmation and the acceptance of the City's costs finalized compromise offer on IBNR, life insurance, wellness, EAP, and other costs. 2. CBA City and The Trust Agreement and the amendments to the amendment Association Collective Bargaining Agreement Articles 13 and 14 language are complete. Upon conclusion of number 1, the City approved will finalize the associated language in the Healthcare Contract. The Association has continued to object to the Right to Audit language that we have introduced. The City's Code requires all contracts to include right-to-audit language. In addition, the ability to resolve/test any concerns from the City's auditors since the financial statements of the 440 Trust will be a component unit for the City. It is mutually beneficial for this relationship. As of 1/5/2018, the Association's attorney had not reviewed the language and offered an alternative. 3. Employee vote Association to amend CBA 4. Waiver City and 41 language Association approved 5. Retiree waivers Association At last report, the Association has received 199 of 210 received required signatures. As of 1/5/2018, this had not (100%) changed. However, the number of waivers required has increased by approximately 30 due to the Association's decision to retain couples split between ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10090 To the Mayor and Members of the City Council h�T�i7 Page 5 of 6 �i �i7 Y *a SUBJECT: FIRE FIGHTER HEALTHCARE UPDATE #qrF rn Yg7'3 the City's plan and Medicare. 6. City Council City Will be scheduled for City Council once 1-5 are approval of complete. CBA and healthcare contract 7. Association Association create Trust including fiduciary coverage, contract with trust company, fidelity bond and banking arrangement. 8. Association Association • At the Association's request, the City added plan contracts language to the Healthcare Contract to allow the (TPA, PBM, Association to be a sub-recipient of dental benefits RBP); offered through the City's contract. The City has premiums shared the questions from Delta Dental about finalized setting up appropriate billing. • The Association is responsible for all other contracts. However, the City has requested clear documentation of roles, scopes of services, etc. from LBG, the Association's consultant. 9. Data interfaces City and • The Association's vendors held their first meeting with City and Association with the Retirement Fund on 12/4/17. The FWERF Association's consultant has recommended that the City retain this responsibility due to the challenges of a transition. However, the Association continues to indicate that they will assume this responsibility. As of 1/5/2018, the Association had not contacted the ERF again to move this forward. At the bargaining session, they indicated that they need the City to give the ERF permission to seek a quote for the work which we have done by email. In addition, the City committed to seek a quote from the City's vendor to allow their plan to occur on ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10090 To the Mayor and Members of the City Council Page 6 of 6 r SUBJECT: FIRE FIGHTER HEALTHCARE UPDATE x r�Fa the City's system, at least in the near-term. This delay in the Association's effort on this will likely affect the April 1 go-live date. • Maestro, the Association's proposed TPA, provided a draft schedule of tasks, timelines and responsibilities in order to confirm the April 1st feasibility and ensure that appropriate resources and time are reserved for the various tasks. This document replaced the client sample that was provided last week as well as the December calendar that suggested the feasibility of a 1/1/18 implementation date that were attached to last week's informal report. 10. Transition and City and See 99. enrollment Association plan Please let me know if you have any additional questions. David Cooke City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS