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HomeMy WebLinkAboutIR 9486 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9486 April 3, 2012 To the Mayor and Members of the City Council Page 1 of 3 SUBJECT: 2012 2015+ HEALTHCARE STRATEGY FOR ACTIVES AND RETIREES During Pre-Council on April 3, 2012, staff will present an overview of a mu-year strategy to evaluate opportunities to manage healthcare costs for active and of that presentation, this Informal Report provides a summary of the issues. Attached you will find a copy of the detailed strategic plan that includes descriptions of each strategy under consideration. As part of on-going efforts to manage costs, provide affordable healthcare and improve the wellbeing and productivity of employees and retirees, staff has developed a multi-year healthcare strategy. The goals are 1) create a long-term cost management approach for 2012 and beyond increase member engagement through disease management and wellness programs; 3) provide retiree medical options that positively impact long term healthcare costs; and 4) give employees tools to plan and save for future healthcare needs that are not funded by the City or Medicare. This healthcare approach encompasses plan design and administrat program effectiveness, trend management, member health improveme accountability, wellness, disease management, cost sharing through contribution strategies and management of future healthcare costs associated with retirement. The City implemented several changes over the past seven years that have kept healthcare costs at or below national trend levels. These changes include: development of wellness programs; disease management programs; the elimination of high cost plan design and the addition of the Medicare Advantage Plan for retirees. In addition, the City eliminated future retiree healthcare subsidies for employees hired after January 1, 2009. Nationwide, employers are redesigning their programs to encourage employees to consider cost when making medical decisions. Health savings accounts are becoming a popular solution for point-of-care cost sharing through higher medical and pharmacy plan deductibles, co-pays and coinsurance rates that cause members to seek out the most cost-efficient alternative. In addition, they provide a vehicle for employees to save for future unreimbursed retiree healthcare costs. Changes in the pre-65 and Medicare marketplace are fueling some employers to consider alternatives for retiree medical sponsorship. Employers expect even bigger changes in the not- too-distant future with the opening of the insurance exchanges in 2014 as a result of Healthcare Reform. claims and administration costs for retirees and active employees are expected to increase from $93 million in 2012 to $139 million by 2017 unless plan changes and increased employee engagement are adopted. The attached five year strategy considerations detail ways the City can slow down the trend cost and continue t for employees, retirees and their dependents. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9486 April 3, 2012 To the Mayor and Members of the City Council Page 2 of 3 SUBJECT: 2012 2015+ HEALTHCARE STRATEGY FOR ACTIVES AND RETIREES The following are highlights from the attached five year Healthcare strategy: 2012 Comprehensive vendorselection: medical, pharmacy, COBRA, flexible spending accounts, disease management/wellness effective January 1, 2013 Medicare vendor selection: summer 2012 effective January 1, 2013 Dependent Verification Audit (DEVA ) ensure dependents meet eligibility requirements; to be conducted in the summer of 2012 estimated saving $3M in the next five years Develop plan designs changes for implementation in 2013 Premium incentives/surcharges: consider smoker vs. non-smokers; participate in the wellness program health risk assessment and bio-metrics; consider spouse surcharges if coverage is available through their employers for 2013 2013 Centers of Excellence Identify mandatory for certain specialty surgeries Near-Site clinics Establish through a local facility contribution analysis Conduct a diabetes management Enhance programs Medicare HMO option Offer to retirees to complement current Traditional and Medicare Advantage plan Replace Retiree Drug Subsidy Program with retiree prescription plans through Employer Group Waiver Plan Plus Wrap Consumer Directed Plan with a health savings account Offer or health reimbursement account as a plan option 2014 annual biometric program Offer a premium reduction for employees participating in and health risk assessments auto-enrollment Designate Consumer Directed Plan for as required by Healthcare Reform plan design Continue evaluating modifications for actives and retiree state or private exchanges Perform feasibility and cost impact study of as an option for health plan offerings Pre/Post 65 retirees ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9486 April 3, 2012 To the Mayor and Members of the City Council Page 3 of 3 SUBJECT: 2012 2015+ HEALTHCARE STRATEGY FOR ACTIVES AND RETIREES 2015 Medicare Plan Consider requiring Medicare eligible retirees to be on a such as Advantage/HMO/PPO or Supplement Plans (comparable plan to the Traditional state or private exchange Perform vendor search for for 2016 if appropriate based on feasibility study wellness and disease management Offer plan options to employees based on engagement flat contribution Consider a defined strategy If you have any questions regarding this information, please contact, Margaret Wise, Assistant Director of Human Resources, at 817-392-8058 or Karen Marshall, Director of Human Resources, at 817-392-7737. Tom Higgins City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ 2012 initiatives include : Comprehensive vendorselection and contracts for 2013 and beyond. Vendor selection anticipated to be complete by April 2012 for effective date of January 1, 2013. The City is actively reviewing the vendor proposals for plan administration, employee assistance programs, flexible spending accounts and COB Dependent Verification Audit (DEVA ). The Dependent Verification Audit will be done in late spring to validate that employee dependents meet eligibility definitions under the group health plan. Staff recommends that DEVA be conducted prior to addition healthcare reform in 2014, such as the mandate to offer coverage to all adult child covered employees to age 26 regardless of access to their own emSome Texas public employers that have completed or will complete a DE Dallas, Garland, Houston, Irving, Plano, Richardson and San Antonio and the Estimated savings to the City is $3,000,000 over five years. Plan designs - Traditional PPOs have limited ability to encourage and promote e awareness of healthcare pricing or quality. Consumer Directed Health Plan or Consumer Driven Health Plans (CDHPs) are designed to encourage members to engaged in the purchase of healthcare services through the use of account based plan designs. City staff will consider offering consumer directed plans for 2013 including a Health Savings Account (HSA) and Health Reimbursement Account (HRA). (See Attachment 1) HRA The HRA can cover current and former employees (retirees), spous dependents, and spouses and dependents of deceased employees. The fu contributed to the HRA can be used by employees to pay deductibl coinsurance amounts and other medical expenses not reimbursed th plan. Funds in the HRA can also be used to pay for health coverage, COBRA, and retiree coverage. Any funds remaining in the account at the end carried forward to the next plan year. The HRA cannot provide c other than medical expense reimbursement. HRAs are not subject to restrictions on health Flexible Spending Accounts (FSA) under the Internal Revenue Code §125. Employees participating in an HRA may also participate in Flexible Spending Account (FSA) programs. Only the City can contribute dollars to the HRA. The City can continue to credit additional amounts to an HRA after an employe retires. Monies left in HRA accounts revert to the City if uncl HSA The HSA is a tax-advantaged account created to pay medical expenses. Unlike the HRA, anyone can contribute to the HSA account up to the annu Employer contributions are excluded from the income of employees contributions can be made on a pre-tax basis or the employee may choose to make contributions on a post tax basis and claim the contributed amount as an exclu from income tax on their federal returns. Additionally, employe sell-back distributions to fund an HSA. 3/29/2012 2 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ Distributions for qualified medical expenses are tax free. Distributions for non-qualified expenses are taxed and an additional tax penalty is applied to t Participants over the age of 65 are not subject to the tax penal distributions. The HSA is owned by the employee, not the employer. Accumulated funds in the HSA roll over from year to year and are portable. F the HSA may be directed to investment vehicles and earnings grow comparison chart has been provided for review. (See Attachment 1) To be eligible for the HSA, an employee 1) must be covered under a H Health Plan (HDHP) as defined by the IRS, 2) cannot be covered - HDHP 3) is not enrolled in Medicare and 4) cannot be claimed as income tax return. Although retirees age 65 or over enrolled in Medicare may no longer contribute to an HSA, retirees may receiv-free distribution from monies accumulated in the HSA to pay for Medicare premiums -65 healthcare with the exception of a Medigap plan. The Patient Protection and Affordable Care Act of 2010 (healthcare reform) will require the City to automatically enroll newly hired employees i 2014. The City will designate the lowest cost plan as the default auto enrollment plan. PPO Plan Design Modifications Co-insurance and deductibles pay a decreasing percentage of medical costs over time if they are not modified t costs. The City will review the appropriateness of adjusting the current PPO Plans accordingly. Modifications to be evaluated include: Increasing out of pocket maximums Increasing deductibles for emergency room visits Pharmacy changes coinsurance / increase in deductibles estimated savings $500K As an example, increasing deductibles and out of pocket limits by $250 to Basic Plan from $950 to $1,200 and Basic Plus Plan from $750 to $1,000 deductible could save the plan about $1.4 million per year. These rates would be in line with other Metroplex Cities in the Jan. 2011 salary and benefit surveys. Medicare Advantage Plans for Post 65 Retirees The City will perform a formal request for proposals to review Medicare plans, including HMOs, to provide post-65 Medicare Eligible retirees with additional low cost options for retiree healthcare. A chart with high level comparison of Medicare plan options is included for review. (See Attachment 2) Contribution strategy: The review will include consideration of surcharge on premiums for tobacco use; premium incentives for wellness and disease management compliance. Wellness/Disease Management : In a recent study published by Health Affairs, Harvard Economists reported that medical costs fall by about $3.27 for e programs. And that absenteeism costs fall by about $2.73 for every dollar spent. City staff will review a contribution strategy based on rewarding employees who participate in wellness and disease management programs and init exams, flu shots, weight maintenance, additional contributions toward HRA/HSA/FSA or premiums. 3/29/2012 3 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ Dependent Coverage: The City will perform an analysis to determine the impact to the plan of requiring spouses or domestic partners who have access to their own employer coverage to pay a surcharge to remain on the City Plan. Early Retiree Reinsurance Reimbursement Program (ERRP): ERRP was established by the Health Reform Act as a way to encourage employers to continu-65 health benefits to its retirees. $5 billion dollars was allocated on a first come have been distributed the program ends. The $2.8M received from the ERRP program has been applied to the Other Post Employee Benefits (OPEB) Trust this fiscal year. City staff has requested additional ERRP funds of approximately $1.3M; if received will be applied to the Trust in FY 2013. Review the Retiree Premium Rebates City staff will evaluate the continuation of the Retiree Rebate based on the change from RDS to the EGWP + Wrap program. The City initially approved a one-time rebate to retirees in 2006 contribution amount toward dependent costs. However the rebate has been paid each year through 2011. Retiree premium rebates are budgeted again in FY 2012. The rebate funds were obtained from the RDS reimbursement checks. Continuation of the Retiree Rebate program costs the City an additional $600,000 - $700,000 annually. The rebate adds about 4.3% to the Annual Required Contribution for OPEB. While this rebate to retirees was initially linked to the retiree dependent subsidy, these are separate issu structure will be analyzed concurrently. Add PPO designated providers/tiered network: This structure holds providers accountable to deliver quality evidence care to meet employer specifications The model holds providers and members accountable for healthcare education, incentives and member steerage. Potential savings are $1.9M per year. 2013 Mandatory Centers of Excellence for certain specialty surgeries Centers of Excellence have met quality of care and cost metrics which control expense and lower infection rates Establish Near-Site Clinics through a local facility. Near-Site clinic can be cost-effectively . used as a center for minor care and/or specific conditions City staff will review local facilities as potential candidates for a Near Site clinic. Contribution analysis: contributions to healthcare premiums. In addition, many benchmar dollar contribution approach that levels benefits for employees participation and can shift some cost escalation risk to members.This will be evaluated for possible implementation in 2015. Staff will evaluate the current years of service required for healthcare subsidies. Staff will evaluate the blended rate structure for Actives and Retirees for appropriateness. A vacation sellback program to fund future retiree medical premi wellness compliance credits will also be considered.As an example,shifting 5% of the City's contribution could save the General Fund $2.7M/yr of healthcare costs to employees/retirees changing the cost share to 65%/35% on average. 3/29/2012 4 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ Enhanced diabetes programs: City staff will review options for enhanced diabetes programs and the applicability of City disease management programs with the vendor selected through the RFP process. Offer Medicare HMO option to retirees to complement current Traditional and Medicare Advantage plan Replace the Retiree Drug Subsidy with the Employer Group Waiver Program plus Wrap for 2013: Effective January 1, 2006, the City elected to enroll in the Centers for Medicare and Medicaid Services (CMS) Retiree Drug Subsidy Program that provid City under Medicare Part D (prescription drug program) and offer actuarially equivalent to the standard Part D benefits. The City has applied and received an application each year since CMS prescription subsidy program and the value of the program th anticipated to be $4,600,000. Recent changes to the RDS program and the development of the Employer Group Waiver Program will make RDS less advantageous future. The Federal Government is now offering an alternative to the RDS negotiated discounts with brand drug manufacturers, saving the City an anticipated $1 million annually in drug costs for retirees. As background, the Standard Part D benefit under Medicare is intended to cover drugs up to a limit and then only leavinlthcare reform phases out this donut hole by 2020. With this option, the employer contracts with a vendor (Ph- design through two Rx plans: 1) EGWP provides standard Part D benefits . This approach leverages pharmacy discounts and government subsidies and allows the City to take aantage of closing the Medicare Part D donut hole. Member disruption is limited (but no Offer Consumer Directed Plan (HSA or HRA) as a plan option 2014 Offer a premium reduction for employees participating in annual biometric program and health risk assessments Designate Consumer Directed Plan as base plan for auto-enrollment as required by Healthcare Reform Continue evaluating plan design modifications for actives and retirees Perform feasibility and cost impact study of state or private exchanges as an option for health plan offerings Pre/Post 65 retirees. Transitioning retirees to the growing individual market may bene The City may achieve significant cost savings of greater than $1etiree. The retiree individual market can be funded through a Health Reimbursement A 3/29/2012 5 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ Retirees could also receive significant cost savings and increas a wide range of plan options through multiple carriers. Retirees have the ability to select the right amount of coverage (indemnity and managed care options) on better meet their needs. They are also allowed an annual election to change plans. 2015 Consider Requiring Medicare eligible retirees to be on a Medicare Plan such as Advantage /HMO/PPO or Supplement Plans (comparable plan to the Traditional Plan). Offer the Traditional Plan only to eligible retirees who live outside the can be similar to the Traditional Plan with greater options for the retiree for lower monthly premiums(estimated savings of $2.4M per year). Perform vendor search for state or private exchange for 2016 if appropriate based on feasibility study Plan options available to employees based on wellness and disease management engagement: Staff will work with its vendors and consultants to validate the or impact to City and employees and retirees for each action rec council as appropriate. Consider implementation of a defined flat contribution strategy 3/29/2012 6 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ Attachment 1 4 Health FSA HRA HSA Structure Required. For 2012, deductible must be at least: $1,200/individual $2,400/family None. High deductible health Out-of-pocket expense must not be None. Employer has complete plan requirement more than: discretion in designing $6,050/individual high deductible plan. $12,100 family Limits are inflation adjusted in annual increments. None. Accounts are unfunded. Claims paid Trust requirement Same as FSA Trust account required. general assets. Partners/sole Not eligible. Not eligible. Eligible. proprietors Medicare-enrolled No participation Same as FSA. No contributions may be made. employees restrictions. Contributions Yes. Employer can deduct contributions. Employer contributions They are excludable Same as FSA. Same as FSA. allowed. from employee wages for income and payroll tax purposes. Pre-tax salary No must be 5 reduction contributions Yes. Yes. employer-funded only. allowed In 2012: $3,100/individual $6,250/family Maximum contribution No limit. Same as FSA. Individuals age 55 or older may contribute an additional $1,000. 3/29/2012 7 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ 4 Health FSA HRA HSA Eligible Expenses & Unused Amounts Unreimbursed medical expenses [IRC §213(d)] incurred while coverage is in effect. Unreimbursed medical Unreimbursed medical expenses [IRC §213(d)] expenses [URC §213(d)] May not reimburse incurred during the coverage incurred while coverage is in insurance premiums except: Eligible expenses period. effect. -LTC insurance -COBRA premiums No other insurance premiums May reimburse health, LTC -Health insurance during or LTC expenses allowed. insurance premiums. unemployment periods. -For Medicare beneficiaries, health insurance other than Medigap. Required. Claimants must Claim submit documentation that Same as FSA. Not required. substantiation legitimate medical expense was incurred. Allowed. Employers may Not allowed. HSA is Employer limits on limit type of expenses Same as FSA. controlled by the medical expenses reimbursed under the plan. individual/employee. Carryover unused amounts at year-No. Yes. Yes. end Yes. Non-medical withdrawals Cash-out unused are taxable. A 20% penalty No. No. amounts applies except for Medicare disability, or death. 3/29/2012 8 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ 1 § Health flexible spending account created under Internal Revenue Code 125. 2 Health reimbursement arrangement created under Revenue Ruling 2002-41 and Notice 2002-45. 3 § Health savings accounts created under Internal Revenue Code 223. 4 HSAs are similar to Archer Medical Savings Accounts (MSAs). However, MSAs are available only to self-employed individuals or employees of small employers (50 employees are less) covered by a high deductible health plan. 5 In addition, an employee can deduct after-tax contributions made directly to the HSA even though the employee does not itemize tax deductions. 4 Health FSA HRA HSA COBRA & ERISA 6 Not applicable. Applies. HSA is owned by the individual and is portable. Applies. Alternatively, HRA may COBRA Special rule for qualifying continue reimbursements FSAs. after COBRA event until spouse becomes new depleted without COBRA account beneficiary. If no election. spouse, HSA cashed out to estate or non-spouse beneficiary. Required (as self-funded ERISA Form 5500 health plan). Exception for 7 (Does not apply to Same as FSA. Generally not required. small plans (less than 100 public entity) participants). ERISA SPD and claim procedures 8 Required. Required. Generally not required. (Does not apply to public entity) 6 COBRA still applies, however, to the accompanying high deductible health plan. 7 DOL Field Assistance Bulletin 2004-1 indicates that HSAs are not subject to ERISA unless the employer: limits the ability of eligible individuals to move their funds to another HSA beyond the restrictions already imposed by the CODE; imposes conditions on the use of HSA funds other than those permitted by the CODE; makes or influences investment decisions regarding HSA funds; represents that HSAs are a benefit plan established or maintained by the employer; or receives any payment or compensation in connection with an HSA. 8 Ibid. 3/29/2012 9 of 10 City of Fort Worth Healthcare Strategy for Actives and Retirees FY 2012 2015+ Attachment 2 SAMPLE RETIREE HEALTH PLAN OPTIONS Medicare Part Traditional Medicare Medicare Medicare A/B Plan PPO HMO Supplement F (pays Medicare (pays Medicare (pays Medicare shows what coordinates with approved approved approved Retiree pays Medicare) services) services) services) YOS and retiree TBD + Part A/B $451-Part A (If date determine $39 (illustrative $0 (Illustrative premium. Age Monthly Premium applicable). Part rate. Also pay 2011) + Part 2011) + Part 65, non smoker Medical B -$99.90 Part A/B Medicare A/B premium A/B premium in 761 zip code premium $142.23 mo. Must purchase Included with Included with Included with Must purchase separate plan. Premium Rx medical medical Medical separate plan Premiums vary In Network -$0 $0 (Plan F pays $1,156 Part A $0 Medical Medical/Rx $0 Medical Deductibles Part A & B $162 Part B $50 - Rx Non Network-$0 - Rx deductible) $500 Medical $5,000 - In Network Out of Pocket $7,500 No limit $2,000 $3,400 NA Maximum Combined In and Non Network Eyewear, Eyewear, Value Added NA NA Hearing aid, Hearing aid, NA Benefits Fitness Club Fitness Club 3/29/2012 10 of 10