HomeMy WebLinkAboutIR 9513 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9513
To the Mayor and Members of the City Council September 11, 2012
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SUBJECT: Retiree Dependent Health Insurance Premium Subsidy
The purpose of this informal report is to notify the City Council of staff's planned course of action
regarding retiree dependent subsidies for calendar year 2013. On August 9, 2012, City Council was briefed
on the issues as they relate to the challenges of funding retiree healthcare either through a trust or on a pay-
as-you-go basis. The City Council directed staff to continue identifying ways to contain future projected
costs for retiree healthcare, to develop a reasonable funding strategy to manage this benefit, and to remain
sensitive to the expectations of current employees and retirees who are currently eligible for a healthcare
subsidy in retirement.
Background:
In 1988 the City Council adopted a tiered premium subsidy (33/67/100%)for retirees based on years of
service and began sharing in the cost for retirees with dependents at 30/40/50% depending on years of
service. Prior to 1988 the city provided no subsidy for retiree dependents.
In 2003, the City adopted a subsidy schedule for dependents as follows:
Years Cm's Retiree's Cm's Cost Cm's Cost— Retiree's Cost
of Cost— Cost— —Retiree's for Retiree + —Retiree+
Service Retiree Retiree Dependents Spouse Spouse
Only Only
Retirees hired prior Any 100% 0% 30% 65% 35%
to 10/5/88
Retirees hired 5-15 33% 67% 50% 41.5% 58.5%
10/5/88 — 12/31/08 15-25 67% 33% 40% 53.5% 46.5%
25+ 100% 0% 30% 65% 35%
The concern raised by some retirees hinges on how the 30/40/50%retiree dependent cost share is spread
among retirees with dependents based on years of service. Some retirees feel the dependent subsidy rates
are inverted since they give less of a dependent subsidy to retirees with greater years of service and more to
retirees who had fewer years of service. City staff believes that the allocation addressed overall
affordability for retirees who pay more towards their own premium. In fact, the overall subsidy for a 25-
year retiree hired after 1988 with dependents is 65%, consistent with the subsidy for retirees hired prior to
1988.
Separately, in 2006, the city began receiving a 28% subsidy from the Federal government as a partial offset
for continuing drug coverage for Medicare-eligible retirees. That same year, a portion of the subsidy was
used to rebate all retirees (1,200 +/-individuals)for"excess" premium costs in response to this issue.
Although it was intended to be a one-year action pending a more permanent solution, this practice
continued through the 2012 budget. In 2013, the city will implement the Employer Group Waiver Plan
(EGWP) and will not issue premium rebate checks since staff was tasked with implementing a cost
containment strategy and developing a plan for retiree dependent subsidy adjustments.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9513
To the Mayor and Members of the City Council September 11, 2012
Page 2 of 3
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SUBJECT: Retiree Dependent Health Insurance Premium Subsidy
Discussion:
After costing out various options, staff presented five alternatives to the City Manager's Health Benefits
Advisory Committee (HBAC) on August 16, 2012. The purpose was to consider the costs of various
alternatives to resolve the equity issue for retiree dependents and also to seek feedback on the elimination
of the annual premium rebate program. Only options 44 and 45 achieve the objective of reining in
healthcare costs. Following are the five options presented:
1. Incorporate the current premium rebate into monthly premium rates;
2. Reverse the city subsidy to 50-40-30%to address tenure;
3. Provide a flat 40% city subsidy regardless of years of service or hire date;
4. Keep the current city subsidy at 30-40-50%; or
5. Increase the city subsidy for retiree dependent coverage from 30%to 40% for those selecting the
new Medicare HMO option.
After much discussion, the Committee was mixed on the issue. HBAC members who were present voted to
recommend a flat 40% subsidy regardless of years of service (Option 43) with three in favor, two against,
and one abstention. The impact of this course of action would be as follows:
• A total of 1,266 retirees would have premium decreases averaging $49.98 per month at an annual
cost to the City of$650,000.
• Fifty-one retirees who had fewer than 15 years of service would have premium increases averaging
$67.16 per month but ranging from $18.88 to $110.05 per month; of these 22 are eligible to
participate in Medicare Advantage to reduce their costs.
• While the 2013 cost of$650,000 is similar to the cost of the annual rebate that is being eliminated,
this change would memorialize (but not constitutionally protect)this obligation into the future and
apply to all future premium increases. This represents potentially $40 million+in additional accrued
liability.
• This proposal does not incentivize retirees to convert to the more cost-effective Medicare
Advantage PPO and HMO options if they become Medicare-eligible.
Costs for implementing the HBAC recommendation could be offset by projected savings in FY2013 and
future years from the following cost savings measures:
1. Employer Group Waiver Plan (EGWP) for retiree prescription drug benefits—Aetna projects a $2
million dollar savings for 2013 which is $1M more than projected in the proposed FY2013 budget;
2. Anticipated enrollment of 100 Medicare eligible members to the new Medicare HMO offering—
cost reduction is estimated at $340,000; and
3. Anticipated $428,000 savings if 10 percent of employees and pre-65 retirees move to the new
Consumer Choice Plan (high deductible health plan with a health savings account).
However, the goal of these program changes is to ensure affordability for the City and all members while
ensuring that the costs for both claims and contributions to the OPEB Trust are sustainable in the future.
Any reallocation of these savings to other purposes will reduce the effectiveness of that effort.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9513
To the Mayor and Members of the City Council September 11, 2012
Page 3 of 3
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SUBJECT: Retiree Dependent Health Insurance Premium Subsidy
Staff Action Plan:
After reviewing the recommendation from the City Manager's Health Benefits Advisory Committee, staff
believes it is not the most prudent course of action nor is it consistent with the City Council's objective to
keep healthcare affordable for employees, retirees and taxpayers for the long term. Instead, staff will retain
the current subsidy stricture for dependents in existing plans, will eliminate the rebates that averaged $534
in FY2012, and will offer two products that should mitigate the loss of the rebate for most retirees with
dependents as follows:
1. Pre-65 retirees will have the option to participate in a Consumer Driven Health Plan that has lower
premiums and a companion Health Savings Account.
2. Medicare-eligible retirees will have the new Aetna Medicare Advantage PPO and HMO plans with
lower premiums and out-of-pocket expenses.
The vast majority of our current retirees who are over 65 are receiving Medicare but receive prescription
drug coverage through the City. Only 10 retirees over 65 with spouses are enrolled in non-Medicare plans
compared to 1,352 Medicare-eligible retirees. Only 175 retirees and spouses have signed up for Medicare
Advantage to consolidate their prescription drug coverage in a fully-insured plan. We anticipate that this
number will increase on a voluntary basis with the favorable plan costs proposed by Aetna that are being
considered by the City Council today. Staff is confident that this plan offers an affordable alternative to
Medicare-eligible retirees who are concerned about growing premium and out-of-pocket expenses.
Nothing in this report is to be construed as a permanent commitment by the City of Fort Worth to current or
future retirees for continued healthcare benefits.
If you have any questions, please contact Karen Marshall, Human Resources Director, at 817-392-7783.
Tom Higgins
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS