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HomeMy WebLinkAboutIR 8397 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8397 psi&% Date: 04/09/02 To the Mayor and Members of the City Council Page 1 of 3 SUBJECT: HEALTH BENEFITS FUND UPDATE —INTERIM REPORT Purpose: The first Quarterly Report to the City Council concerning Health Benefits was issued February 26, 2002. At that time, staff noted that the claims costs for the period October 1-December 31, 2001, were consistent with expectations and resulted in an adequate position for the status of the fund. After two additional months of claims data (January and February, 2002), it appears that claims costs are higher than expected. This interim report is intended to notify the City Council of that status and to identify actions being considered to control the costs. Claims Costs: A summary of the paid claims for the first five months of the fiscal year (October 2001—February 2002) is shown below: Total Paid Expected Total Paid Self-Funded Funding Claims Paid Claims Plus Equivalent Surplus Claims Admin. Fees Premium (Deficit) OCT'01 $ 494,006 $ 2,360,200 $ 812,212 $ 3,262,120 $2,449,908 NOV'01 $ 2,184,562 $ 2,358,248 $ 2,503,154 $ 3,187,473 $ 684,319 DEC '01 $ 2,447,025 $ 2,349,021 $ 2,764,988 $ 3,171,512 $ 406,525 JAN '02 $ 2,941,554 $ 2,340,955 $ 3,258,507 $ 3,166,829 ($ 91,679) FEB '02 $ 2,892,862 $ 2,338,976 $ 3,209,822 $ 3,167,438 ($ 42,384) TOTAL $10,960,009 $11,747,400 $12,548,682 $15,955,371 $3,406,689 The total paid health claims costs for December, January and February have exceeded the expected claims cost each month. Moreover, January and February total paid claims were approximately 25% above the expected paid claims level. As you'll recall the plan is funded at 125% of expected claims costs. The 25% corridor between expected paid claims and the aggregate limit is anticipated to provide for reserves. As of February, the reserves accumulated through the plan year are $3.4 million. Continued claims expenditures 25% above the expected claims level will result in no additional reserves (beyond the $3.4 million already accumulated) being added to the fund balance this fiscal year. Claims expenditures greater than 25% above the expected claims cost level will erode the $3.4 million. It should be noted that the "available" fund balance at the beginning of FY 2001-02 was $8.3 million. Staff initially anticipated an additional funding surplus of $7.2 million by the end of FY 2001-02. If the monthly claims costs continue at or around 125% of expected claims costs, the end of year fund balance will be$3.8 million less than projected. Allowing such cost trends to continue without developing contingency plans is not fiscally prudent. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8397 APAT-A, Date: 04/09/02 14aft To the Mayor and Members of the City Council Paae 2 of 3 SUBJECT: HEALTH BENEFITS FUND UPDATE —INTERIM REPORT Contingency Plans: Staff and the Health Benefit Advisory Committee are reviewing measures that could be implemented prior to the end of the current fiscal year, with very little administrative costs. Such measures include: 1. Raising Employee and Retiree Contributions Increasing the contribution rates for employees and retirees has the immediate effect of bringing more revenue into the fund. This action would increase the "Self-Funded Equivalent Premium" column in the chart, which would offset the costs, thereby keeping the current year fund in a surplus condition. This approach has little or no impact on decisions to access health benefits and theoretically would not impact the claims costs. All members (employees and retirees)would pay more no matter what their usage rate of the benefits is. 2. Changing the Plan Design Changing the plan design to shift costs to those who use their health benefits, by increasing the members' share of the costs for services provided, would.shift costs to the "users" of the plan. This strategy is similar to "fee for service" methodology utilized for funding some City services. Current literature indicates the move toward "consumer-driven" health benefits, so that those receiving the medical services become more like consumers by sharing more of the cost. The plan design changes being reviewed are those that would be administratively easy to change and those where the benefit appears to be significantly greater in Fort Worth's plan than in other comparable plans. Such plan design changes include increased deductibles for various services, increased maximum out of pocket limits before the plan pays for all costs for the members, coinsurance, and cancellation of the application of member's prescription costs to the attainment of their maximum out of pocket limit. These plan design changes will impact employees and retirees: they will pay more for the services provided by physicians and facilities. They will therefore be more likely to take on the role of consumers, making decisions based on affordability and need. 11/001" ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8397 PAT Date: 04/09/02 To the Mayor and Members of the City Council Paae 3 of 3 s^rs SUBJECT: HEALTH BENEFITS FUND UPDATE —INTERIM REPORT Options and Recommendations: Several options are available: • Make no changes to the current plan design or contribution rates; • Increase City contributions; Increase employee/retiree contributions; * Increase City and employee/retiree contributions; and/or • Change the plan design. It is staff's position that the first option is not viable. Even though it appears that a year-end surplus will result, due to carry-over of the prior years' surplus, failure to take revenue-generating and/or cost- containment measures is simply"putting our heads in the sand" and ignoring the potential future impact both on costs and on the ultimate ability of the City to provide health benefits to employees and retirees. Staff and the Health Benefits Advisory Committee recommend that contingency plans to increase employee/retiree contributions and/or to change the plan design be developed and be ready for implementation immediately. "Immediate implementation" is about 60-90 days after the decision is made to make the changes, in order to communicate the changes effectively to employees and retirees. Following an analysis of March claims data, which should be available by the middle of April, staff will provide the City Council with the second quarterly report on the health benefits fund. At that time, staff will recommend appropriate options to increase health fund revenues and/or control health claims costs. Gary W. Jackson City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS