HomeMy WebLinkAboutIR 8403 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8403
Date: April 30, 2002
To the Mayor and Members of the City Council
Page 1 of 4
SUBJECT: HEALTH BENEFITS FUND UPDATE—SECOND QUARTER
REPORT
Purpose: Prior to October 1, 2001, the City of Fort Worth Health Insurance program for employees,
retirees and dependents was fully insured, through Pacificare. Beginning October 1, 2001, the City
Health Benefits program became self-insured. Prudent management of this self-insured fund is critical.
The City Council requested staff to provide quarterly updates on the health benefits program. 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.
An Interim Report was provided to the City Council on April 9, 2002, due to the higher-than-expected
claims costs incurred in January and February. Staff and the Health Benefits Advisory Committee were
in the process of reviewing various alternatives that could be implemented to address the rising costs.
This Quarterly Report for the second quarter of Fiscal Year 2001-02 provides an update on claims
costs, a review of the status of the health benefit fund (Fund 85), and proposed actions to address the
current trend of higher-than-expected claims costs.
Claims Costs:
A summary of the paid claims for the first six months of the fiscal year(October 2001 —March 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 $ 2,347 920 $ 3,211,027 $ 3,175,294 $ 35,733
1.MAR'02 $ 3,429,541 $ 2,355,825 $ 3,748,923 $ 3,195,443 $ 553,479
TOTAL $14,389,550 $14,112,168 $16,298,810 $19,158,671 $2,859,861
The total paid health claims costs for December, January, February and March have exceeded the
expected claims cost each month. Moreover, January and February total paid claims were
approximately 25% above the expected paid claims level and the paid claims in March were 46%
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.
y
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 84o3
Date: April 30, 2002
To the Mayor and Members of the City Council
Page 2 of 4
SUBJECT: HEALTH BENEFITS FUND UPDATE—SECOND QUARTER
REPORT
Status of the Health Benefits Fund:
As of the end of March, the reserves accumulated through the plan year are$2.9 million. Continued
claims expenditures 25% above the expected claims level will result in no additional reserves(beyond
the $2.9 million already accumulated) being added to the fund balance this fiscal year. Claims
expenditures greater than 25% above the expected claims cost level —as experienced in March -will
erode the$2.9 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 below 125%of expected claims costs, the end of year fund balance
will be$4.3 million less than projected,which will result in a$11.2 million reserve balance.
A "snapshot of the situation at the end of the second quarter (six months) would indicate that the
surplus is about 20% less than what would have been anticipated. This is due to the low claims cost
experienced in the first two months of the year. However, it is necessary to evaluate the status of the
health benefit program on a monthly basis to determine the actual trends being experienced. The
claims cost trend is significantly greater than expected and the continuation of that trend is troubling,
both from the standpoint of current year funding as well as projected funding requirements into the
future.
Allowing such cost trends to continue is not fiscally prudent.
Proposed Actions:
Staff and the Health Benefit Advisory Committee have reviewed several alternatives and propose the
following actions:
1. Changing the plan design to shift costs to the members
Changing the plan design to shift costs to the members will reduce the claims cost to the
City's Health Benefit Fund. Such changes would include at least instituting deductibles,
increasing out of pocket maximum limits, and increasing prescription and physician
copays. Such plan design changes would position the City's health benefit more in line
with that offered by other employers, as demonstrated by the following benefit
comparisons based upon the Watson Wyatt 2001 Benefit Survey of the DFW Metroplex
(mostly private sector employers) and on a Human Resources Department survey of
seven Texas cities.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
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INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8403
� Date. April 30, 2002
To the Mayor and Members of the City Council
Page 3 of 4
SUBJECT: HEALTH BENEFITS FUND UPDATE SECOND QUARTER
REPORT
• The City's prescription copay is about 25% below the average of private
employers and is more in line with the municipalities surveyed, although still
somewhat less:
Average Prescription Copay(EPO)
Private Employers Municipalities City of Fort Worth
$13.75/$27.50/$45.00 $9.50/$21.50/$40 $10/$20/$35
• The City's average physician copay is 230/"0% below the average of other
employers:
Average Office Copay
Private Sector Municipalities City of Fort Worth
$16.25 $20.40 $12.50
2. Insuring that funding levels are adequate to support expected claims
Staff and the Health Benefits Advisory Committee propose that contribution rates for all
plans offered be self-supporting, so that the amount of money collected through the
contributions (of the City, employees and retirees) is sufficient to cover the cost of the
claims incurred on each plan and that such contributions are consistent with risk.
The City's contribution for the health benefit will be based on the "low" plan offered.
Higher plans offered should be revenue neutral for the City, with the members selecting
the higher plan paying the full increased cast for the enhanced benefit.
3. Reviewing the City's contribution for retiree coverage and for retiree dependent coverage
Other employers' health benefit coverage for retirees compared to the City of Fort Worth
coverage reflects a difference in the cost sharing. Other cities surveyed offered health
insurance for retirees and their dependents, but much of the cost is born by the retiree,
not the City.
The City of Fort Worth is obligated to provide at least one group health care plan which
requires no cost participation for the retiree's own coverage, if the retiree's initial date of
hire was prior to October 5, 1988.
Retirees whose hire date was on or after October 5, 1988 are required to participate in
f.
the cost of their group health benefit(basic coverage) based upon their years of service.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.8403
Date: April 30, 2002,
To the Mayor and Members,of the City Council
Page 4 of 4
SUBJECT: HEALTH BENEFITS FUND UPDATE—SECOND QUARTER
REPORT
Currently the cost participation is:
Years of Service %Ci!y Pays for Rpoc Coverage
5 to< 15 33%
15 to<25 67%
25 and over 100%
This schedule of cost sharing may be altered at any time at the sole discretion of the City
of Fort Worth.
In addition, the City of Fort Worth is not obligated to participate in the cost of the health
benefit for retirees'dependents.
Staff and the Health Benefits Advisory Committee are recommending that the City's
participation in the cost for retiree coverage and/or for retirees' dependent coverage be
evaluated and modified as appropriate.
4. Increasing employeetretiree contributions mid-year
If current claims costs remain at 25%or below the expected level, a$2.9 million surplus
will add to the reserves by the end of the fiscal year, resulting in a reserve balance of
approximately$11.2 million. Such a balance would appear to be adequate going into the
next fiscal to maintain a recommended reserve level of 25%of paid claims(estimated to
be no greater than $35.2 million for FY2001-02, assuming no plan changes are made
prior to October 1, 2002 and assuming no significant change in the covered population.
However, if claims costs continue to escalate, as we have seen during March, a mid-year
contribution increase might be prudent to minimize the effect of the emerging pattern of
losses.
Unless otherwise directed, staff will finalize the recommendations as outlined above for City Council
approval.
Gary W. Jackson
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
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