Memorandum

City of Lawrence

Personnel Div/Administrative Services Department

TO:	Dave Corliss, City Manager Debbie Van Saun, Assistant City Manager Frank Reeb, Director of Administrative Services
FROM:	Lori Carnahan, Personnel Manager Marlo Cohen, Management Analyst Health Care Committee
Date:	June 18, 2007
RE:	2008 Health Plan Budget Proposal Memo Follow-Up

As stated in the memo dated March 27, 2007 regarding 2008 Health Plan Budget Proposal, the Health Care Committee (HCC) is considering recommending plan design changes in 2008 in order to control total plan costs so that current benefits may continue to be offered to plan participants at reasonable rates.  The HCC has been studying out-of-pockets costs, 4-tier coverage structures, and prescription drug program enhancements.  This memo presents a comparison of comprehensive major medical (CMM) out-of-pocket costs between the City of Lawrence Group Health Plan (the “Plan”) and similar plans administered by Blue Cross and Blue Shield of Kansas (BCBSKS), and summarizes HCC discussions on plan design to date.  Further discussions regarding employee contributions for dependent coverage and out-of-pocket costs for CMM as well as the prescription drug benefit will continue during meetings through the month of July.  Final recommendations will be presented by the HCC to the City Manager in August 2007. 

Summary

• The HCC is considering recommending increasing out-of-pocket costs for the CMM benefit incrementally over 2008-2010, and specifically increasing the CMM coinsurance maximum to 500/1000 in 2008 from 300/600 currently.
• The HCC is considering recommending 4 tiers in 2008 and has developed proposed rates for employee plus children ($57), employee plus spouse ($67), and family coverage ($90).
• Administrative Services Staff, following presentation to the HCC, has authorized MedTrak Pharmacy Services to issue Plan participant communications regarding implementation of the new optional MedTrak Services 90 Network and Co-Pay Waiver Program effective July 1, 2007.

Medical Out-Of-Pocket Costs and 4 Tiers

During the group utilization review presented by BCBSKS to the HCC on April 26, 2007, BCBSKS provided current statistics that showed that thirty-four percent (34%) or the majority of similar group plans had a CMM deductible of $500 per person not to exceed $1,000 for all persons on a contract (i.e. 500/1000).  Eleven percent (11%) of BCBSKS groups maintain the Plan’s current deductible of 300/600.

The most common coinsurance maximum is 1000/2000 (53% of groups) followed by 1000/3000 (17% of groups).  One percent (1%) of BCBSKS groups maintain a 400/600 maximum and five percent (5%) maintain a 200/400 maximum.  Our Plan’s current coinsurance maximum is 300/600.  BCBSKS stated it is an unusually rich benefit and estimated an $119,704 decrease in expected claims if the Plan were to increase the coinsurance maximum to 500/1000 in 2008.

BCBSKS staff stated that most of their group plans offer 4 tiers and that their small groups are required to offer 4 tiers.  Our Plan currently offers 2 tiers, employee and employee plus dependents or family.

In subsequent meetings to the BCBSKS group utilization review, the HCC discussed increasing CMM out-of-pocket costs in 2008; specifically, raising the CMM coinsurance maximum to 500/1000.  The HCC is in general agreement that out-of-pockets costs should be better aligned with similar group plans yet remain competitive, as the Plan is considered a significant recruitment tool.  The HCC will discuss further increasing CMM out-of-pocket costs incrementally over multiple benefit periods.  The table below summarizes a proposed increase schedule for benefit periods 2008-2010 in which costs would increase $200 per person not to exceed $400 for all persons on a contract per year over three years.

Comprehensive Major Medical Benefit
Benefit Period	Deductible	Coinsurance Maximum	Out-Of-Pocket Maximum
2007 (Current)	300/600	300/600	600/1200
2008	300/600	500/1000	800/1600
2009	350/700	650/1300	1000/2000
2010	400/800	800/1600	1200/2400

Discussions regarding offering 4 tiers (employee, employee plus children, employee plus spouse, employee plus dependents) ended in a consensus to move that direction in 2008 for three reasons.  First, there is a fairness issue in charging the same rate to employees for family coverage regardless of the number of dependents covered.  Employees enrolled in the middle two tiers would be charged less than if enrolled in the family tier.  Second, the number of contracts eligible to qualify for the middle tiers (Employee + Children and Employee + Spouse) has increased 33% since 2005 and is predicted to continue to grow.  Third, there may be immediate and long-term cost savings to the Plan should employees cancel coverage for dependents in order to change to a more affordable tier.  Based on information presented in a BCBSKS 2008 4 Tier renewal assuming current benefits, HCC funding guidelines, and expected employee withholdings in 2008, the proposed employee rates in the table below were developed.

2008 Proposed Employee Withholdings For Dependent Coverage
	Emp	E/Ch	E/Sp	E/Deps
4 Tier	$0	$57	$67	$90
2 Tier (Current)	$0			$87.50

Prescription Drug Program Enhancements

On June 10, 2007, MedTrak Pharmacy Services presented the group utilization review to the HCC and program enhancements, including the new optional MedTrak Services 90 Network for maintenance medications and Co-Pay Waiver Program for new generic substitutions for targeted brand drugs, for the committee’s consideration.  

The HCC supports these optional programs and as a result Administrative Services Staff has authorized MedTrak Services to implement them effective July 1, 2007.  MedTrak subsequently provided additional information regarding alternative plan designs for out-of-pocket costs to study in meetings scheduled in July 2007.