Renewal Information
The 2009 early renewals for the group health plan were received in March of 2008. The 2009 expected liability for claims and administrative expense is $7,222,676. This is a 9.6% or $634,159 increase from the 2008 expected liability. The expected liability at the aggregate attachment point (i.e. 120%) is $8,522,774.
Administrative fees comprise 10% of total plan costs (i.e. $722,184). BlueCross BlueShield of Kansas increased their administrative fees for general operating expense and stop loss by 17.8% or $76,838 to $507,204 in 2009. This increase is almost entirely due to an increase in the stop loss rates based on the group’s experience and that of the statewide stop loss pool. The HC recommends maintaining the individual stop loss for 2009 at $100,000 (prescription drug and dental claims are not applied to stop loss). BlueCross and BlueShield of Kansas did not increase their weekly claims processing fee (i.e. 3.98% of weekly paid claims). The weekly claims processing expense is expected to increase 10% or $18,850 to $206,606 in 2009. MedTrak did not increase their 2009 administrative fees and estimated the group’s administrative expense at $8,373.
The renewals included a plan design change to coinsurance as part of a phased implementation to reach a combined out-of-pocket maximum for major medical and prescription drugs of $2000/4000 by 2011. BlueCross BlueShield of Kansas and MedTrak estimated the coinsurance changes would reduce expected claims liability by $43,982 and $25,892, respectively, compared to renewals based on current benefits[1]. BlueCross and BlueShield of Kansas estimated a reduction in expected claims liability of $77,866 and $109,013 for increasing the major medical coinsurance maximums to $600/1200 and $700/1400, respectively. The recommended out-of-pocket benefit summary is as follows (changes are in bold):
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Comprehensive Major Medical |
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Prescription Drug |
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Dental |
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Recommended out-of-pocket benefit summary for 2009. |
It is important to note for future budgetary reasons that the HC anticipates double-digit percentage increases to total plan costs in 2010 closer to the average percent increase seen from 1995-2007 of 15.6%. A 2010 BCBSKS renewal would be based on experience from 2006-2008, with 2007 weighted most heavily. There was a 20% increase to the average contract cost in 2007.
Contract Type (Paid versus Incurred)
The current and prior ASO contracts with BCBSKS were on a paid basis. The HC recommends changing the contract type to incurred in 2009. There are two major differences between paid and incurred contracts: the basis of experience rating in calculating renewal premiums, and insurance company responsibility for processing claims submitted after the termination date of the contract (i.e. run-out claims).
In rating the group’s claims experience, incurred basis contracts determine the value of those claims attributable to the recently ended experience period, whereas paid basis contracts determine the value of those claims paid in the recently ended experience period. Valuing liability on an incurred basis is more accurate. Currently, City financial statements and internal reports for performance measures report liability on an incurred basis. Changing to an incurred contract would improve consistency in reporting.
If the current ASO contract is not renewed, BCBSKS is not responsible for processing run-out claims. However, they would be under an incurred contract. Therefore, changing to an incurred contract would protect the plan from the risk of having to find an administrator to process run-out claims in the event the ASO contract with BCBSKS is not renewed subsequent to marketing the plan next year.
If the contract changes to an incurred basis, the plan will assume additional risk in 2009. BCBSKS will not reinsure open or unreported claims exceeding the individual stop loss that were incurred prior to 2009. Such claims could potentially range from $75,000 to $300,000.
Funding Options
BlueCross BlueShield of Kansas presented renewal options for both a paid basis contract and incurred basis contract. The renewal premiums are exaggerated under the incurred option because they include the additional risk for the run-out claims from the paid basis contract. The liability for the run-out claims is estimated at $566,597. The HC recommends basing City funding and employee and retiree contributions on the renewal premiums for the paid basis option regardless of the type of contract selected for 2009.
Funding for the health plan during the 2009 benefit period was developed using risk analysis. The goal of risk analysis is to determine a level of funding that will provide a 75%[2] confidence level that the December 31, 2010 health fund balance will be at or above the minimum retained earnings (MRE) level of 25% of expected claims. Once MRE is reached, the City will return to funding health care on a pay-as-you-go basis.
In Option A, the recommended City funding is $7,129,861, which is a 12% or $763,913 increase from 2008 funding. If this level of funding is sustained in 2010, and actual plan expenses equal expected, the ending health insurance fund balance in 2010 will reach MRE. The recommended Option A employee contributions (at 20% of the renewal premium equivalents per HC guidelines) for coverage are as follows:
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Single |
Employee/Children |
Employee/Spouse |
Employee/Family |
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$0 |
$63 (10% or $6 increase) |
$70 (10% or $6 increase) |
$100 (10% or $9 increase) |
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Option A. Employee contributions for 2009 (26-pay period basis). |
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In Option B, City funding and employee contributions would increase 6% from 2008 levels. This “6and6” funding strategy was used in developing the 2008 budget recommendation. City funding would increase $381,956 from 2008 to $6,747,904 and employee contributions would increase according to the summary below:
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Single |
Employee/Children |
Employee/Spouse |
Employee/Family |
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$0 |
$60 (6% or $3 increase) |
$68 (6% or $4 increase) |
$96 (6% or $5 increase) |
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Option B. Employee contributions for 2009 (26-pay period basis). |
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In Option C, City funding would increase 3% or $190,978 from 2008 funding to $6,556,925 and employee contributions would increase 8% from 2008 levels as follows:
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Single |
Employee/Children |
Employee/Spouse |
Employee/Family |
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$0 |
$62 (8% or $5 increase) |
$69 (8% or $5 increase) |
$98 (8% or $7 increase) |
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Option C. Employee contributions for 2009 (26-pay period basis). |
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Under normal economic conditions, the HC would recommend Option A. However, given recent economic challenges, both Options B and C are viable for one year.
While it remains to be seen what, if any, cost reductions we will see with marketing our health plan in 2009, with Option B or C, the recommended City funding for 2010 and beyond will likely require a double-digit percentage increase to meet the goals of the risk analysis and approved budgeting guidelines developed by the HC. Note: In May, departments were instructed to budget for health care based on a 3% increase to City funding.
Because discussions are pending regarding the City subsidy for retiree health care in relation to the City liability for GASB 45, the HC recommends the flat-dollar rate subsidies for retiree health care as follows:
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Single |
Retiree/Children |
Retiree/Spouse |
Retiree/Family |
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$280 (9.3% or $24 increase) |
$679 (9.9% or $61 increase) |
$753 (9.4% or $65 increase) |
$865 (9.6% or $76 increase) |
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Recommended retiree contributions for 2009 (monthly basis). |
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The HC is also recommending the implementation of an on-site disease-management employee health clinic in 2009. Information on this recommendation is contained in Attachment B. Implementation of the clinic would trigger a second increase to employee contributions to the health care plan in 2009 of $10 or $20 per pay period, depending on coverage level, 100% of which employees and retirees can choose to offset by participating in the program.
Retained Earnings
The ending balance in the health insurance fund as of December 31, 2007 was $7,072,219. Minimum retained earnings are defined as 25% of the expected liability for claims (i.e. $1,647,129 in 2008). The HC recommends reserving $1,461,597 in retained earnings for the following anticipated expenses in 2009:
- Run-out claims from the previous paid basis contract ($566,597)
- Overage for large dollar claims incurred prior to 2009 ($75,000-$300,000)
- Implementation of on-site disease management health clinic ($200,000)
- Flu shot program ($15,000)
- GASB 45 actuarially required contribution (ARC) ($380,000)
Less the reserved amount above, the available retained earnings as of January 1, 2008 were $5,610,622 and expected ending retained earnings as of December 31, 2008 are $4,647,515. Expected ending retained earnings from 2009-2010 based on the risk analysis for Options A-C are as follows:
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Funding Options |
2009 |
2010 |
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Option A |
$3,715,905 |
$2,145,486 |
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Option B |
$3,294,721 |
$806,906 |
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Option C |
$3,123,356 |
$278,369 |
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Expected retained earnings 2009-2010. |
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Task List for 2008-2010
- Utilization review for prior years
- Finalize plan design change details before open enrollment begins
- Preparation to market the group health plan in 2009 for the 2010 benefit period
Attachment A
From the Memo dated 8/29/07 regarding Request to Implement Health Care Plan Design Changes for 2008 Benefit Period
“The HCC concluded that current health and prescription drug benefit out-of-pocket maximums (OPM) are significantly lower than the market average (i.e. $1,200 versus $3,000 per individual). The HCC recognizes that competitive benefits are an important recruitment and retention tool. However, OPM should not lag the market excessively. Therefore, we recommend increasing OPM over four years according to the following schedule, while monitoring market averages annually for change. These changes are subject to future revision and Commission approval in future years.
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2007 |
2008 |
2009 |
2010 |
2011 |
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Health |
Ded 300/600 |
Ded 300/600 |
Ded 300/600 |
Ded 300/600 |
Ded 300/600 |
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Coins 300/600 |
Coins 400/800 |
Coins 500/1000 |
Coins 600/1200 |
Coins 700/1400 |
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OPM 600/1200 |
OPM 700/1400 |
OPM 800/1600 |
OPM 900/1800 |
OPM 1000/2000 |
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Rx |
Ded 100/200 |
Ded N/A |
Ded N/A |
Ded N/A |
Ded N/A |
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Coins 500/1000 |
Coins 700/1400 |
Coins 800/1600 |
Coins 900/1800 |
Coins 1000/2000 |
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OPM 600/1200 |
OPM 700/1400 |
OPM 800/1600 |
OPM 900/1800 |
OPM 1000/2000 |
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Combined |
OPM 1200/2400 |
OPM 1400/2800 |
OPM 1600/3200 |
OPM 1800/3600 |
OPM 2000/4000 |
Highlights of the recommended schedule are:
· Maintenance of the health deductible ($300 per person, not to exceed $600 for all persons covered under a policy);
· Elimination of the prescription drug deductible for first dollar coverage;
· Annual increase to combined OPM of $200 per person, not to exceed $400 for all persons covered under a policy; and
· Achieving a combined OPM of $2000 per person, not to exceed $4000 for all persons covered under a policy by 2011.”
Attachment B
On-Site Disease Management
Administrative Services has been exploring mechanisms for reducing health care claims cost. Two companies have submitted proposals to the City that demonstrate reduced claims cost through an on-site disease-management health care clinic which employees and their families can access. Administrative Services arranged company presentations to the HC, which provided positive feedback regarding the program.
The basic objective of this model is to provide affordable, convenient, and personal access to health care services through HIPAA compliant, individualized medical intervention by means of an on-site clinic that results in improved employee health and a measurable, proven reduction in employer’s health care cost.
First year cost to implement varies depending on the number of individuals that are eligible to participate in the program and whether a Medical Office Assistant (MOA) is utilized. If the program is made available to employees and retirees, and their dependents ages 14 and up, cost will range from $207,000 to $226,000. If the program is made available to employees only, cost will range from $159,000 to $173,000.
Return on investment with 90% adult participation is estimated by one vendor to be between 3.24:1 and 5.01:1 depending on the participant level chosen; both vendors have actual claims data from current clients to support this claim. Claim savings are greater when employees are provided incentives to participate in the program. One vendor has indicated they will put a rate guarantee on claims cost reduction in their contract. The amount at risk ranges from $14,000 to $16,000 based on the participant level chosen. One vendor has offered to discount the first 90 days of operation if the decision is made to implement the on-site clinic in the fall of 2008. The discount amounts to approximately 4% depending on the option selected.
It is recommended that the program be funded through reserves in the health insurance fund because the majority of the projected savings in claims cost will ultimately offset City cost. However, if participation in the disease-management program is not maximized, there will be less opportunity for claims savings. Therefore, it is recommended that Health Care Plan Participants that choose not to participate in the disease-management program be required to increase their contributions to the health care program to cover the loss in potential claims savings. The first year rate structure is set so that if very few employees choose to participate (thus lowering ROI) the increase in employee/retiree contributions will cover the annual cost of providing the program. Effective April 1, 2009 the recommended employee contributions (on a 26-pay period basis based on Option A) for coverage are as follows:
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Single |
Employee/Children |
Employee/Spouse |
Employee/Family |
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$10 ($10 increase) |
$73 ($10 increase) |
$89 ($20 increase) |
$120 ($20 increase) |
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Recommended employee contributions for 2009 (26-pay period basis) upon implementation of on-site clinic. |
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The recommended retiree contributions (on a monthly basis) for coverage are as follows:
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Single |
Retiree/Children |
Retiree/Spouse |
Retiree/Family |
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$302 ($22 increase) |
$701 ($22 increase) |
$797 ($44 increase) |
$909 ($44 increase) |
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Recommended retiree contributions for 2009 (monthly basis) upon implementation of on-site clinic. |
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Discounts of $10 per adult plan participant (employee, retiree, and spouse only) per pay period (or $22 per adult plan participant per month) would be available beginning April 1, 2009 for those that complete the Health Risk Appraisal (HRA). Beginning in 2010, discounts will be given for those meeting the 2009 disease-management participation requirements (HRA and designated number of visits with Physician’s Assistant).
Summary of typical services provided:
- HIPAA compliant, third party medical record maintenance
- Summary reports to the HC with group utilization information
- Comprehensive HRA for all employees, retirees and eligible spouses
- Chronic Disease Management
- Evaluation of participants with high risks
- Plan development for reduction of risk factors
- Referrals to PCP or specialists
- Regular meetings with clinic health care provider for results assessment and direction
- Other Services
- Episodic care (ear infections, cold, flue, etc)
- PCP coordination with health information
- Order labs/x-rays
- Prescribe medication
- Minor surgery (skin biopsy, stitches)
- Patient advisor
Vendor quoted outcomes for current clients:
Vendor X:
· Significant reduction in health risks of the group in the tenth percentile of participants with the highest initial biometric readings (cholesterol, high blood pressure and diabetes.
o Those with high cholesterol reduced their risk of heart disease complications by 47%.
o Hypertensive employees reduced their risk of death by 42%
o Diabetics reduced their risk of heart attach by 8%.
· References provided that have experience Return on Investments from 2.51:1 to 6.9:1.
· Reference provided that improved their generic utilization from 49% at the start of the program to 70.5% currently.
· Reference provided from a client that experienced a 31% reduction in their healthcare cost within the first 15 months of the program.
Vendor Z:
· 72% of participants will have one or more significant health risk at the beginning and less than 25% will be addressing them. After 18 months, 64% will be proactively addressing health issues.
· Program participant’s claims cost decline by 40% or more.
· Reductions in Lost Work Time of up to 9%.
The following is the recommended tentative implementation schedule:
June-September 2008 RFP, vendor selection, contract negotiation
September-Dec 2008 Site set up, program roll out (during open enrollment)
January-March 2009 Employees/spouses complete HRA and clinic opens
April 2009 Rate changes become effective
Administrative Services and the HC further recommend an accelerated schedule to take advantage of company discounts for 2008 implementation and clinic operation.