Memorandum                                      

City of Lawrence

Administrative Services

TO:	David L. Corliss, City Manager
FROM:	Lori Carnahan, Human Resources Manager, Administrative Services Michelle Spreer, Human Resources Specialist/Benefits, Admin Svs On behalf of the Healthcare Committee Tammy Bennett, Assistant Director, Public Works Kim Brice, Administrative Support II, Police Department Russell Brickell,  Fire Inspection Officer, Fire Department Craig Houfek, Recreation Center Programmer, Parks & Recreation Mike McAtee, Chairman, LPOA Mike McMillen, President, IAFF Local 1596 Heidi Nelson, Assistant Director, Finance Department Casey Toomay, Budget Manager, City Manager’s Office Dave Pentlin, Solid Waste Operator II, Public Works Scott Wagner, Management Analyst, Legal Services Bill Bradford, Police Officer Jimmy Wilkins, Senior Maintenance Worker, Public Works
CC:	Cynthia Boecker, Assistant City Manager Diane Stoddard, Assistant City Manager Jonathan Douglass, Assistant to the City Manager
Date:	August 17, 2009 (b)
RE:	2010 Healthcare Plan

Executive Summary

Beginning in May 2009, the Healthcare Committee along with Hays Companies (Hays) began an RFP process and Health Plan Analysis of the city’s employee healthcare plan. 

Health Plan Analysis performed by Hays provided a summary based on our 2008 claims data including:

· The city’s 2008 annual health care cost per employee was $9,001 compared to the projected $8,215 (using BCBS Expected Claim data from renewal);

· Plan Cost Components segmented into net medical claims, administrative fees and prescription drug costs

– Net medical claims made up 74% of the total plan cost; the norm is typically 70-80% of costs

ú Of the net medical claims, 50% were employee claims

ú Spouses and dependent children represented 31% and 19% respectively

– 9% of the costs were attributed to administrative fees, and

– Prescription drug costs made up 17% of the total plan costs; the norm is typically 10-15%.

The RFP and subsequent analysis by Hays and review by the Healthcare committee has led to the following recommendations for the 2010 plan year.

1. We recommend the following companies to provide services for the plan in 2010:

· CIGNA – medical plan administration, stop loss insurance and provider network;

· MedTrak – pharmacy benefit manager;

· Delta Dental – dental plan administration and provider network.

2. Based on the increases to employee contributions to the plan in the April 22, 2009 (revised May 28) 2010 Healthcare Plan Funding memo for Option #1, the committee recommends a combination of plan design revisions and increased employee contributions that equal the financial recommendations of the memo. The committee only reco mmends these changes if the City fully funds the healthcare plan as budgeted for 2010.

a. Plan Design Changes:

· Implement a $100 emergency room copay;

· Increase medical out of pocket maximums by $100 per person/$200 per                           family (2010 portion of the 4 year out-of-pocket roll in);

· Increase dental preventative care to 100% pay from 80%;

· Increase prescription copays for brand drugs by $5 for 30 day fills and $10               for 90 day fills.

b. Employee contribution rates for those with covered dependents:

· Increase current amounts in all categories by 4% or $2-$4/pay period depending on coverage level

c. Wellness Programs Enhancement:

· Work with CIGNA consultant to maximize CIGNA’s free resources

· Develop strategy for future implementation of employee incentives tied to additional program components for 2011 implementation.

3. Policy statement changes:

· We have been introduced to the Member Burden calculation by Hays and wish to monitor and incorporate into our policy statements in 2011.

4. Historical and Projected Cost Data:

· Finally this memo includes a summary of some additional information Hays provided the Healthcare committee regarding the utilization of our plan during 2008. 

Detailed Discussion of Recommendations

1. Service Providers

Medical:

Hays received seven responses to the city’s medical RFP. They evaluated each response and provided the committee with an executive summary of their analysis. Based on the information from Hays, the committee narrowed the finalists to four and conducted interviews with each. Our main criteria were fixed costs (administrative cost including stop loss), service (i.e. accurate claims processing, ad ministrative reporting, customer service to our employees) and network (breadth of network, discounts to fees paid and disruption to employees). We focused on two of the four finalists as they had met the majority of our criteria.

The committee recommends CIGNA as the vendor for 2010.

• They had competitive fixed costs at $435 Per Employee Per Year (PEPY).
• Stop loss premiums, while not final, are competitive.
• Based on repricing of our 2008 claims, CIGNA’s network will deliver the greatest savings. Hays believes that the city could have realized savings of approximately $600,000. The projected savings for 2010 is highly dependent on the 2010 provider mix and type of services accessed.

• Of the top 100 providers that the city’s employees utilize only 3 were not in Cigna’s current network. The committee feels that provider disruption to employees is at an acceptable level.
• They offered the best performance guarantees of the finalists on the network discounts by putting a portion of their fees at risk.
• CIGNA has extensive reporting capabilities and would be able to comply with the city’s request for data in a timely manner.
• They are flexible in coordinating with other vendors (i.e. MedTrak).
• They have contracts with walk-in clinics in Walgreens and CVS.
• They have extensive care management programs for people with chronic disease and we believe they will be more proactive in engaging our members in their programs.
• They offer a 24 hour customer service line to help answer questions and find providers.

The committee’s second choice was Blue Cross and Blue Shield of Kansas (BCBSKS).

· Fixed costs are competitive but are variable depend on our claims dollars.

· They have a strong network but overall discounts are not as deep as other finalists.

· They did not offer performance guarantees in terms of network discounts but did however, offer guarantees on their service (responsiveness to customer inquiries and accurate claims processing).

· Limited in their reporting capabilities but continue to improve in this area in order to meet the city’s needs.

The other finalists interviewed were not as competitive in their fixed costs or network discounts. Additionally, their network of providers could cause significant disruption to our employees.  

Dental:

The committee interviewed two finalists for dental; Blue Cross and Blue Shield of Kansas and Delta Dental. Delta Dental offered the lowest fixed costs and largest network of providers as well as network savings. Their administrative fee per employee per month is less than half of that of BCBSKS. Delta Dental has over 93% of the providers in Kansas participating in their network. When Delta Dental repriced the city’s 2008 claims, the savings from both lower fixed costs and network discounts were approximately $49,000.

Pharmacy:

The committee unanimously agreed that MedTrak would be the best vendor for the 2010 plan year due to their competitive administrative fees and extensive customer service hours for employees. They offer higher rebates than their competitors and have strong generic discounts, which encourages our employees to utilize generics when available. Generic utilization has steadily increased over the past three years:

• 2007 54.8%
• 2008 60.9%
• 2009 YTD 63.3%

2. Plan Design/Employee Contributions for Dependent Coverage

The city has experienced an average increase in health plan costs from year to year of about 15%.  The increases can be attributed to growth of the plan (number of employees and covered members), limited plan design changes and to inflation in health care costs. Hays reported that the national average increase for health plans, as reported by the 2008 Mercer survey, is 6.3%, AFTER plan design changes were implemented.

Provided the City funds the Healthcare Plan according to Option #1 in the May 28 Funding memo, the committee suggests making a combination of plan design changes and increase to employee contributions to maintain an appropriate balance between city funding and employee funding of their total health care costs.  The committee only recommends these changes if the City fully funds the healthcare plan as budgeted for 2010.

a) Plan design changes

Hays Companies analyzed seven potential plan design changes.  The committee along with Hays has selected changes which have a total impact from plan design changes expected to result in a net savings of $44,000.  We are recommending that these savings be used to offset the original budgeted contribution increase of 7%, resulting in a 4% employee contribution increase.

Medical:

· Add a $100 emergency room copay in addition to deductible and coinsurance. This was developed in response to analysis that Hays performed on our claims data. The data shows that the city has a high utilization of the ER with low claims dollars. This indicates emergency room utilization for relatively minor medical conditions, like a cold or ear infection. Implementing this plan design change could alter the behavior of our population and save the plan approximately .8% or $50,000 in claims dollars. Hays based this savings on a 10% reduction in ER use while increasing costs to users.

· Increase out of pocket maximums by $100 for single and $200 for family making the maximums $900 and $1800 respectively. This change in plan design is part of a long term plan developed by the healthcare committee in 2007 to get the out of pocket maximums more in line with industry benchmark. While not unanimous, the consensus of the committee suggests staying on course with that plan. This is a change to shift cost between the plan and the member.  This change saves the plan approximately .5% or $33,000 (not included in the estimated $44,000 savings since it was included as a separate item in the April Funding Memo).

Prescription:

Combined, the changes to the brand name prescription drug copays could save the plan approximately .5% or $30,000.  The changes are:

· Increase brand coinsurance to $25 + 20%. (Currently it is $20 + 20%);

· Increase 90 day retail fill to $50 +20%. (Currently it is $40 + 20%).

Dental:

· Because dental health has been linked to overall health, the committee feels that the dental plan design should encourage our employees go to the dentist for their routine exams. Currently our plan pays for routine visits at 80%. We are recommending that the dental plan pay for routine visits (which would include cleanings and x-rays) at 100%, limited to twice per year. This change could result in approximately a 7% or $36,000 increase in dental claims costs; based on 2008 claims data.

b) Employee Contributions

· Continue to pay 100% of the employee only coverage

· Increase contributions for active employees electing dependent coverage by 4%.

     Employee + Children           +$2.00/pay period to $ 64.00

     Employee + Spouse           +$3.00/pay period to $ 72.00

     Employee + Family            +$4.00/pay period to $102.00

* The City Manager will recommend to the City Commission that these increases be waived for an employee that 1) completes a Health Risk Assessment and 2) signs an affidavit that they are a non tobacco user.

· Set retiree contributions as follows:

2009 Rates 2010 Rates

Retiree Only             $280.00/month        $ 359.00/month

     Retiree + Spouse      $679.00/month        $ 962.00/month

     Retiree + Children     $753.00/month        $ 875.00/month

     Retiree + Family       $865.00/month        $1,110.00/month

c) Wellness

Hays performed a Chronic Disease Overview of the city’s population. The data indicates that our members are average in terms of overall health status:

· 16% of the City's plan participants have been treated for a chronic disease; the norm is 18%

· 37% of the total claim cost comes from members with chronic diseases; the norm is 40%

· 18% of the claims paid in 2008 could have been impacted through preventative measures, early detection, and/or disease management; the norm is 15%

· 10% of the claims cost could be caused by unhealthy behavior of the member; the norm is 8%

By providing the right tools and resources, including effective incentive plans, we can encourage our employees to live healthier lifestyles. The committee recommends implementing CIGNA’s wellness programs during 2010 for incentives in 2011. CIGNA provides a dedicated staff to drive the health improvement efforts. The staff includes a Client Strategy Specialist who will work with the city to deliver the health improvement initiatives. The Health Promotion and Wellness Consultant will develop, design and evaluate the health improvement programs for the city.

These programs can include on-site screenings for blood pressure, weight, cholesterol and much more. Employees will also complete a health risk appraisal (HRA). Based on the results of the blood screenings and the HRA, employees may be assigned a health coach.

For a wellness program to be successful, it requires buy-in from management and a long term commitment. A return on investment would not be recognized right away. However, employers committed to the wellness of their organization and who implement successful programs should see that ROI in a 2 to 5 year time span.

A successful wellness program also requires a certain level of dedication on the employees’ part. In order to achieve that, the city should tie an incentive to participation in the program. Cash usually works best (premium savings, time off etc.).

We are proposing for 2010 to leverage the CIGNA free resources.  If screenings are included, additional charges could be incurred.

As recommended in the budget funding memo from the Healthcare Committee on May 28, 2009, budgeting $10,000 for a part-time, temporary employee to assist with the implementation and monitoring of a wellness program would help to make the program successful.

3. Policy Statement

The committee does not recommend making any changes to the “Healthcare Committee Ongoing Goals and Objectives” for 2010, but does recommend that a policy statement regarding Member Burden be incorporated in future years as we gain a better understanding of the metric.

Hays introduced the committee to the term Member Burden. This is explained as the employee’s cost share when factoring in both contributions and their share of medical expenses, such as deductibles and coinsurance.

Based on research data from Hays, currently the member burden for the Kansas region (which would include private industry) is around 45%. The average member burden for our market cities (Overland Park, Lenexa, Unified Government of Wyandotte Co., Shawnee, Olathe and Topeka) is approximately 35% (mode is 24% and median is 32.3%). In 2008 the city experienced a member burden of approximately 24%.

We feel that having a member burden goal is prudent as it gives us another number to work from so we can keep our plan market competitive and appropriately distribute medical costs between employees and the city.

It is our opinion, based on current healthcare committee plan objectives and past practice, that both the city and its employees place high value on the healthcare benefit. Therefore we believe the member burden should be middle of the group. This will be a number that we monitor from year to year as we hope to make incremental changes in the plan design and contributions which will offer some stability for our employees as well.  

4. Historical and Projected Cost Data

In 2007, the projected medical, dental, RX and fixed cost of the plan for 2008 was $6,662,231 (using BCBS’s expected claims).  Actual 2008 data was $7,374,484.

In 2008, our projected 2009 costs were $7,695,764, again using BCBS expected claims.  Using our paid to date data for 2009 and projecting this forward, we anticipate that this will be closer to $8,000,000.

Based on the BCBS renewal, our projected 2010 costs would be $8,417,875; Hays’ projection with BCBS as our vendor results in a cost of $9,558,366.  With the change to CIGNA and Delta Dental, the projection is $8,973,921 before plan changes and with conservative network savings assumptions.