Memorandum
City of Lawrence
Administrative Services Department, Personnel Division
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TO: |
Mike Wildgen
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FROM: |
Frank Reeb Lori Carnahan Health Care Committee
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CC: |
Debbie Van Saun Dave Corliss
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Date: |
September 9, 2004
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RE: |
2005 Health Care Renewal Report
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We recently received our 2005 Health Care Plan renewal data from Blue Cross Blue Shield of Kansas (BCBSKS). As more fully discussed below, our renewal is a projected 0.11% reduction from 2004 renewal projections. This is the second year in a row that the August renewal projections are significantly below the early year estimates used for budgeting purposes. The remainder of this memo addresses the renewal information in more detail, including: 1) a recommendation to carve out our prescription drug benefit and contract with a new Pharmacy Benefits Manager (PBM); 2) a recommendation to enhance our health plan’s mental health benefits; and 3) a recommendation for a $1.50 per pay period increase to the employee contribution to the family plan. Lastly, the remainder of the memo provides a preliminary look at the Health Care Committee’s activities for the remainder of 2004 and 2005 (including a review of the City’s retained earnings).
Renewal Information
The overall renewal is a very favorable 0.11% decrease under projected 2004 plan costs. Our renewal, which we receive in August of every year, is the first projection based on an actuarial and underwriting review of our claims (reviewing claims for the past 30 months). The estimated 11% increase we received earlier this year, and which we used to budget for 2005, was based only on national industry trend.
While there will likely be several contributing factors to explain the favorable renewal projections, we continue to believe a big reason is due to increased awareness from our employees using the program along with their increased ability and willingness to make wise lifestyle and health care decisions. In other words, the CHAMP activities and educational efforts are effective and worth the cost and effort. An additional factor affecting the administrative costs is that BCBSKS significantly reduced its general operating expenses and reinsurance charges to our plan for 2005. When we received the renewal information we also received detailed claims utilization data for the past 18 months. After we review it we can better determine the events and behaviors that contributed to this very favorable renewal.
The overall 0.11% decrease projected for 2005 is a combination of our expected claims costs and our expected administrative (i.e., “fixed”) costs. As shown in Attachment A “ASO Current v. Renewal Comparison”, the total claims costs are projected to increase 1.54% which is based on a 1.29% increase in projected medical claims, a 3.92% increase in projected dental claims and a 1.69% increase in projected prescription drug claims.
Claims administration costs are charged as a percent of claims, which means a 1.54% increase in claims administration for 2005. This is accompanied by a 31.21% decrease in general operating expenses and a 9.40% decrease in the aggregate and individual stop loss coverage (i.e. reinsurance).
The Health Care Committee Recommendations
The HCC is recommending two changes to the health care program for 2005. The first is to change our Pharmacy Benefits Manager (PBM) from Prime Therapeutics (a part of the BCBSKS plan) to Medtrak Pharmacy Services of Overland Park, KS. This change will provide administrative cost savings of approximately $30,000 as well as a better opportunity for claims cost savings through deeper discounts and MedTrak’s strategies to better educate plan participants on using lower cost brand name drugs or generic equivalents. In addition, the change will provide for deductible and coinsurance application at the point of sale rather than our current two step claims filing process. A more detailed discussion of the recommendation is contained in Attachment C.
The second recommendation is to enhance the mental health benefits portion of our health care plan. Current mental health benefits provide only minimum coverage and the HCC believes mental health benefits should more closely parallel the other benefits in the health care plan. The HCC has been considering this change for the last couple of years and because of the favorable renewal for 2005, and the healthy retained earnings level, the HCC believes the time is right to make this plan enhancement. A more detailed discussion of this recommendation is also contained in Attachment C.
Because of the mental health benefit enhancement, recognizing that the City’s contributions are increasing for 2005, and remaining consistent with HCC goals, the HCC is also recommending that employee contributions be increased from $80.00 per pay period to $81.50 per pay period to cover dependents under the health care program. This is slightly less than a 2% increase which was designed to approximately parallel the 2005 general wage adjustment which the Commission approved earlier this year.
The following chart compares our current plan, budgeted plan, and our expected 2005 plan with recommended plan changes.
City of Lawrence Employee Health Care Plan
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2004 YTD Annualized |
Budget 2005 |
Renewal 2005 |
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City Funding |
$4,874,207 |
$5,387,408 |
$5,425,068 |
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Employee Funding |
$882,250 |
$950,040 |
$860,314 |
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Other Funding (Retiree, COBRA, Interest Earned) |
$314,180 |
$341,068 |
$271,314 |
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TOTAL FUNDING |
$6,070,637 |
$6,678,516 |
$6,556,696 |
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TOTAL EXPENSES |
$4,911,049 |
$6,678,516 |
$5,232,287 |
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RETAINED EARNINGS |
$3,152,123 |
$2,532,475 |
$4,476,531 |
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Monthly Premium Equivalent Individual/Family |
$257/$776 |
$287/$865 |
$257/$776 |
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Monthly Contribution Employees Ind/Family |
$0/$173 |
$0/$195 |
$0/$177 |
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Monthly Contribution Retiree Ind/Family w/Dental |
$206/$621 |
$229/$692 |
$206/$621 |
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Annual Deductible Individual/Family |
$300/$600 |
$300/$600 |
$300/$600 |
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Annual Co-Insurance Individual/Family |
$300/$600 |
$300/$600 |
$300/$600 |
Retained Earnings Review
As noted from the table above, because of our low claims experience in 2003, and assuming we end this year and next year as expected, the City’s retained earnings level will be very healthy at the end of this year and will grow even higher at the end of 2005. If those assumptions hold true, it will afford us the opportunity to study and establish a maximum funding matrix for retained earnings with the express purpose of smoothing out the peaks and valleys that create budget difficulties for the City and employees alike. Our current funding practice has yielded wide fluctuations in total funding (city, employees, retirees and COBRA) ranging from a decrease of -0.18 in 2000 to an increase of 29.48% in 2002. (1997 5.82%, 1998 26.74%, 1999 10.86%, 2000 -0.18%, 2001 23.42%, 2002 3.4%, 2003 29.48% and projected 2004 -.084%). One of the 2005 HCC activities will be to study the long term needs of the health care plan to establish a recommended maximum level for retained earning to accompany the minimum funding level which we currently use.
Future Activities of the Health Care Committee
While the Health Care Committee continues to celebrate the health management displayed by our plan participants over the past two years, it has already begun to set its agenda for the remainder of 2004 and 2005. The committee will review the Utilization Analysis and set its 2005 calendar in October. In addition to the retained earnings review described above, preliminary 2005 activities include issuing an RFP for the Health Care plan for the 2006 plan year. Attachment H contains a more detailed agenda of HCC activities for 2004 and 2005.
If you have any questions or need additional information, please contact Frank Reeb (x-3201) or Lori Carnahan (x-3202).
Attachments:
A: BCBSKS ASO Current v. Renewal Comparison for 2005
B: BCBSKS ASO Summary of Charges for 2005
C. Health Care Plan Design Changes
D: Charts 1 & 2, Renewal Data-Monthly Per Contract
E: Charts 3 & 4, Annual Plan Expenses
F: Charts 5 & 6, Annual Plan Contributions
G: Chart 7, Monthly Plan Contributions-Per Contract
H: 2004/05 Committee Agenda & Roster
I: Health Care Spreadsheet- YTD August 2005
Attachment A
BCBSKS ASO Current v. Renewal Comparison for 2005
Attachment B
BCBSKS ASO Summary of Charges for 2005
Attachment C
Healthcare Committee Recommended Plan Design Changes
Prescription Drug Program
The HCC recommends that the City carve out its prescription drug program and replace Prime Therapeutics (a part of the BCBSKS plan) with a separate Pharmacy Benefits Manager (PBM). We are recommending that the City contract with Medtrak Pharmacy Services of Overland Park, KS beginning in January 2005.
The HCC issued an RFP for a PBM this summer. We received 13 responses including one from our current plan administrator, BCBSKS. After analyzing the responses we narrowed the field to four finalists and a four person subcommittee of the HCC held interviews with all four. Following that process, the subcommittee unanimously recommended Medtrak as the final candidate.
Changing our PBM to Medtrak will yield the following benefits to the prescription drug program:
· Automated claims filing at the counter for our plan participant. Deductibles and co-insurance will be calculated at the point of sale and the employee will only pay their portion of the prescription at the time of fill.
· Reduced administrative costs to the program. The HCC estimates $30,000 in administrative cost savings in 2005.
· Potential for prescription drug claims savings because of deeper discounts and MedTrak’s strategies to better educate plan participants on using lower cost brand name drugs or generic equivalents.
· Enhanced on-line prescription and medical information for employees to make more informed prescription drug choices when choices are available.
Carving out the prescription drug benefits will mean that prescription drugs will no longer be covered under the reinsurance coverage (stop loss) purchased by the city to safeguard against unpredictable catastrophic and to cap the City’s costs. However, because prescription drug costs are relatively predictable from year to year, the HCC believes that the many benefits of this carve out recommendation exceed the risk we will be incurring by removing prescription drug claims costs from the reinsurance coverage.
In addition, because this change will mean prescription drug claims will be filed automatically at the time of purchase, 100% of the prescription drugs purchased by plan participants will be run through the plan. Currently, plan participants have to file claims after purchase for reimbursement. There have always been some participants who have not filed for reimbursement, therefore never incurring costs under the plan (known as the “shoe-box effect”). The exact amount of those claims is unknown and estimates varied greatly among our current provider and other PBMs. Because the average cost of a prescription is high ($64 in 2003) and because our employees are relatively knowledgeable about our plans benefits and generally follow the process necessary to utilize the plan, we believe the increased claims costs from eliminating the “shoe box effect” will be minimal.
Mental Health Benefit
The HCC has been reviewing ways to enhance the mental health portion of our health care plan for several years. Our current benefit is a minimum coverage benefit and the HCC has desired to make it a parity benefit with other portions of our health care plan.
The health care plan recommends changing the mental health benefit to:
Inpatient Nervous & Mental Services:
- Biologically based conditions are covered up to 45 days per person each benefit period (with no lifetime maximum) subject to payment provisions of the basic health plan.
- Non-Biologically based conditions (except those not attributable to a mental disorder), including alcoholism and drug abuse services are covered up to 30 days each benefit period (with no lifetime maximum) subject to payment provisions of the basic health plan.
Outpatient Nervous & Mental Services
- Biologically based conditions are covered up to 45 visits per person each benefit period (with no lifetime maximum) subject to payment provisions of the basic health plan.
- Non-Biologically based conditions (except those not attributable to a mental disorder), including alcoholism and drug abuse services are covered at 100% of allowable charges for the first two visits (with no lifetime maximum) and then subject to the payment provisions of the basic health plan.
Biologically Based conditions include the following as defined in the Diagnostic and Statistical Manual of the American Psychiatric Association:
- Schizophrenia, schizoaffective disorder, schizophreniform disorder, brief reactive psychosis, paranoid or delusional disorder, atypical psychosis;
- Major affective disorders (bipolar and major depression), cyclothymic and dystymic disorders;
- Obsessive compulsive disorder;
- Panic disorder;
- Pervasive developmental disorder, including autism, attention deficit disorder and attention deficit hyperactive disorder.
This changes the inpatient benefit to 45 days from the current 15 for Biological based conditions and to 30 from 15 days for Non-Biological based conditions. It changes the outpatient benefit from 16 to 45 visits for biologically based conditions, keeping the Non-Biologically based conditions the same. It also changes the coinsurance to 20% rather than 50% for outpatient treatment. The change also removes lifetime maximums for these benefits.
The estimated additional projected claims cost to the Health Care plan for making these changes is 0.5% or approximately $26,000 annually.
Attachment D
Renewal Data-Monthly Per Contract
Attachment E
Annual Plan Expenses
Attachment F
Annual Plan Contributions
Attachment G
Monthly Plan Contributions Per Contract
Attachment H
Health Care Committee
Meeting Schedule and Agenda 2004-2005
Beginning with January 2005, all meetings begin at 10:00 AM on most second and forth of the month and will be held in the West City Manager’s Conference Room
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Date |
Agenda |
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September 16, 2004 |
NO MEETING |
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October 7, 2004 1pm |
Utilization Review Report |
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October 21, 2004 1pm |
NO MEETING |
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November 4, 2004 |
Review of 2004, Goal Setting for 2005 |
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November 18, 2004 |
NO MEETING |
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December 2, 2004 |
NO MEETING |
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December 16, 2004 |
NO MEETING |
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January 13, 2005 |
Retained Earnings Maximum Funding Parameter-discussion |
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January 27, 2005 |
Retained Earnings Maximum Funding Parameter-discussion |
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February 10, 2005 |
Select consultant to conduct Health Care Plan RFP |
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February 24, 2005 |
Review RFP criteria w/consultant |
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March 10, 2005 |
2006 Budget Recommendations |
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March 24, 2005 |
2006 Budget Recommendations |
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April 14, 2005 |
Review Final RFP w/consultant |
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April 28, 2005 |
Review final 2006 budget document |
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May 2, 2005 |
RFP distributed by consultant -NO MEETING |
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May 12, 2005 |
NO MEETING |
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May 26, 2005 |
NO MEETING |
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June 1, 2005 |
RFP Health Care Plan Due to Administrative Svs -NO MEETING |
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June 9, 2005 |
NO MEETING |
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June 23, 2005 |
RFP recommendations-presented to HCC |
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July 14, 2005 |
RFP recommendations-discussion |
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July 25, 2005 |
BCBSKS 2006 Renewal Due to Administrative Svs -NO MEETING |
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July 28, 2005 |
2006 Renewal Data-presented to HCC, finish RFP discussion |
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August 11, 2005 |
2006 Final Plan Design-complete discussion |
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August 25, 2005 |
Review 2006 Final Plan Design recommendation document |
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September 6, 2005 |
Recommendations to CM for placement on Sept 13 CC Agenda |
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September 8, 2005 |
TBD |
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September 22, 2005 |
NO MEETING |
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October 13, 2005 |
Utilization Review Report |
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October 27, 2005 |
TBD |
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November 10, 2005 |
Review of 2005, Goal Setting for 2006 |
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November 24, 2005 |
NO MEETING |
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December 8, 2005 |
NO MEETING |
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December 22, 2005 |
NO MEETING |
