Positive Developments Sales tax allocations for three of the last four months are up Amount budgeted for sales tax can be achieved with flat receipts for the remainder of the fiscal year Positive end-of-year fund balance projected
Caution Required Recent sales tax increases have been less than the prior year decreases for the same period A persistent structural problem remains
Global Health Care Cost of health care Frequently in the news Driven recent changes in legislation Organizations are aggressively pursuing solutions Market Perspective National League of Cities - Health care is the top financial pressure facing cities nationwide USA Today – The rising cost of medical inflation isnt just a temporary blip but the beginning of a new era that will force employers and employees to make some tough choices.
Drivers of Health Care Cost Traditional low or no premium HMOS Result - reduced consumer incentives to consider alternative lower-priced doctors and/or services Market Consolidation Malpractice Law Suits Skilled Health Care Worker Shortage Wellness is losing ground to medication as the solution Source: Health Futures Inc.
Prescription Drugs Kaiser Family Foundation - Three factors drive the increases in prescription drug spending Increased number of prescriptions 74% increase over last 10 years Changes in types of drugs used New drugs replacing old and R&D spending increased from $10 to $32 Billion in last 10 years Manufacturer price increases for existing drugs 7.3% average annual increase over past 10 years
City FY 2004 Operating Budget Total Budget$ 312,893,138 Salaries & Benefits$ 157,237,506 Benefits$ 39,695,533 Health Benefits$ 16,144,480 Retiree Health Benefits$ 2,758,823
Health Benefit % Payroll 200211.7% 200312.5% 200413.7% In 2003, double digit average increases in trend continued. At the current rate of increase, it is projected that the cost of health care coverage will average 25% of wages or more in less than five years for many plan sponsors. The Segal Group, Segal Health Plan Cost Trend Survey For the city this would be $29.3M if this projection is applied to present payroll.
COA Health Care Increases YearEE PremiumCity PremiumTotal% Increase 2000$1,860,497$8,422,269$10,282,76624% 2001$2,378,394$10,503,963$12,877,35725% 2002$2,621,683$11,511,182$14,132,86510% 2003$2,943,630$14,253,235$17,196,86522% 2004 $4,842,637 $17,169,350 $22,011,98728% 2005Regional Trend = 18% Premium rates are set prior to the plan year. Total actual contributions may vary based on actual enrollment. These numbers have been changed since the presentation to employees and retirees. The original numbers were projections. These modified numbers are actuals.
2003 Strategies Adjustments Self Funded New Claims Administrator United HealthCare Open Access Model No primary care physician No referral required to a specialist Fewer restrictions on prescription formulary Expanded Network
2003 Results $1 million annual cost avoided Health Fund Activity $3.06 million deficit City contributed $1.58 million over & above premium amount $1.48 million was pushed into FY 2004 Dollars Flowing Out Dollars Flowing In UtilizationRevenues Access to CareMigration ClaimsRIF Effect
2004 Strategies Plan Design Changes Increased Physician, prescription, and ambulance co-pays Added Co-insurance on hospital, out-patient, emergency room and other related services Introduced Maximum out-of-pocket expense on the HMO plans Subsidized The PPO plan at the same level as the HMO plan Eliminated One HMO and one PPO plan
2004 Results Cost Sharing Changes: City Contribution :83% to 78% Employee / Retiree:17% to 22% 6 Largest Metroplex City Comparison Average 2003 City Contribution: 62% $198M = total health care costs $123M = total employer share
2004 Results 2004 rates appear to be adequate to Fund Claims and expenses Required reserve amount, and The remaining $1.48 million 2003 deficit Adjustments in 2003 and 2004 Strengthened the health fund Increased access to quality health care Assisted in managing long term liability Maintained a competitive plan design in an evolving market
Comparative Market Value Hay comparison data Among Public & Private Employers, Arlingtons plan is above the 75th percentile in value. Value Components Employee monthly premium Co-pays Deductibles Out-of-pocket maximums Employer contributions
Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year worth of premiums – EE Only
Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year worth of premiums – EE + 1
Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year worth of premiums – EE + F
COA Retiree Demographics Retiree Breakdown (3/1/04) 467 current retirees & surviving spouses 437 currently eligible for retirement as of 3/1/04 285 additional employees eligible for retirement in the next 5 years 1,189 potential retirees in the next 5 years
Retiree Health Benefits Minimum of 10 years of service with City for employer paid health benefit subsidy 10-14 – 60%25-29 – 90% 15-19 – 70%30+ - 100% 20-24 – 80% Dependent subsidy currently = 70%
Comparative Market Value Scenario – Hospital Stay = $10,000 +1 year worth of premiums – Retiree + 1
Metroplex Cities Subsidies CityRetiree Subsidy Dependent Subsidy City Cost 25 + 1 Retiree Cost 25 + 1 Ft Worth33 – 100%30-50%$622.20$ 0.00 Dallas60%30%Unknown$162.00 Mesquite4% per yr of svc 2.6% per yr of svc $568.78$163.36 Arlington60-100%70%$643.43$165.69 Gr Prairie * Mid yr adj. 10-90% $688.80$172.20 Plano$11 per yr of svc None$275.00$232.06 Richardson$350.00None$350.00$321.00 Irving$168.75None$168.75$336.32 Garland$242 per moNone$242.00$418.00 CarrolltonNone $ 0.00$703.88 Value Rank 2 7 1 3 6 Insf. Data 5 4 8 9
Projected Retiree Benefit Cost Calendar Year Current Retirees Future Retirees Total 2004$ 2,900,000$ 100,000$ 3,000,000 2005$ 3,400,000$ 300,000$ 3,700,000 2006$ 3,800,000$ 600,000$ 4,400,000 2007$ 4,300,000$ 900,000$ 5,200,000 Current Pay-as-you-go funding:
Governmental Accounting Standards Board (GASB) Accounting Standards effective 2007 No more pay-as-you-go funding Required to account for long term liability on an annual basis Cities long term liability includes: Current employees future retirement benefit Current retirees remaining retirement benefit Standard requires cities to account for / fund the long term liability now
Governmental Accounting Standards Board (GASB) Actuarially projected additional impact on the retirement portion of the health fund as a result of GASB beginning in 2007, based on current benefit design and subsidization = $20M / yr (Total accrued liability = $196M)
2005 and Beyond Partnership with qualified technical expert – The Hay Group Study design and cost sharing approaches Propose strategy in May/June Communication HR Update Employee / Retiree Meetings
Consumer Awareness Employers cant continue to absorb double-digit health care premium increases year after year and remain competitive in the global marketplace… Public payers into the healthcare system must hold up their end of the bargain, and health plan enrollees need to become more active consumers with a better understanding of the true costs of care… Otherwise more working Americans wont be able to afford their health plans and will join the ranks of the uninsured. Kate Sullivan, U.S. Chamber of Commerce Director of health policy. June 2002
Considerations Medicare Changes GASB requirements Retirement Health Savings Plan Technology Shared Services Project New Technology = Increased ability to pursue creative solutions