The Port of Portland’s Approach to Managing the ACA Cadillac Excise Tax James Trujillo November 5, 2015

Agenda Purpose of initiative Total compensation Options considered Final options and selection Results to date Key learning

Purpose of Initiative Create a sustainable benefit cost model – Goal to keep costs under 3% growth rate (aspirational) Reduce the long term risk of the ACA excise tax on Cadillac plans – Not eliminate but reduce Maintain a benefits program that is attractive and understood by the employee population Maintain a wellness program that encourages healthy behaviors in the culture

Total Compensation Philosophy Base Salary Incentive Pay Recognition Pay Employee Cash Direct $$$ Benefits Learning/Career Growth Culture; mission, quality of life, flexibility Employee Investment Cost Indirect $$$ The Port’s intent is to provide a market-competitive work environment, which attracts, retains, and motivates the skilled employees needed for business success. Goal is to balance components for an overall market competitive compensation package. Port’s philosophy consists of six components.

Talent Pools – Attracting and Retaining We strive to attract talented individuals from both the public and private sector Workforce Demographics:  More diverse  Change in workforce composition (between ) 40 million millennials to enter workforce 25 million baby boomers to exit 109 million to remain (majority boomers, minority Gen X’ers)

Balancing Total Compensation Benefits Retirement Incentive Pay Recognition Market Base Salary

Medical Benefit Options Considered 5 options considered Ruled out 3 – Not financially sustainable – Too new and risky – Loss of control and little benefit Final 2 – HMO only (Kaiser w/Added Choice) – PPO High Deductible Plan/HAS with Kaiser HMO as option

Summary of Final Options Cigna Choice Fund The first is a 90/70 plan with: – $1,300/$2,600 in network deductible – $2,600/$5,200 out of network deductible – $2,600/$5,200 in network out of pocket – $5,200/$10,400 out of network out of pocket – Rx is 30%/40%/50% - coinsurance – Preventive generics at 0%. The second is the same as above but for an 80/60 plan Kaiser Medical Plans The first option: – Tier 2 Benefits closely matching the current PPO plan and includes an Outpatient Prescription Drug plan and Alternative Care package. The second option: – Tier 1 benefits that are close to, but more generous than, the current PPO plan and includes an Outpatient Prescription Drug plan and Alternative Care package.

Kaiser Options Kaiser Traditional and POS 72 – Point of Service plan – Richer plan – Higher premiums – Lower out of pocket expenses – 5 year total: 17% less than status quo; 3.3% CAGR Kaiser Traditional and POS DD – Point of Service plan – Less rich plan – Lower premiums – Higher out of pocket expenses – 5 year total: 21% less than status quo; 2.2% CAGR

Cigna HDHSA/Kaiser Options Cigna HSA1 and Kaiser Traditional – 90% of claims covered in network – 70% out – Both after deductible – 5 year total: 24% less than status quo; 1.5% CAGR Cigna HSA2 and Kaiser Traditional – 80% of claims covered in network – 60% out – Both after deductible – 5 year total: 25% less than status quo; 1.1% CAGR

Director Decision Criteria Top Five – Services available – Network size and flexibility – Overall cost to employees and Port – Feasibility for bargaining – Employee impact; significance of change Other Considerations – Quality and value of services – Ability to facilitate wellness and improved consumption – Ability to care for those with expensive chronic conditions – Ability to delay excise tax impacts

Selected Option Cigna HSA1 and Kaiser Traditional – 90% of claims covered in network – 70% out – Both after deductible – 5 year total: 24% less than status quo; 1.5% CAGR

Key HSA Design Parameters Health Savings Account is a tax advantaged roll over account that belongs to the employee HSA employer contribution cannot exceed 50% of the high deductible Design – Employer contribution started at a higher level and will stair step down over three years – Contribution is “front loaded” each year; year one of the transition the pay grade tier influenced the amount that was front loaded – Wellness participation incentives are incorporated over three years – Catastrophic illness and accident plans are offered to staff to augment insurance offerings

Results to Date Administrative population moved to new plan design 2015 Total benefit costs dropped 13% or by $1.8M Unions are moving: Police and PCR unions moving to new design by 2016 Total benefit costs increase is under 3% for 2016 ACA Excise Tax liability is projected to be around $150K annually compared to the initial projection of $1M annually under previous plan designs No impact to Port recruitment Benefits still significant part of the employee value proposition

Key Learning Communicating the financial story in understandable language is key – be transparent Provide options for employees to improve their own health – to take responsibility for themselves Let carriers put their best foot forward to compete for business HSAs and HRAs take several attempts to explain to staff Give people opportunities to learn about other healthcare models e.g. HMOs Communicate changes through various modes multiple times