Keeping Health Care Costs Down – Our Approach Presented by: Valerie F. Hernandez City of Chandler

2 Looking Back – Fully Insured.. What we did: Installed a retrospective pricing arrangement! Refund surplus if rates were set to high. Deficits rolled over from year to year. Carrier pays rolling forward surplus 4-6 months following year end. No payout by City if program terminates with deficit. What we found: Aetna increased rates to account for program risk. Utilized surplus of 2008 to hold rates for No impact on rising health care costs, only insurance company management of funds. Took 2009 surplus payment since insured program would end Expected 2010 plan year will end in a deficient for carrier due to cash out of 2009 plan year. City budget could not sustain continued cost increases or 90% contribution to these costs.

3 Self-funding: The journey begins…. Step 1: Executive and Management team contract for an Actuarial Review and Cost forecast of Fully Insured vs. Self Funding. Results showed:  4-6% Expected savings from three areas: Administrative Fees: 1-2% Risk Premium Tax paid to State of AZ: 2% Lower Trend (Actual vs. Carrier projected): 1-3%  lst year only: Deferred costs of 15-20%

4 Savings projections…

5 Critical to steps to move forward with decision to Self-fund Educate details of ROI (savings) and program requirements to Health Care Task Force Review recommendation to Director Level & above to uncover opportunities/barriers: HR Finance Operations It Present recommendation to Mayor and Council Education on self funding Details of requirements/actions if approved Estimate Return on Investment for change

6 The journey for success continues: Our approach Hire professional consultant to assist in implementation Establishment of a Trust Fund Account and Board Fund managed by finance with oversight by outside board Trust Fund Board reports to Mayor and Council on financial viability only (plan change remain with HR Health Care Task Force to Mayor and Council) RFP for appropriate vendors Stay conservative for lst 3 years and bundle with insurance carriers to maximize networks within Arizona and outside to accommodate both actives and retirees. Focus groups with HR, finance, operations, IT, Health Care Task Force to establish administration and program cost needs to include in RFP Obtain and re-price network claims using 12 months of current claims Establish goals for benefit plan design Measure twice – cut once  Actuarial forecast for next 3-5 years  Review cost forecast against budget constraints  Begin discussions for cost & contribution change from 90/10 to 80/20  Revise! Revise! Revise! to meet current and future financial and employee needs.

7 Journey for success continued… Additional actions taken:  Pre-fund reserves for: 1. Claims incurred in plan year and paid after plan year end (IBNR) 2. Changes in catastrophic claim experience and stop loss coverage. 3. Unanticipated change in plan, risk, governmental requirements, industry change, catastrophic environmental events.  Spread contribution change over 3 years using level “3” pre-fund reserve's to soften impacts to employee contribution change from 10% to 20%.  Review expected cost changes over next 3-years  Establish commitment with task force to keep benefit plan the same in transition year.  Monitor monthly claims costs of the fully insured program against future year self funded forecast.

8 Where are we going… 2011 increase of 7% self-funding vs. fully insured estimate renewal of 14% Benefits remain the same Kick off Wellness initiatives (early phase of plan) Biometric Screenings Health Risk Appraisals Health Care Task force: reviews projection updates reviews opportunities to enhance plan value while reducing cost trends Quarterly Trust Board Meetings Addition of Wellness activities in 2011 to: Approval of 5-year plan roll-out designed to: reduce claim costs reduce employee absenteeism increase employee satisfaction with plan promote healthy living styles encourage behavior change educate employees on how they can keep their benefit costs down

9 9 We are in Phase 1 & 2 of the Strategic Approach Phase I: Discover 2010 Phase I: Discover 2010 Phase II: Assess 2011 Phase II: Assess 2011 Understand the current environment Work with senior leaders to obtain buy-in and advocacy Identify program objectives Establish health and wellness strategic direction Inventory current health and wellness programs Conduct employee research (survey) Conduct population risk analysis Identify workplace issues (cafeteria, facilities, etc.) Assemble a “wellness team” Identify, define and prioritize potential programs Develop short- and long- term strategy; establish project plan Test with leaders and employees; find readiness barriers and gaps Refine strategy and create detailed implementation and communication plan Phase III: Architect 2011 & 2012 Phase IV: Implement 2012 Phase IV: Implement 2012 Phase V: Evaluate 2013 Phase V: Evaluate 2013 Execute implementation plan Select vendor partners; roll out Finalize and execute communication plan Measure program effectiveness Program participation Employee satisfaction surveys Population risk levels Health cost trend Absence/sick days Productivity Refine programs = activity underway or completed

10 Buck Global survey indicates 43% of US respondents report a reduction of 2-5% trend percentage points per year. Most successful approaches engage… Target by behavior-based segmentation: SURVIVAL STEADY STRIVING SUCCESS SIGNIFICANCE I am just making it through the day I need to make some changes, but not now I know I can do better, but need a plan to get there I am healthy and financially secure I am engaged in greater success ASSUMPTIONS: Enlightened self interest is the biggest motivator Financial incentives will drive participation

11 The Opportunity of Wellness – A Case Study 2:1 return on investment in wellness 2%-4% average reduction in health care costs employee company case study results: 50% participation $729 per employee per year wellness program cost $9,036 per employee per year 2009 health care claims 10 year projected savings from wellness: $31 million EMPLOYEE ENGAGEMENT REQUIRED

12 Consumerism reduces trends 3-6% over 3-7 year period… Introduction of consumerism product design for 2012 to reduce costs and encourage Health Savings Account Plan design Establish illustrative rates on benefit differentials Adjust illustrative rate structure to reflect the Cities desired results rather then Aetna’s product results. Design program to be cost neutral to the City while providing incentives for employees to enroll.

13 Keys to Success… Educate all stakeholders Allow time to plan and prepare Measure twice…cut once! Communicate! Communicate! Communicate!  Established branding  Alerts to employees on what’s coming  Incentives Awards for participation  Splash & Kickoff  Keep momentum going