1. 1 Fiscal Affairs Committee Briefing Health Benefits RFP Results March 1, 2011

2. 2 Health Benefits starting line – May 2011  Health, dental, and other benefits contracts expire April 30, 2011.  City’s FY12 budget cannot bear any increase in health benefits costs.  The City’s plan covers 66,400 employees, retirees, and dependents.  Active employees = 71%; Retirees = 29%.  45% of retirees are under age 65.

3. 3 Health Benefits - Financials  If the health benefits budget stood alone as a separate department, it would be the 5 th largest behind Public Works, Police, Aviation and Fire.  Projected FY11 healthcare contract cost is $289.8 million, reduced by 5.7% from $307.4 million budgeted in FY11.

4. 4 Health Benefits Health Plan Expenditures (in millions) $296

5. 5 Health Benefits - Procurement Process  RFP released in August 2010 for various benefits plans. Responses were received in October 2010.  27 proposals received for various benefits plans; 5 were viable full-replacement health care proposals.  Proposals reviewed by Gallagher Benefits Consultants, The Segal Company, COH Benefits staff, and members of the Health Benefits Advisory Committee.

6. 6 Health Benefits – Procurement Process (cont’d) Criteria for evaluation of proposals:  Ability to handle the City’s population of 66,000+ participants  Financial competitiveness and ability to keep cost low or flat  Risk protection for the 3 new self-insured health plans  Robust health improvement guarantees include quality.  Broad geographic access to care

7. 7 Health Benefits - procurement Process (cont’d) RFP Results Health plan: replace HMO/PPO model with 3 new self-insured plans: 1. CIGNA KelseyCare 2. CIGNA Open Access 3. Consumer Driven Health Plan Contract with CIGNA for administrative services for 3-year term with two 1-year options. 1 st year cost = -1.4% reduction from RFP baseline. Dental plan: (employee paid)—retain DHMO/Indemnity model; contract with United Healthcare as follows: 3-year contract with two 1-year options; slight increase to participants’ premiums in year 1, flat rates in year 2 and year 3 Supplemental insurance: (employee paid)—retain current cancer, hospital plans; enhance accident/disability benefit; contract with AFLAC; essentially flat rates since 1999. Flexible Spending Account Administration: contract with Flex One to administer claims; no cost to the City.

8. 8 Health Benefits HMO/PPO Costs (in millions)

9. 9 Health Benefits – Proposed Plan Design

10. 10 Health Benefits - Consumer Driven Health Plan Concept  Features $1500/$3000 deductible and 80/20% in-network coinsurance.  Lowest per-paycheck cost of the three new plans  Highest out-of-pocket cost at time of service  Offered in conjunction with a health reimbursement account that reimburses first-dollar expenditure that applies to the deductible.  City will allocate $500/$1000 to the account each year.  Unreimbursed balance rolls over to the next year to offset the second year deductible.  Preventive services (well woman / well man, etc.) cost members $0.

11. 11 Health Benefits - Networks  CIGNA KelseyCare plan features the Kelsey-Seybold clinics as the sole network. 45% of population is currently enrolled in Kelsey-Seybold.  CIGNA Open Access plan; nationwide network; higher monthly cost; 78% overlap of current PPO network. Services covered only if provided by network providers.  CDHP is the CIGNA Open Access Network; the only option for out-of-network coverage; higher time-of-service payments.  Texas Children’s Pediatric Associates will be accessible only through CIGNA Open Access and CDHP plans. 7% of population enrolled in the current HMO.

12. 12 Health Benefits - Result City faced at renewal: $19 million increase in total HMO/PPO cost. $14 million increase in City cost. These steps reduced to: $4 million increase total. $3 million increase to City. Net cost avoidance: $15 million total $11 million to City

13. 13 Health Benefits - Plan cost mitigating strategies in FY 11  Single Non-Profit Trust (SNPT) -- 2010  Plan design adjustments -- 2010  Employee / Retiree contribution increases -- 2010  Allocation of costs to actives, retirees 65  Increased enrollment in Medicare plans: 6 options under $100 / month  Opt-out Opt-in feature for retirees -- 2010  Dependent audit

14. 14 Summary: Proposed May 2011 contribution structure  Contribution structure is prioritized: a)Employees b)Retirees c)Dependents  FY12 aggregate contribution ratio is under development.  Maintains 79% / 21% contribution ratio for active employees in compliance with labor agreements.  Retiree opt-outs = 616  savings to City = $4,913,600  total savings = $9,527,701  Medicare plans current enrollment: 3,325

15. 15 Health Benefits - Active Employee Monthly Contributions (Introducing 4-tier contribution structure for active employees)

16. 16 Medicare Plan contributions for retirees >65

17. 17 Health Plan Results and recommendations 1. Change from fully insured to self insured funding. 2. Replace HMO and PPO plans with three self-insured options: a)CIGNA KelseyCare b)CIGNA Open Access c)Consumer Health-Driven Plan 3. Establish Health Care Account with $500/$1000 for CDHP participants. 4. Contract with CIGNA for administration of new plans. 5. Establish wellness program with financial incentives and disincentives for participating in health improvement activities. 6. Move contribution structure from 3 tiers to 4 tiers for active employees. 7. Retirees covered by Medicare will only be eligible for the City’s 6 Medicare plans, not the new plans.

18. 18 Health Benefits – Minority and Women Business Enterprise These vendors have demonstrated commitment to award subcontracts to MWBE participants as follows: CIGNA: 11-13% UHC: 10% AFLAC: Will make a good-faith effort to direct expenditures to MWBEs.

19. 19 Health Benefits Recommendation Approve:  Health plans  Dental plans  Supplemental insurance plans  Flexible spending account – new annual maximum, and account administration  Eligibility modifications: 1) New hire eligibility is contingent upon completion of a health risk assessment. 2) Retirees covered by Medicare will not be eligible for the new plans – eligible for Medicare Advantage plans only.