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LTC 179-2002 CITY OF MIAMI BEACH Office of the City Manager Letter to Commission No. To: From: Subject: Mayor David Dermer and Date: July 24, 2002 Members of the City Commission Jorge M. Gonzalez ~ ,~ City Manager ~"- 0 RECOMMENDATI~I~N OF THE GROUP HEALTH INSURANCE TASK FORCE The purpose of this LTC is to update the Mayor and Commission on the recommendation of the City's Group Health Insurance Task Force. By the way of background, the City has struggled for some time with the issue of how best to provide Group Health Insurance to its employees. Rising costs with lower levels of benefits has challenged the traditional methods of procuring health care services for the City of Miami Beach. In recent years, the City has been through a few separate processes to procure Group Health Insurance, but has not been satisfied with the outcomes. In response to this important issue, the Finance and Citywide Projects Committee, at the request of Commissioner Simon Cruz, recommended that a Citizen/Staff Task Force be formed to examine the issue. On April 18, 2001, the City Commission with the recommendation of the Finance and Citywide Projects Committee approved the appointment of the Group Health Insurance Task Force. Attached is the charter for the Task Force. On June 18, 2002, the Task Force members (after attending many meetings and contributing numerous hours) through the leadership of Bruce Davidson and Tim Hemstreet developed a comprehensive analysis of the City's group insurance program which included a Problem Statement, Primary Causes and Primary Solutions. The final report (copy attached) included the following solutions: Conform benefits plans to current general industry levels - higher co-pays, Rx plans, out of pocket maximums. - The City contribution for coverage for active employees should be increased to 80- 100% of the individual "standard benefit plan". - Continue to support dependant coverage, but move from a 2-tier to a 4-tier structure (Individual, Individual + spouse, Individual + children, full family) and consider 3-tier as well. The Fire Department Task Force members also recommended that the City aggressively examine pursuing self-insurance. On July 19, 2002, I met with the members of the Task Force for a comprehensive review and discussion of the final recommendation. It should be noted that the report of the Task Force confirms much of what the Administration feels needs to be addressed with the current City group insurance. Both the Administration and the Task Force recognize that the current condition of the City group health plan evolved over a long period of time and that the implementation of changes that will result in a better plan will require much effort and long term commitment by all involved. Overall, I am pleased with the final product provided by the Task Force and feel that many of the Administration's current actions are consistent with recommendations. I am presently looking at group medical renewal options that in addition to maintaining the current benefit level offer optional plans that are comparable to general industry levels (this is consistent with the recommendations of the Task Force regarding conforming plans to current general industry levels). I will be asking the Mayor and Commission to approve these additional benefits on the July 31, 2002 agenda. Additionally, I am reviewing various group medical plan models with Arthur J. Gallagher & Co. (the City's broker) regarding both tier structure and contribution. If it is determined changes to tier structure and contribution are in order, I will be asking the Mayor and Commission to approve during the next few months. JMGIRIIMDBIMGIc~ Attachment(s) REPORT OF THE TASK FORCE ON HEALTH INSURANCE .lune 1.8f 2002 Problem: Employee out of pocket premium cost is high, negatively affecting recruitment, retention and health plan participation. We observe that approximately half of the City's money is spent on active employees and their dependents, about 25% is spent on non-Medicare eligible retirees and their dependents, and about 25% is spent on Medicare eligible retirees and their dependents. Data is not available to assess the exact nature of the non-Medicare eligible employees. However, we believe that a larger proportion of the City's contribution should be spent on active employees and their dependents. Primary Causes: 1. The plans' benefit structures - non-tiered Rx, Iow co-pays, Iow co- insurance percentages, Iow deductibles and out of pocket limits - are richer than normal health insurance industry product offerings and public employer practices. This is a significant cause of the cost problem. Our plans are not structured to provide incentives to use them cost effectively. We do not have a "quality basic plan" that encourages cost effective utilization. These observations are substantiated by, among other observations, a higher than expected out of network utilization in the PPO and HMO. 3. We do not have a Iow cost "basic plan." We are not effectively using the availability of "Medicare HMO's" and, perhaps, "Nedicare Supplemental policies" to reduce cost to both the City and the retirees while potentially increasing benefits. The combination of the following factors; a) the former City Charter requirement of 50/50 cost sharing, plus the rising cost of health insurance; b) the State requirement that retirees be offered the same health care plans and premium costs as are offered to active employees(the employer subsidy of premium costs for retirees may differ from its subsidy of active employees); Report of the Task Force on Health Insurance c) the State requirement that non-Medicare-eligible retiree health costs be included in the risk pool for determining the common premium costs for active and retired employees; and d) the City extension of the 50/50 cost sharing to eligible retirees and the absence of a modification for length of service results in a relatively better value for the early retirees than for the active employees. This value discrepancy, plus the City's early retirement policies, has resulted in a risk pool comprised of an increasingly large percentage of early retirees. This has driven the health plan average cost higher, resulting in a poor and declining value for the active employees. The high average cost of the risk pool plus increases in health care costs have made the employees' 50% cost sharing increasingly unaffordable and currently the absolute number of active employees participating in the plans is decreasing. Without intervention, this trend will continue. We need to structure the plans to recognize "full career" retirees even if they retire at a relatively early age. There is no requirement for participation in the City's plan or in any other plan as a prerequisite to the City's contribution to retiree health benefits or eligibility to enter the plans after having previously declined to do so. This allows employees and dependents t6 go without coverage until they have a health problem, and then enter the plan without penalty. 50-50 cost sharing is patently regressive. The City's 50/50 subsidy regardless of plan type (HMO, POS or PPO), and participation (single, spouse, or family) and a liberally constructed PPO have encouraged high utilizers into the PPO where the absence of managed care techniques allows relatively higher health costs. Thus, the high utilizers probably cost more than if they were in the HMO, costing the entire health insurance plan more. This is a contributing but not a major cause of the cost problem. The high utilizers will carry their maladies with them to the HMO and drive up the average cost there, although probably not to the extent that occurs in the PPO. Task Force Members who are in Humana's PPO are experiencing significant administrative hassle. However, we cannot expect to be able to attract another credible insurer without significant changes to the Plan design as outlined below. Report of the Task Force on Health Insurance Primary Solutions: 1. Conform benefit plans - co-pays, Rx plans, co-insurance percentages, deductibles, out of pocket maximums - to current general industry levels, thereby reducing the overall cost of the Plans to the employees and the City. The examples of industry-accepted benefit plans provided by Gallagher should be used as a guide by the City, but subject to required bargaining processes, good employee relations practices, and considerations of affordability by both the City and employees. The use of a separate Prescription Benefit Management Contractor should be considered. If an employee who has declined City coverage desires to enter the City's plans, or if a retiree who has not had City coverage desires to enter the City's plan upon retirement, the City should impose a 12-month pre- existing condition restriction on coverage unless the person desiring coverage can provide evidence of previous certifiable coverage. This policy should be implemented as soon as possible. The City contribution for coverage of active employees should be 80- 100% of the individual employee cost for the "standard benefit plan" - which should be consistent with the benefit plan most used by employees of those employers considered to be competing with the City for employees (not necessarily the lowest cost plan offered by the City). The City should move toward having its contribution to individual coverage be the same amount for each employee regardless of plan chosen (e.g., HMO or PPO). However, recognizing the significant cost differences in the plans currently offered and the dislocation that may be caused by a sudden change in policy, a transition plan may be advisable. Whether a transition plan is necessary should depend upon the variation in cost of a new offering of plans provided by the current or a new insurer. 4. Contribution for Dependents. The Task Force recognizes the trend in the private sector, not followed in the public sector, for not contributing to dependent coverage. The Task Force believes that the City, as a public employer, should continue to support dependent coverage to remain competitive with other public employers and to remain consistent with its past commitments to its employees. 5. The City should move from a 2-tier dependent premium structure to a 4- tier premium structure. The tiers are defined as follows: (1) Individual; (2) Tndividual + spouse; (3) Individual + children: and (4) Full family coverage. Consideration should be given to a 3-tier premium structure as well. Report of the Task Force on Health Insurance The City contribution to dependent coverage should be a function of the following considerations: i. If the City makes a higher percentage contribution to individual coverage, it is appropriate to make a lower percentage contribution to dependents ii. Affordability by the employees, with consideration given to the current 50% contribution to dependent coverage iii. Affordability by the City relative to increases in contribution it may be making to individual coverage iv. Practices of competitive public employers 7. The Task Force recognizes that the prevailing South Florida public employer practice is to not contribute to retiree health benefits. The Task Force did not have a consensus about whether the City should make a contribution to retiree health benefits. However, the Task Force recommends: a. The City should assess whether it wishes to continue its 50% contribution level (or some other contribution), but any contribution should be based upon years of service. The Task Force believes that employees should serve at least 10 years before being entitled to the maximum City contribution (if any) to retiree health benefits. b. The z~01(a) definition of retirement eligibility should not be applied to health benefit retiree health plan eligibility as it is now. The current policy is clearly inappropriate and should be changed as soon as possible. Retiree health plan eligibility should be based upon years of service. c. The City should aggressively pursue use of "Medicare HMO's" and "Medicare Supplemental Policies" to provide coverage for its Medicare eligible retirees. Attention should be focused upon a viable Ex benefit. These products may provide the opportunity to increase coverage for retirees who chose them at lower cost to those retirees and the City. City contribution policy for retirees should be examined in the light of these "win-win" opportunities. Based upon favorable experience with their plan, the Fire Department Task Force Members recommend that the City aggressively examine the option of self-insurance with a stop-loss. Manager $orge M. Gonzalez asking that the establishment ofa Citizen/StaffTask Force on Group Health Insurance be referred to the Finance and Citywide Projects Committee. The matter was referred to the Finance and Citywide Projects Committee by the City Commission at their March 14, 2001 meeting. The Finance and Citywide Projects Committee met on March 20, 2001, and approved the establishment of a Citizen/Staff Task Force on Group Health Insurance. The Finance and Citywide Projects Comrnittee recommended their approval in a report to the City Commission on April 18, 2001. Miami Beach Group Health Insurance Task Force , ' .. -~,~ ' .... ,.,;~.~:.-'""~' This document serves as the initial Charter for this Task Force. Purpose: Work Product: Scope of Work: Authori ,ty: The purpose of the Task Fome is to develop a comprehensive solution that addresses the City's continuing and growing challenges in the area of group health insurance. This includes the examination of benefit levels, plan design, cost, coverage, and a measure of the impact to any adopted changes to the affected employee and retiree groups. The Task Force is expected to develop a series of written, viable alternatives for the design of the City's Group Health Insurance Program(s) for consideration by the City Manager and the City Commission. Included with each alternative should be an explanation of the design, cost, impact to employees and retirees, advantages, and disadvantages. The Task Force should make and justify their recommendation of the best available solution. Recommendations may be split into short-term and long-term objectives. The Task Force is limited to an examination of how Group Health Insurance is provided and to making recommendations for improving the provision of Group Health Insurance to all City employees and retirees at a reasonable cost. The Task Force should take the perspective that the end goal is intended to be in the best interest of the City - albeit, providing full attention to the- benefits derived from a workforce that is receiving quality health insurance. The Task Force should be mindful of the Scope of Work and make every effort to maintain a focus on this important and complex issue. The Task Force has the authority to collect info,',liation needed to examine the Scope of Work. City Staff members should make a concerted effort to attend Task Force meetings and to complete follow-up and related work between meetings as this is a priority of the City. Department Directors are requested to provide employees who are Task Force members a reasonable amount of Miami Beach Group Health Insurance Task Force ............. ' '~ '"' ': {im~' md latitud~'i-~;'~edirect iheir'e~orts--t~ds-~he Completi°n of ..... the Scope of Work. "~"'?'> The Task Force is an advisory body and does not have the ability to make binding decisions. Legal Mandates: The Task Force must consider and incorporate the legal obligations contained within the State Statutes, City Charter, City Code, Collective Bargaining Agreements, Group Insurance Board regulations, and any other legally binding authority that affects the City's Group Health Insurance program(s). Alternatives may be developed and considered for the modification of some or all of the respective sources of legal requirements, but processes, including timelines and an estimate of viability should accompany such alternatives. Task Force representatives from the City's Risk Management Division will make available copies of the various legal obligations and will provide the City's interpretation of the obligations. Members: The recommended composition of the Task Force is as follows: - Clifton Leonard, Risk Manager - Mary Greenwood, Labor Relations - Tim Hemstreet, Special Assistant to City Manager - Manager/Professional Operating Department - Manager/Professional Operating Department - FOP Representative - IAFF Representative - GSAF Representative - CWA Representative - AFSME Representative - Jerry (Dee Dee) Weithorn, Budget Advisory Committee - Marc Jacobson, Budget Advisory Committee - Bruce Davidson, Budget Advisory Committee - Buddy Dresner, Group Insurance Board (Retiree) - Roberto Sanchez, Health Care Consultant - Phyllis Miller, Citizen The membership of the Task Force represents a cross section of employees and residents. Although each member could be construed to represent a particular constituency, it is expected that each member will act in the best interest of the City. Members are also charged with keeping their individual constituencies up-to- date with the activities of the Task Force and are encouraged to pass on the perspectives of those they represent. Miami Beach Group Health Insurance Task Force Currently, all General Employees, classified and unclassified, are covered by one of the three Humana plans unless they waive health insurance altogether. Since October 1, 1986, approximately 200 employees (all members of the fire fighters bargaining unit and some unclassified fire management employees), have had medical insurance coverage provided by the Florida Fire Fighters Health Insurance Trust Plan. Since January 1, 1991, approximately 300 employees (all members of the police officers bargaining unit and some unclassified police management employees) have had medical insurance coverage provided by the Miami Beach Fraternal Order of Police Health Trust. In both situations, the health insurance construct is pursuant to the respective collective bargaining agreement. The City pays to the respective health mast 90% of its per employee or family PPO payment. The City has experienced considerable increases with its Group Health Insurance rates over the past few years. In response to this situation, the City has gone out for Bid and for RFP in an effort to procure more competitive rates for Group Health Insurance. The City has been unsuccessful in securing a Group Health Insurance provider that is able to meet the City's needs and cost containment goals. As a result, the City hired a Broker to assist with plan design and other activities to identify the best Group Health Insurance alternatives. Duration: The Task Force is expected to conclude its work within six months of its inception.