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LTC 309-2012 Health Care Premium Rebates m MIAMI BEACH OFFICE OF THE CITY MANAGER NO. LTC # 309 -2012 LETTER TO COMMISSION TO: Mayor Matti Herrera Bower and Members of the City Commission FROM: Kathie G. Brooks, Interim City Manager DATE: November 28, 2012 =?? SUBJECT: Health Care Premium Rebates r This Letter to the Commission is in response to members of the City Commission who h;Yve inquired as to why those health plans with low loss ratios do not provide a premium rebate to the plan participants when the premium paid for coverage exceeds the amount `of claim cost incurred by the plan. To determine what affects a premium rebate may have on the City's group health plan, and if a premium rebate is a viable option for the City, the Administration contacted the City's Benefit Consultant, Gallagher Benefit Services (Gallagher), for guidance. The plan actuary assigned to the City indicated that while employers have the ability to set prospective premium and contribution rates that reflect experience by plan, they have uniformly avoided retroactively rebating contribution dollars by plan based on claim experience. Gallagher is concerned that such practice would violate Federal laws, such as the Americans with Disabilities Act (ADA), by rewarding employees for not seeking or receiving medical care, yet penalizing employees with illnesses. The City, however, may prospectively incentivize good behavior, for example, by rewarding employees for having a variety of vital signs tested and then giving discounts for hitting goals for things like blood pressure, body mass index and cholesterol. As part of the Budget Advisory Committee's review of healthcare costs, the City will request that it recommend a program to encourage healthy behaviors and target specific health actions using customized information, financial incentives and ongoing support for employees. More specific to the City, there are a few reasons the actuary has advised us a premium rebate would not be feasible. First, the enrollment in most of the plans is too small to be statistically sound. You can see a very good illustration of this when you look at the enrollment and the associated loss ratios by year and by plan provided in the attachment. As you can see, many plans have few participants and have high claim expenses. When looking at the plan's loss ratio, the percentage of claim cost paid versus plan premium collected from those enrolled, the loss ratios for the plans fluctuate from year to year; one year having a relatively high loss ratio and a subsequent year with a much lower loss ratio. Even when the plan's enrollment is quite small, the plan's cost may be quite significant. As an example, in 2009, the Premium PPO had twenty -four (24) active employees, and experienced a claim loss ratio of nearly 130 %. In 2010, there were seventeen (17) enrollees with a claim loss ratio of only 31 %. The Premium PPO currently has eleven (11) active employees in the plan. Through August of 2012, the eleven (11) enrollees had averaged a We are committed to providing excellent public service and safety to all who live, work, and play in our vibrant, tropical, historic community. loss ratio of just over 60 %. As this shows, with such a small enrolment, even a few moderate claims can cause huge swings in the plan's cost. We see similar results for the other plans as well, especially for the plans with lower enrollments. Even if we combine the enrolment across actives, pre- Medicare retirees and Medicare retirees, we see significant variation from year to year for any given plan. Beginning with the City's 2006 Annual Open Enrollment, the Administration has been educating employees of the premium cost saving provided by Standard HMO and PPO medical plans. This employee education has been successful in moving the majority of employees to the City's two lower cost Standard medical plans. This change in coverage not only provides the employee savings, but also the City, as the premium rates for the Standard plans are lower than those for the Premium plan. For example, for an employee enrolled in the Premium PPO plan, the City's premium subsidy is $1,874.46 versus $1,306.64 for the Standard Plan, providing a monthly savings to the City of $567.82. The 2012 monthly premium cost for the employee and City are included in Attachment B. Currently of the nine hundred seventy three (973) active employees participating in the City's medical plan, nine hundred twenty four (924), or 95 %, have elected medical coverage in one of the City's two Standard plans. Additionally, the City subsidizes coverage at no less than fifty percent (50 %) of premium cost for the Premium HMO, the Premium PPO and the POS plans. The City subsidy for the Standard HMO and Standard PPO is more, 75% for employee only coverage and 60% for family coverage. So conversely, employees pay no more than fifty percent (50 %) of the premium of any plan. Unless a loss ratio, including the administrative fees, drops below fifty percent (50 %), the City is still subsidizing the cost of the coverage. Even if experience on any one plan is consistently good, the City is still subsidizing the cost of that plan and employees are not being charged more than fifty percent (50 %) of the cost of the coverage. KGB /RG /sr Attachment F: \HUMA \$all \Sue \Letters To Commission \LTC Health Care Costs Final.docx Attachment A City of Miami Beach Medical Plan Experience by Plan and Enrollee Class Q 01 Q M N Ln LO N Ln LO r-I ri Ol M O LO n Q Cn N 0 M M .••� W Ln t0 n O 01 Q 01 Ln M 00 Q M W O M Q In ar oo tD ri a Ln rn If1 Q rn 0 00 0 ko M ri m n rn Ln o v Ln o rl °• of c 00 a+ .-i M O1 M r 00 r-I N t0 ri Ln O1 N Q O n cn LT n ri Q Ln O n O l0 �"� W p M 01 n Q 00 t0 M ri Q M O M O r•I M Ln Q 0 ^ Q Q Q LO 00 Q lD W O N i U Ln Ln tD Q Q Ln n 00 O1 n 00 01 00 41 Ln LO r 41 V? V? V? V? V} V? V? V? V? t4 iN V? rt H r± " , `"'� V1 V? to r1 rl ri ri ri ri u* ri ri V? Ln to N V? V? V? in VT VT V? V1 U 3 T y N 01 p tD I� Q M N O M M rt Q1 al C:) n O p Q O1 Ln M 00 Q M o0 O M Q Ln '£ £ >• Ln W N rl Q Ln Q1 Ln Q O1 rl O W M O M N O1 n 01 Ln O Q Ln O N O 01 Q Li y Ln 01 n Q 00 tD M ri Q M O M o0 tO O Ln Q p n Q Q Q t0 W Q t0 a0 O N d M M Q Q Q Ln n 00 01 n 00 01 t0 n 01 00 p Lf1 lD n 01 in V} N 1 .4 V? i/? 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