HomeMy WebLinkAboutApril 4, 2005 Agenda AGENDA
CITY OF DENTON CITY COUNCIL
April 4, 2005
After determining that a quorum is presem, the City Council of the City of Demon, Texas will
convene in a Special Called Meeting on Monday, April 4, 2005 at 11:30 a.m. in the Council
Work Session Room, 215 E. McKinney, Denton, Texas at which the following items will be
considered:
Receive a report, hold a discussion and give staff direction regarding the City of Demon's
employee health benefits program.
Receive a report, hold a discussion and give staff direction regarding the FY 2005-06
drainage operating budget and CIP.
NOTE: The City Council reserves the right to adjourn imo a Closed Meeting on any item on its
Open Meeting agenda consistent with Chapter 551 of the Texas Government Code, as amended,
including without limitation, Sections 551.071-551.086 of the Texas Open Meetings Act.
CERTIFICATE
I certify that the above notice of meeting was posted on the bulletin board at the City Hall of the
City of Demon, Texas, on the day of ,2005 at o'clock
(a.m.) (p.m.)
CITY SECRETARY
NOTE: THE CITY OF DENTON COUNCIL WORK SESSION ROOM IS ACCESSIBLE IN
ACCORDANCE WITH THE AMERICANS WITH DISABILITIES ACT. THE CITY WILL PROVIDE
SIGN LANGUAGE INTERPRETERS FOR THE HEARING IMPAIRED IF REQUESTED AT LEAST
48 HOURS IN ADVANCE OF THE SCHEDULED MEETING. PLEASE CALL THE CITY
SECRETARY'S OFFICE AT 349-8309 OR USE TELECOMMUNICATIONS DEVICES FOR THE
DEAF (TDD) BY CALLING 1-800-RELAY-TX SO THAT A SIGN LANGUAGE INTERPRETER
CAN BE SCHEDULED THROUGH THE CITY SECRETARY'S OFFICE.
AGENDA INFORMATION SHEET
AGENDA DATE:
DEPARTMENT:
ACM:
April 4, 2005
Fiscal Operations
Kathy DuBose
Questions concerning this
report may be directed to
Scott Payne, 349-7836
SUBJECT
Receive a report, hold a discussion and give staff direction regarding the City of Demon's
employee health benefits program.
BACKGROUND
On January 25, 2005, a presentation was made to the City Council regarding the current plan
design of the City's employee health benefits program. The presemation also compared our
health plan to that of several other Dallas-Fort Worth area cities. Much of the discussion during
that presentation focused on the level of benefits provided under our plan and the costs
associated with providing those benefits. The Council asked that staff look at a range of options
for our currem plan design, with a focus on increased employee responsibility.
The attached white paper discusses various potemial health plan design changes and includes
recommendations from the City's Employee Insurance Committee (EIC) and staff.
FISCAL INFORMATION
Funds for the health benefits program are budgeted in the FY 04/05 budget in 911001.6714.
EXHIBITS
Attachment 1 - White Paper on Health Insurance
Respectfully submitted:
Diana G. Ortiz
Director of Fiscal Operations
City of Denton White Paper
Health Insurance Plan
Design Options
April 4, 2005
Prepared By:
Risk Management Division
Employee Insurance Committee
Table of Contents
Health Insurance Crisis .............................................................................. 2
City of Denton Historical Data ..................................................................... 2
Current Health Plan Design ......................................................................... 3
Major Issues ........................................................................................... 4
Options ................................................................................................. 4
Option 1: Employee Insurance Committee Recommended Changes
to Current Plan Design ....................................................................... 4
Option 2: More significant changes to Option 1 ......................................... 5
Option 3: Consumer Driven Health Plans ............................................... 6
Option 4: Catastrophic Only or High Deductible Plan ................................. 9
Option 5: Cafeteria Plans .................................................................. 9
Option 6: No Health Coverage ............................................................ 10
Health Plan Enhancements ......................................................................... 11
Employee Health Clinic ................................................................... 11
Self-Funding ................................................................................ 11
Summary .............................................................................................. 12
Appendix A- Glossary of Terms .................................................................. 14
Health Insurance Crisis
It comes as no surprise to anyone who has
had to pay for a medical service, or for that
matter, anyone who reads the paper, that the
health care industry in the United States is in
a state of crisis. Since the mid 1990s, the
cost of health insurance has seen a dramatic
increase. The United States already has the
highest cost per person for health care in the
industrialized world, and govemmem
projections indicate that by the year 2014,
health care will be 19% of the emire U.S.
economy (USA Today). Compounding the
issue is the fact that medical inflation has
increased at a rate higher than regular
inflation. For example, from 1980 to 2002,
the cost of housing rose 122.3%,
transportation 84%, food 103.9% and
apparel 36.4%. The cost of all medical
expenses rose by 281.3% and is still
climbing (Marsh, Inc.). These annual
increases in health insurance costs will
exceed workers' disposable income, despite
the fact that employee salaries are
increasing. Employers will be affected by
this increase as well.
The reasons for the increased cost of
medical care are good in their benefits, yet
bad in their cost. With the increase in
technology, we are able to diagnose and
treat many more conditions than ever before.
However, technology, especially the
research and developmem, are very
expensive. Additionally, with so many
procedures available, it is more likely that a
patient will have multiple procedures
performed before they are diagnosed.
Additionally, prescription medication costs
are at an all time high. The Food and Drug
Administration (FDA) is approving new
medications at a rapid rate. Pharmaceutical
companies eager to cash in are no longer
waiting for patents to expire on medications
before developing generic drugs, instead,
they develop drugs that are almost identical
to existing drugs in order to avoid patent
violations. With so many similar drugs on
the market, pharmaceutical companies spend
millions of dollars on advertisemem, a direct
impact on drug prices. Some medications,
just by their nature and what they treat, are
expensive to produce.
Specialization is another growing cost factor
in the medical industry. Patients no longer
make a trip to their family practitioner to
cure all that ails them. Chances are, a
specialist visit will be incurred, and
specialists' fees are higher than those in
general medicine, in addition, health
insurance is no longer just coverage for
major medical situations, but for everything
from the common cold to cancer.
Advances in medical science have increased
both life expectancy and actual life spans.
However, this also allows individuals to
experience more chronic conditions in their
lifetime, especially as they age. This leads
to an increased use of medical technology,
prescriptions and specializations.
Finally, the insured are paying for two
factors largely outside of their control: the
costs of serving the uninsured and the cost
of medical malpractice. While hospitals
provide medical care to the uninsured, they
cannot absorb all of the costs of doing so.
The results are higher hospital rates.
Doctors and hospitals must also raise their
rates in order to purchase medical
malpractice insurance.
In recent years, patients have been forced to
take more control of their health care,
having to become educated consumers in
one of the largest markets in the world.
Unfortunately, many employees are
unprepared to take on that role.
City of Denton Historical Data
The City of DeNon has offered a fully
insured health product to its full-time
employees, retirees and eligible dependems
since 1989. Depending on the contract term
and the proposed renewal rate, and due to
the constantly changing health care
environment, the City has gone out to the
market every one to two years to seek
competitive bids on both fully insured and
self-funded programs. During the last bid in
2003, the fully insured proposal offered by
United Healthcare (UHC) was the most cost
effective for the City. We renewed with
UHC in January of 2005.
Current Health Plan Design
The City's current insurance program is a
Preferred Provider Organization (PPO)
program. This plan provides the lowest cost
of health coverage if the covered person
stays within the PPO's network of approved
and credentialed medical providers and
facilities, much like a Health Maintenance
Organization (HMO). Unlike an HMO, the
City's PPO still offers covered medical care
if the covered person seeks medical
treatment outside of the network.
Furthermore, unlike an HMO, the City's
plan does not mandate the use of a primary
care physician (PCP) and does not restrict
access to specialists by requiring referrals
from the PCP. A covered person has direct
access to all medical providers and facilities
in the PPO network.
The City's PPO includes coverage for all the
standard types of medical care such as
family physician and specialist office visits;
out-patient procedures; in-patient hospital
admissions; emergency room and minor
emergency access; lab, x-ray and other
diagnostic procedures; surgical and
transplant benefits; wellness exams; and
immunizations.
In addition the City's plan provides
coverage for prescription medications on a
three-tiered basis. This provides a $7 co-
payment amount for generic medications, a
$20 co-payment for those name brand
medications that are on the PPO's preferred
drug list or formulary, and a $50 co-payment
for all other medications that are not generic
and not on the formulary. In this way, the
City's plan allows access to almost all
medications currently on the market while
cost sharing with the covered person when
they must utilize the higher cost, third-tier
medications. The City also offers a mail-
order prescription program alternative for
those covered people who utilize
"maintenance medication" such as blood
pressure, cholesterol or hormones. The
mail-order program has copayments of
$17.50 (generic), $50 (preferred) and $125
(non-formulary) for a 90-day supply of
medication.
Table 1 below lists the various benefits
available under the City's health plan, as
well as, the current employee costs for the
various health coverage levels.
Table 1 - Health Plan
Summary of Benefits
Benefit In- Out-of-
Network Network
Premiums:
Employee Only $0.00 $0.00
Emp. + Child $96.00 $96.00
Emp. + Spouse $155.00 $155.00
Emp. + Family $195.00 $195.00
Deductible None $1,000
individual
$2,000 family
Coinsurance % 100/0 80/20
Office Visit Copay $15.00 20%**
Specialist Copay $15.00 20%**
Out Patient Svcs. $0.00 20%**
In-Patient Svcs. $250 20%**
Emergency Room $100 20%**
Lab & X-Ray $0.00 20%**
Out of Pocket Max. N/A $5,000
individual
$10,000 family
Medications:
Generic $7.00 N/A
Preferred $20.00 N/A
Non- formulary $50.00 N/A
** after deductible is met
The City currently budgets $653.55 per
covered employee per month as the City's
portion of health insurance funding. This
amount, in addition to the employee's
premiums, provides the money to pay for the
total cost of health insurance. Since 2003,
the City has not passed on increases in
premiums.
Table 2 below depicts the amount United
Healthcare charges the City on a monthly
basis as of January 1, 2005:
Table 2 - UHC Monthly Charges
Coverage Type Monthly Premium
Employee Only $570.05
Employee + Child(ren) $712.56
Employee + Spouse $877.88
Employee + Family $957.69
Major Issues
Over the last year the City has been
evaluating the long-range implications of
providing health insurance. With assistance
from the City's current health insurance
company, the City's benefit consultant and
the Employee Insurance Committee (EIC),
we have been identifying changes to plan
design and opportunities for employee
education. These options can help to
contain and better manage health costs while
at the same time preserving a competitive
advantage and sustaining positive attitudes
in the workplace.
Options
While there are certainly no clear-cut
solutions to the global health care crisis,
there are many options that can be explored
locally. The following options that can be
considered include changes and variations to
the City's current plan design, as well as,
alternative plan designs and enhancements.
Option 1: Employee Insurance Committee
Recommended Changes to Current Plan
Design
The Employee Insurance Committee (EIC)
is made up of members from the various
City departments representing all
employees. Their purpose is to provide an
effective and personal mechanism for
communication of information and feedback
between all employees.
The EIC was tasked with talking to City
employees about the current health
insurance program and the need to make
changes to the plan design. The EIC
presented various plan change options to the
employees. The employees expressed clear
understanding that the City could not
continue to fund the existing plan without
changes and premium increases. Their main
concern was that the changes be done
gradually and not implemented all in one
year.
The changes to the health plan that the
employees most supported in the first year
of this process are as follows:
Network Change - moving to the
Open Access Plus Network within
the UHC program could save the
City as much as 3%. This change
would be almost transparent to
employees as a Disruption Analysis
shows that only 7 of our current
medical providers, with total billed
charges of less than $6,000, are not a
part of the Open Access Plus
Network.
Deductible Change - adding a $250
per person/S500 per family
deductible to the current health plan
could save the City an additional
3.5%. The deductible amount must
be paid for by the employee before
the health plan would begin to cost
share with the employee.
Co-Insurance Change - The City's
current plan pays 100% after any
applicable co-payments are paid by
the employee. By reducing the co-
insurance amount to 90% the City
could save approximately 3%. This
in turn would mean that the
employee and their eligible
dependents would begin paying 10%
more of their health care expenses up
to the annual Out-of-Pocket
Maximum.
Out-of-Pocket Maximum - by
adding a $1,000 per person/S2,000
per family Out-of-Pocket Maximum,
in conjunction with the co-insurance
change to 90%, the City could save
as much as 3.5%. The Out-of-Pocket
Maximum is the maximum cost an
employee or eligible dependent
would be responsible for in a plan
year, in addition to the deductible,
co-payments and premiums.
Employee Premiums - by charging
employees $25 per month for
Employee Only coverage and by
increasing premiums for all other
levels of coverage by 10%, the City
could save an additional 2.6%. This
amount is based on current
enrollment figures.
Table 3 - Monthly Health Insurance Premiums
Coverage Type Current Rate Proposed Rate
Employee Only $0.00 $25.00
Emp. + Child $96.00 $106.00
Emp. + Spouse $155.00 $166.00
Emp. + Family $195.00 $209.00
Under this structure, a person with
Employee Only coverage, who met his/her
plan year deductible and Out-of-Pocket
Maximum, would pay approximately $1,550
more for health coverage than in previous
years. For our lowest wage earner that
would mean a comparable 5.85% reduction
in pay and a 3.9% reduction in pay for our
average non-exempt worker.
Option 1 Pros:
Recommended by EIC
Significant change from current plan
but not so drastic as to create
confusion and chaos
Keeps plan competitive with
surveyed metroplex cities
Option 1 Cons:
Only creates 16% of total savings
and new money
Option 2: More sign~[icant changes to
Option 1
While the changes in Option 1 are the
recommendation of the EIC, more extensive
changes to Deductibles, Co-insurance levels
and Out-of-Pocket Maximums are available.
Tables 4 through 6 show the various options
and the potential savings.
Table 4 - Deductible Options
Deductible % Savings
$250 3.5%
$500 6.0%
$1,000 10.0%
Table 5 - Co-Insurance Options
Co-insurance % Savings
90% 3.0%
80% 5.0%
Table 6 - Out-of-Pocket Max Options
Out-of-Pocket % Savings
$1,000 3.5%
$2,000 6.5%
In addition to the options listed above,
increases to the co-payments for physician
office visits and prescription drugs could
also be considered. It should be noted that
office visit and prescription co-payment
amounts were an area that the majority of
employees expressed a desire to keep low.
Office Visit Co-Payment - the City
currently has a $15 co-payment for
physician office visits. Co-payments
do not apply to any deductibles or
co-insurance amounts and allow
access to medical care at the
physician level without having to
meet a deductible. By changing to a
$20 office visit co-payment the City
could save approximately 0.50%.
Moving to a $25 office visit co-
payment could save the City 1%.
Prescription Drug Co-Payments -
the City offers a 3-tier plan through
UHC. The current prescription drug
co-payments are $7 for generic
drugs, $20 for formulary (preferred)
drugs, and $50 for non-formulary
name brand drugs. By moving to a
co-payment structure of $10/$30/$50
the City could save an additional 2%.
Higher increases to employee premium
amounts will also generate additional funds
to pay for health care costs. Table 7 below
shows the additional funding at various
percentage increases. This is also assuming
an Employee Only rate of $27 per month.
Table 7 - Employee Premium Increases as a
Percentage Change
Premium increase Additional Plan Funding
15% 3.2%
17% 3.5%
20% 3.8%
25% 4.5%
30% 5.1%
Another option would be to raise employee
premium rates by set dollar amounts instead
of percentage increases. Table 8 below
details the additional funding revenue at
three different dollar amount increases.
Table 8 - Employee Premium Increases as
Dollar Amount Change
Premium increase Additional Plan Funding
$35 4.5%
$40 5.2%
$50 6.5%
While each of the categories listed under
Option 2 will either increase health plan
savings or increase health plan funding, they
will also increase the employee's overall
cost for health coverage.
Assuming that the an individual with
Employee Only coverage ($27) met his/her
deductible and out-of-pocket maximum, a
move to a $500 deductible, 80% co-
insurance level with a $2,000 out-of-pocket
maximum would cost the employee $2,824
more than in previous years. For our lowest
wage earner that would mean a comparable
10.67% reduction in pay and for our average
non-exempt worker it would mean a 7%
reduction in pay.
In addition, increases to physician office
visit and prescription drug co-payments
would increase the employee's overall
health cost each time the respective service
was used. in 2004, employees averaged
almost 5 office visits and over 11
prescriptions per member (employee + all
applicable dependents).
Option 2 Pros:
Increased health cost savings and
additional health plan funding
Option 2 Cons:
Not recommended by EIC
Significant impact to employee
earnings
Changes are so dramatic that
employees may decide to drop
dependents from coverage or drop
coverage completely
increases numbers of uninsured
people which ultimately impacts the
overall cost of health care
Option 3: Consumer Driven Health Plans
Companies nationwide are looking for any
new approaches to slow down the annual
increases for employee health care. While
managed care may have helped for a time, it
is no longer an effective mechanism to
control overall health care costs by itself.
Managed care attempted to control costs by
controlling the supply of medical care. It
limited employee choice to those medical
providers within a network and employee
decision-making by directing care through a
"gatekeeper" or primary care physician
(PCP).
The newest approach in health care is
"consumerism" or consumer driven health
(CDH) plans. These plans are designed to
encourage employees to be more educated
"consumers" of health care services and to
take more responsibility for their health care
and the costs associated with that care.
Consumerism strategies, by contrast, try to
control costs by controlling demand through
employee education about the cost of health
care. These strategies also require
employees to pay a higher percentage of
medical expenses. These factors, in turn,
encourage employees to be more active
participants in the process by making more
informed decisions about lifestyle choices
(e.g., diet, exercise, smoking), the type of
health plan they access, how they use health
care services and which medical providers
they choose.
The keys to successful consumerism appear
to be employee education, motivation to
change behavior, and employee choice.
There are a myriad of options under the
heading of CDH. Unfortunately, there is not
much in the way of objective data to
demonstrate the effectiveness of these
strategies because not many companies have
actually implemented these plans. Although
many industry experts discuss CDH, a
recent article on BenefitNews.com reported
that only 7.8% of the total commercial
health plan premium revenue will come
from CDH products in 2005. It should be
noted that this percentage is up from 3.2% in
2004.
The leading mechanisms for CDH are
Health Savings Accounts, Flexible Spending
Accounts, Medical Savings Accounts and
Health Reimbursement Arrangements or
Personal Benefit Accounts. Each of these
plan types involve a separate pool of money,
funded by the employee, the employer or
both. In some cases, this pool of money is
available to pay for medical expenses that
are not covered by insurance. In other cases,
the employer provides the employee with a
fixed dollar amount to purchase health care
services or a health insurance policy on the
open market.
Health Savings Account (HSA) - in
December of 2003, the Medicare
Prescription Drug, Improvement and
Modernization Act of 2003 established the
tax-favored HSAs. An HSA is most
compatible with high-deductible or
"catastrophic" coverage plans that will be
discussed later. Features of an HSA include:
· Employee owned
· Funded by employees, employers
and/or qualified family members
· Available only with high-deductible
medical plans with minimum $1,000
per person/S2,000 per family
deductibles and $5,000 per
person/S10,000 per family out-of-
pocket maximums
· Unused amounts at the end of the
year rollover to the next year since
the employee owns the account
· Account accrues interest on a tax-
free basis
Flexible Spending Account (FSA) -
established in 1986 by the Internal Revenue
Code Section 125 (commonly referred to as
"cafeteria 125 plans"). Most employers
offer these accounts as a means for
employees to considerably reduce their
taxable income through salary deductions
for health related expenditures and child
care expenses on a pre-tax basis. The City
currently offers an FSA to employees.
Features of an FSA are:
· Employer owned
· Typically funded by the employee
but employers can make
contributions
· Available with any type of health
plan arrangement
· Funds do not rollover and must be
spent before year end or termination
of employment
· Account does not accrue interest
Medical Savings Account (MSA) -
authorized by the Health Insurance
Portability and Accountability Act (HIPAA)
of 1996. Sometimes referred to as the
Archer MSA, this mechanism may have
been the original consumer-driven health
plan. However, MSAs were limited to the
self-employed and employers with less than
50 employees. The pilot program for MSAs
expired on December 31, 2003, so no new
accounts may be set up. Features of an
MSA are:
minimal at this time. Features of an HRA
are:
· Employer owned
· Funded by the employer
· Available with any type of health
plan design or with no health plan
· Unused amounts at the end of the
year may rollover to the next year at
the discretion of the employer
· Account accrues interest but is paid
to the employer
· Employee owned
· Funded by employee or the employer
but not both in the same year.
· Available only with high-deductible
medical plans with minimum $1,700
per person/S3,450 per family
deductibles and $3,450 per
person/S6,300 per family out-of-
pocket maximums
· Unused amounts at the end of the
year rollover to the next year
· Account accrues interest on a tax-
free basis
Health Reimbursement Arrangement
(HRA) or Personal Benefit Account
(PBA) - established in 2002 by the Internal
Revenue Service, an HRA allows employees
to use employer contributions for medical
expenses not covered by health coverage,
including deductibles, or to pay for health
insurance premiums. An HRA is the most
flexible mechanism to engage employees in
consumerism. The HRA model can be used
as either a piece of the overall employee
health plan or as an alternative to traditional
health insurance (e.g., the employer provides
funding to the employee to go out and buy
health coverage on the open market - see
Option 5).
UHC currently has two public entity clients
that offer HRAs to their employees; a school
district and a city. This is the first year that
the city has offered an HRA and they offer it
with a 90/10 PPO and an 80/20 PPO.
Enrollment in the HRA is extremely
Option 3 Pros:
Additional mechanism for employee
funding of health care expenses
Promotes more employee
involvement in health care decisions
(vested interest)
Option 3 Cons:
Programs by themselves do not
provide any health cost savings
Little or no historic data on success
rates of these programs
Extensive employee education
necessary
Extensive medical provider
education is necessary
Additional administrative burden as
in some cases "trusts" must be set up
to handle funds
Must be paired with high deductible
programs in some cases
Huge "first step" from the current
managed care environment
Most of these consumer driven products
discussed would not impact the overall cost
of the City's health care coverage. The
HSA, FSA and MSA only allow employees
to set aside funds to pay for health care
related expenses. The HSA model generates
cost savings by being paired up, on a
mandatory basis, with a high-deductible
health plan. The HRA can impact overall
plan cost by changing the method in which
health care is funded, and more importantly,
re-engaging employees in the health care
decision-making process.
Option 4: Catastrophic Only or High
Deductible Plan
Under a catastrophic or high deductible
health plan program, health coverage is
essentially limited to major medical
expenses. These types of plans have high
deductibles with high, out-of-pocket
maximums and are designed to cover major
health care emergencies. Routine office
visits, diagnostic testing and annual wellness
exams become the responsibility of the
employee up to the level of the deductible.
These types of programs are also mandatory
if being paired with an MSA or an HSA.
While the overall plan design would be at
the discretion of the employer, a typical plan
might have a $1,000 per person/S2,000 per
family deductible with a $4,000 per
person/S8,000 per family out-of-pocket
maximum. While much of the routine
medical treatment would become the
responsibility of the employee, the plan
would provide a cap of $5,000 (individual
deductible + out-of-pocket maximum) per
person or $10,000 (family deductible +
family out-of-pocket maximum) per family
for those catastrophic medical conditions
such as cancer, an organ transplant or a pre-
mature baby.
As discussed earlier, this type of program
can be paired with an HSA to allow some
level of tax deductible funding by the
employee for expenses prior to meeting the
deductible. In addition, plans of this nature
would typically have lower premiums than
managed care programs.
UHC has indicated that moving to a
program with a $1,000 deductible, an 80%
co-insurance, and a $5,000 out-of-pocket
maximum could save the City as much as
30%.
Option 4 Pros:
Significant reduction in overall
health care expenses
Shifts costs to employees that utilize
the plan
Monthly savings in premium
expenses for employees that access
health care less frequently
Option 4 Cons:
Significant potential increase in
employee health care expenses
Program of this nature not
competitive with other metroplex
cities
Option 5: Cq£eteria Plans
The term "Cafeteria Plan" can have several
connotations in the field of health insurance
and benefits in general. The Cafeteria Plan
with which most people are familiar is the
Section 125 Cafeteria Plan that allows
employees to choose from various benefit
options on a pre-tax basis. The City
currently offers this program by allowing
employees to take deductions for health
insurance and other benefits on a pre-tax
basis.
For this discussion, the term "Cafeteria
Plan" will be used to describe two variations
of health care coverage or health care
financing.
"Boutique" Health Plans - the first
Cafeteria program can also be referred to as
a "boutique" health plan. The idea behind
this program is that the employee can
"customize" their health care program based
on factors such as their overall level of
health, their lifestyle, their financial
situation and the level of risk they are
willing to assume.
The concept behind this type of program is
that employees can choose the deductible,
co-insurance percentage, out-of-pocket
maximum, and in some instances, medical
provider networks. The choices they make
will determine the monthly premium they
are charged. Those that want minimal
coverage pay lower premiums than those
who choose the most comprehensive care
with the least out-of-pocket expenses.
This type of Cafeteria plan provides the
benefit of "choice" for employees but does
not really provide any true savings to the
City. This approach can also lead to
"adverse selection" since the healthy people
choose the lower monthly cost plans with
the more restrictive coverage while the
people that utilize the health benefits will
choose to pay a higher monthly premium for
more extensive coverage.
In the current health care environment this
type of plan is rarely offered. While
insurers may offer 2 - 3 plan options, they
typically do not offer this level of
"boutique" selection. For example, UHC
offers a program called "Overture" which
provides either a 2 option or 3-option
program. This program essentially offers a
"basic" program with the option to "buy-up"
to higher levels of coverage with lower
deductibles and other out-of-pocket
expenses.
Health expense funding mechanism - the
other type of "Cafeteria" plan is one in
which the City does not provide health
insurance as a benefit but does provide some
level of funding for employees to pay for
health care expenses or health insurance.
In this scenario, an HRA or PBA could be
set up with the City contributing a set
amount of money on an annual basis for
employees to use for health care expenses
on a fee-for-service arrangement, or, could
be used to purchase health insurance on the
open market.
Under this program, the City could hold a
"Benefits Fair" during the open enrollment
process and invite various health insurance
companies to participate. The employee
10
would be able to choose from the various
companies and pay for the coverage with the
funds from the HRA. Other employees may
opt not to purchase coverage and simply pay
for health related expenses out of the HRA.
Much like the "boutique" plan previously
discussed, these programs are rare. Unlike
the boutique plan, this program would
provide cost certainty for the City but would
most likely not be viewed as a positive
benefit by the majority of employees.
Option 5 Pros:
Both programs provide maximum
employee choice
HRA option would encourage
employee involvement in health care
process
HRA option provides cost certainty
Option 5 Cons:
Neither option is readily available in
the marketplace
Boutique program provides no cost
savings to plan
HRA option would require extensive
employee education
individual health plans require
medical underwriting which could
exclude some employees with certain
health issues
individual health plans can have
extensive restrictions including
exclusions for maternity benefits
Option 6: No Health Coverage
The vast majority of Americans who have
health insurance acquire it through their
employer, although there are no laws or
regulations that require it.
If they do not acquire it through the
employer, and cannot find coverage through
a spouse's insurance plan, then it is quite
likely that they will join the growing ranks
of the working uninsured. This option
eliminates health care expenses for the City
as an employer. It more dramatically
cripples the City's ability to recruit and
retain employees at all levels. Additionally,
it increases overall health care costs by
increasing the number of uninsured
individuals in our community.
Health Plan Enhancements:
Employee Health Clinic an employee
health clinic can be set up in conjunction
with any of the other options discussed.
Several public entities are looking to control
increasing health care costs by opening their
own employee health clinic. These entities
have determined that it is more cost
effective to provide the service than it is to
provide the benefit.
Curremly, the City of Garland, the City of
Wichita Falls and Collin and Jefferson
Counties operate their own employee health
clinics. Additionally, San Angelo, Odessa
and Lubbock have opened or will open an
employee health clinic in 2005.
These clinics are staffed by medical
professionals (doctors, physician assistams,
nurse practitioners, medical techs) employed
by the public entities to provide family
practice level health care to employees and
dependents at no cost.
These programs annually shift significam
numbers of office visits from the insurance
program while providing high quality care
and more extensive follow-up interaction
than would typically be seen by local
medical providers. The clinic is also better
able to comrol referral and medication
prescribing patterns. Additionally, having
medical providers on staff can assist with
many wellness and prevention initiatives.
Pros:
Staff health care providers focused
on providing care
Better referral and medication
prescribing patterns
Reduction in time away from work
to attend doctor's appointments
Clinic staff can treat workers'
compensation injuries and comrol
referrals
Clinic can administer flu shots,
Hepatitis B and other work required
vaccinations
Clinic can collect samples for City's
drug testing program
Cons:
Up-froM, start-up costs including
locating a suitable facility
Pressure from local medical
providers
Medical malpractice liability
Perception of sub-standard or
indigen care
Stigma of City employees providing
medical care to fellow City
employees
Self-funding - the City can choose to self-
fund any of the other options discussed.
The major difference between a self-funded
medical plan and a fully insured medical
plan is who ultimately has the financial risk.
Under a fully insured medical plan, the
employer pays a fixed amount to an
insurance company who in mm assumes all
of the financial risk.
Under a self-funded program the employer
pays a fixed cost to a third party
administrator (TPA) to pay health claims
and administer the plan. Typically, the
administrative costs are less under a self-
funded arrangemem as there is no margin,
profit or state premium tax.
Significam diversion of office visits
and other in-office charges from the
health insurance program
11
An employer can lessen the risk they assume
by purchasing both specific and aggregate
stop loss coverage. The specific stop loss is
the maximum amoum ($50,000; $100,000;
etc.) the employer pays for health care
expenses per individual in a plan year. After
that cap is exceeded, the costs become the
responsibility of the reinsurer. The higher
the specific stop loss the lower the monthly
per employee charge for this coverage.
Aggregate stop loss provides protection on
the plan in totality. Like specific stop loss,
the employer pays a monthly charge per
employee for this coverage. The threshold
on the aggregate protection is determined as
a percemage (10%; 20%; 25%; etc.) above
the employer's annual expected total
(aggregate) claims. Any claims that exceed
this threshold become the responsibility of
the reinsurer on a reimbursemem basis.
In analyzing the City of DeMon's health
claims from 2004, it appears that it was to
the City's benefit to be fully insured.
However, given all the potential plan
changes being discussed, the City has the
opportunity to save money in 2006 and
future years.
Pros:
Benefit and plan design flexibility
Not subject to many state insurance
regulations and state mandated
benefits
Not responsible for insurance
company margins or profit
Flexibility of network developmem
and contracting
Cons:
Increased risk if not properly funded
City has the ultimate liability for
health care expenses
The "buck stops" with the City
regarding plan design, benefit
structure and claims payment
decisions
Summary
In light of the currem environmem in the
health insurance industry, changes to the
City's health plan structure are inevitable.
However, any changes in the health plan
must be viewed in totality. Therefore, the
following changes are based on the
recommendations of the EIC and the City's
economic options. Effective January 1,
2006, proposed plan design changes include
the following:
1. Align health plan year with City
fiscal year beginning October 1,
2006
2. Move to the Open Access Plus
Network (3% savings)
3. Add a $500 per person/S1,000 per
family plan year deductible (6%
savings)
4. Change the co-insurance percentage
to 90% in-network/70% out-of-
network (3% savings)
5. Add a $1,000 per person/S2,000 per
family out-of-pocket maximum
(3.5% savings)
6. Increase the physician office visit co-
paymem to $20 (0.5% savings)
7. Change the prescription drug co-
payment structure to $10 for generic,
$30 for formulary and $50 for name
brand (2% savings)
These plan design changes are estimated
to save the City approximately 18%.
Additionally, staff recommends
increasing employee premiums by $35
per month. This will generate an
additional 4.5%, or approximately
$471,000, in employee funding for
health insurance. Table 9 below shows
the current employee premiums and the
new, recommended premiums.
12
Table 9 - Recommended Premium Changes
Coverage Type Current Recommended
Premium Premium
Employee Only $0 $35
Emp + Child $96 $131
Emp + Spouse $155 $190
Emp + Family $195 $230
For the individual with Employee Only
coverage ($35) who meets his/her deductible
and out-of-pocket maximum, these proposed
changes would cost the employee $1,920
more for health expenses than in previous
years. For our lowest wage earner that
would mean a comparable 7.3% reduction in
pay, and for our average non-exempt
worker, it would mean a comparable 4.5%
reduction in pay.
Staff recognizes that this recommendation
has the potential to be of significant impact
on employees. It does however enable us to
meet our budget target of keeping the city's
contribution to employee health care at an
increase of 3% or less.
13
Appendix 1 - Glossary
CDH Plans - Consumer Driven Health Plans
Co-Insurance - percentage you pay for eligible expenses after you satisfy the deductible, if any.
There is usually a maximum amount of co-insurance that is incurred each year before the plan
pays at 100% for the rest of the year
Co-payment - fiat fee paid out of pocket for medical services at time of service. Usually applies
to office visits, prescriptions, emergency or hospital services
Deductible - dollar amount of medical care a person must pay each year from their own pocket
before the health plan will make payment
EIC - Employee Insurance Committee
FSA - Flexible Spending Account
HMO - Health Maintenance Organization
HRA - Health Reimbursement Arrangement
HSA - Health Savings Account
MSA - Medical Savings Account
Out-of-Pocket Maximum - the maximum amount of money a person will pay in a plan year in
addition to premium payments, co-payments and deductibles
PBA - Personal Benefit Account
PCP - Primary Care Physician
PPO - Preferred Provider Organization
UHC - United Healthcare
14
AGENDA INFORMATION SHEET
AGENDA DATE:
DEPARTMENT:
ACM:
April 4, 2005
Utility Administration
Howard Martin, Utilities
349-8232
SUBJECT
Receive a report, hold a discussion and give staff direction regarding the FY 2005-06
drainage operating budget and CIP.
BACKGROUND
At the January 25, 2005 City Council Workshop, staff presented the drainage financial
forecast through FY 2010. Based on the Council's discussion of the issues, staff was
directed to evaluate the impact on the Drainage CIP if the drainage fee paid by General
Fund and the franchise fee and return on investment (ROI) paid by the Drainage
operation were eliminated. In addition, the Council wanted information concerning the
identifiable drainage expenses associated with the transportation and street reconstruction
projects in the current Capital Improvement Plan (CIP).
The following information includes the franchise fee, return on investment and drainage
fee payments since the approval of the drainage fee in January of 2002.
Franchise Fee/ROI Payments
GF Drainage Charges
FY02 $177,271
FY03 $265,378*
FY04 $253,279
FY05 $278,426
FY02 $ 85,067
FY03 $117,603
FY04 $121,287
FY05 $ 78,625*
Total $974,354 Total $402,582
*State institute exemption June 2003
*Airport Charge Reduction
The following information includes the projected drainage expenses associated with the
current Transportation and Street Reconstruction CIP Projects.
1. Brinker Road - FY05 Project Total - $910,000
Drainage related expenses - $272,068
2. Shady Oaks -
FY05 Design - $350,000
FY06 Construction - $2,200,000
Drainage related expense - $756,463
3. Western Blvd - FY06 Construction - $3,640,000
(No drainage estimate)
4. Hobson Lane/FM 1830 Intersection - FY05 Construction - $1,200,000
(No drainage estimate)
5. Arterial/Residential Street Reconstruction
Total Project Costs Drainage Expense
FY2004-05 $ 910,000 $ 64,958
FY2005-06 $ 940,000 $110,424
FY2006-07 $3,095,000 $108,549
FY2007-08 $2,810,000 $ 81,469
FY2008-09 $2,245,000
Estimated drainage related expenses for the five year transportation and street
reconstruction CIP are approximately $1,400,000.
SUMMARY
Based on the Council's direction, staff has analyzed the financial impact to the drainage
budget and future CIP if the general fund does not pay drainage fees and the drainage
division does not pay franchise fee and return on investment. Staff has forecast all
drainage expense through FY 2018, which is when the general obligation debt will be
retired. Based on these changes, there will be a net revenue increase of approximately
$3.3 million over the next 13 years to the Drainage CIP. This revenue increase in
combination with projected capital funding would produce approximately $880,000 in
average annual funding for capital improvements totaling an estimated $11.5 million over
the next 13 years.
At this time staff is moving forward with the elimination of franchise fee, return on
investment and drainage fee payments in the long-range financial forecast scheduled for
City Council review on April 12, 2005.
Respectfully Submitted:
Howard Martin
Asst. City Manager - Utilities