MAKING CHOICES TO PROTECT OUR WELFARE FUND BENEFITS

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MAKING CHOICES TO PROTECT OUR WELFARE FUND
BENEFITS

• September, 2002
• September, 2002

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Facing an operating deficit of 10 million by
2004 -- a crisis that has been building for 10
years -- the Welfare Fund Trustees are working
aggressively to restore the Funds financial
health.The crisis is a consequence of

• Skyrocketing Rx cost increases
• Underfunding of benefits
• Past failures to make necessary changes.
• We are now taking actions that should have been
  taken years ago.

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Our financial problems are part of a national
health care crisis and a political climate that
is hostile to working people and their unions.
The long-term solution is political. But we have
to find some short-term solutions now.

• YOUR RESPONSES ARE CRUCIAL TO THE TRUSTEES
  DECISIONS.
• The presentation that follows is designed to
  help you to respond.

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WF crisis part of US trend

• US health expenditures increased 69 in the
  1990s.
• Per capita spending was 2,738 at the beginning
  of decade 4,637 at the end, a 69 increase.

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Rx spending increased even faster and the WF kept
pace,

• US PSC Rx costs climbing steadily
• In 2001
• PSC actives ( dependents) spent 555 per person
• PSC retirees ( dependents) spent 1,480 per
  person

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making the WF crisis worse, as prescription drugs
dominate WF expenses.

• Rx spending was 55 of Fund benefit spending in
  2001.
• Dental services were 19
• Adjunct basic health insurance was 13.

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The new collective bargaining agreement provides
additional resources.

• 350 in cash payments for each participant.
• 200 per participant increase in rate, paid
  annually.
• Additional contributions for adjunct health
  benefits.
• A shift of some drug costs from the Fund to City
  health insurance plans (the PICA drugs).
• Retiring 2.5 million debt owed by WF to CUNY and
  providing 1 million of that amount for a new
  employees assistance program for a net savings
  of 1.5 million.
• But even with these new resources, we are still
  facing a crisis . . .

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The CPAs balance sheet tells the story.

• The accountants balance sheet shows the Fund
  lost 2.6 million in FY 2001..

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Most of the WF expenses are for active and
retired full-time faculty staff.

• 86 of benefits expenses are for full-time
  active retired participants
• 14 is spent for basic health benefits for
  adjuncts and EOC employees.

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Using WF experience, the Segal Co., the Funds
consultant, projects deeper deficits.

• The projections assume
• No increase in membership
• No increase in contributions beyond the current
  contractual agreements.
• WF Rx benefits will continue to mirror US trends.
• Dental, major med, and other insurance will
  remain in place and increase modestly.

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The Funds reserves are projected to be 2
million at the start of FY 2004.
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The WF reserve fund will be completely depleted
in FY2004.

• The deficit will nearly double each year and
  reach 10.1 million in FY 2004

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The gap between income expense for actives
will grow 5x.

• In 2002, the gap is 90 per active WF
  participant.
• In 2004, the gap is projected to be 478 per
  active participant.

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The gap is already much larger for retirees and
will more than double between 2002 and 2004.

• In 2002, the gap is already 527 per retired
  participant
• In 2004, the gap is projected to be 1225 per
  retired participant.

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Every month of inaction increases deficits
decreases assets.
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The WF Trustees have set the goal of saving 6
million a year by restructuring the Funds
benefits

• Process used to arrive at this conclusion
• 1. Extensive review of the Funds finances and
  benefit structure by Fund Trustees and
  administrative staff.
• 2. Advice of the Funds consultants, The Segal
  Co., and the Funds legal counsel, Spivack and
  Lipton (both leading specialists in the
  field).
• 3. Six months of intensive study by Strategic
  Planning Task Force to develop proposals.
• 4. Consultation with WF Advisory Council, the
  PSC Executive Council and members with
  expertise in health care finance.

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Guiding principles for benefit restructuring
adopted by the Trustees

• Maintain substantial equality of benefits between
  active and retiree members, although
  out-of-pocket costs may differ.
• Make the impact of the changes on our sickest and
  most plan-dependent members the least burdensome.

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In June 2002, the Trustees made the first changes
in benefits and set in motion plans for future
restructuring.

• 2. Dental Plan
• through an RFP, seek alternative providers and
  modes of delivering benefits
• 3. Life insurance
• through an RFP, seek an insurer that will offer
  enhanced benefits
• and access for all in a voluntary program
• 4. Major Medical/ Catastrophic
• through an RFP, seek an insurer that will offer
  plan using both WF voluntary benefits

• 1. Prescription drug
• eliminate coverage where there are
  over-the-counter counterparts (benefit change)
• mandate mail order at 2nd refill (benefit change)
• coverage of estrogen for birth control (benefit
  enhancement)
• through an RFP seek a benefits manager that will
  offer the best possible discounts.

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Rx benefit changes already made will reduce
expenses significantly.

• Eliminate OTC Counterparts
• Not covering drugs, such as Zantac ibuprofen
  that are also available over the counter - save
  439,000

• Mandatory Mail Order at 2nd refill
• Requiring mail order for drugs for chronic
  conditions (e.g. hypertension) - save 170,000
• Coverage for Estrogen
• New benefit, including birth control pills -
  cost 258,000

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Seek a new lower-cost prescription drug manager
(PBM) with no change in benefits.

• Net savings estimated between 1.3 million and
  1.8 million.

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Such changes can add up,

• 439,000
• 170,000
• - 258,000
• 1,800,000
• 2,151,000

But it isnt enough.
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To come closer to breaking even, more changes are
being considered.

• 1. Prescription drugs
• 3-tier formulary (co-pay the greater of 5/20
  for drugs in formulary with mandatory generic
  price for equivalents when available, co-pay the
  greater of 20/20 for non-formulary drugs)
  save 800,000
• 100/family deductible for retirees only save
  352,000
• 3-tier formulary with 10/20 copay structure for
  formulary and 25/20 co-pay for non-formulary -
  save an additional 433,000.
• Reduce annual cap from 10,000 to 5,000 - save
  155,000.
• Mandated formulary for certain chronic diseases
  (for example, ulcer program save 278,000).
• Reduce annual cap from 10,000 to 2,500 per
  family -- save 1.8 million.

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Each of these elements could be a building block
of a restructured benefit package.
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2. Dental Plan To achieve savings from the
dental plan address dissatisfaction, the
Trustees must be clear about what the members
most want.
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Changing life insurance and supplemental major
medical coverage will achieve additional savings.

• 3. Life Insurance
• through competitive bidding, reduce cost of
  current coverage - save 320,000
• eliminate current coverage and replace with
  low-cost- to-member alternative - save 600,000
  
• create a WF death benefit of 5000 - cost
  125,000
• 4. Supplemental Major Medical
• Consolidate major medical catastrophic
  coverages with cost-sharing between Fund and
  member -- could produce as much as 500,000 in
  savings to the Fund.

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Questions to start our discussion

• Do you agree with the guiding principles
  formulated by the trustees?
• Which benefits are most important to you?
• What changes would you recommend?
• Are there other options that should be considered
  to save Fund resources?
• How much of the next collective bargaining
  settlement should be devoted to the Welfare Fund?
• How can you influence national and state health
  care and prescription drug policies?
• Can we make changes in our own lives and use of
  prescription drugs to promote health and bring
  down Plan costs?

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Next Steps Dialogue Action

• Dialogue with membership - Sept/Oct, 02
• Chapter meeting and discussions Sept/Oct, 02
• Contract Benefit Survey Sept/Oct, 02
• Welfare Fund Advisory Council meeting - End of
  Oct. 02
• Welfare Fund Trustee decisions - early Nov. 02
• Implement changes - beginning Jan. 03