FLORIDA GOVERNMENT FINANCE OFFICERS ASSOCIATION

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FLORIDA GOVERNMENT FINANCE OFFICERS ASSOCIATION

• Self-Insured Health Plans A Proven Cost Saving
• Presented by
• John D. Robinson, CEBS
• June 2, 2009

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Agenda

• Health Plan Premium Components
• Factors That Influence Funding Decision
• Factors to Consider if Moving to Self-Insured
• Administrative Issues of Self-Insured
• Case Studies
• Contractual and Reporting Issues
• Questions and Answers

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About RobinsonBush

• Florida Based Benefits Consulting Firm
• Orlando Headquarters
• Large Public Private Sector Clients
• Consulting Expertise
• Health Plan Design and Financial Experience
• Ongoing Health Plan Management and Analytics
• Disease and Wellness Initiatives
• Cost Containment Strategies
• Other Employee Benefits Consulting Services

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Fully Insured

• The employer pays a premium to an insurer for
  health coverage.
• Premium is due in advance and is actuarially
  projected to cover anticipated claim costs and
  expenses.
• The insurer assumes the risk of providing health
  coverage.

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Self Insurance (Self Funding)

• The self-retention of risk in lieu of
  transferring the risk to a third party.
• The employer assumes the financial risk for
  providing health care benefits.
• Self funding and self insurance are routinely
  substituted terms.

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Premium Components

• Premium
• Claims - Claims Adjustments
• Excess Loss Insurance Coverage
• Administrative Fees
• Margin

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Premium Components Claims

• Incurred Claims
• Paid claims
• Incurred but not reported claims (IBNR)
• Claims Adjustments
• Catastrophic claims
• Pharmacy rebates
• Medicare Part D

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Premium Components Excess Loss Insurance

• Coverage for Catastrophic Losses
• Individual or Specific Loss Insurance
• Aggregate Loss Insurance
• Included in Fully Insured Premiums
• Purchased if Self Funded
• Factors Impacting Coverage
• Group Size
• Claim History
• Risk and Surplus

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Premium Components Administration

• Administrative Fees
• Claims processing functions
• Case and disease management
• Network access and discounts
• COBRA administration
• Member communications
• Reports
• On-site Assistance
• Commissions
• Margin

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Factors Impacting Premiums

• Claims Experience
• Credible information
• Prior Years Premium
• Administrative Services
• Claims Trend

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Claims Trend Large Employer (19,000 Members)
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Claims Trend Small Employer (400 Members)
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Claims Triangle Paid and Incurred Claims
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Factors Impacting Funding Decision

• Size of the Group
• Stability of the Workforce
• Employer Cash Flow
• Tolerance for Risk
• Capability to Administer the Plan
• Discipline of Employer

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Self Funding Status
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Self Funding by Industry

• Agriculture/Mining/Construction 35
• Manufacturing 66
• Trans./Communications/Utilities 58
• Wholesale 43
• Retail 52
• Finance 55
• Service 49
• State/Local Government 66
• Health Care 65
• ALL FIRMS 55
• Estimate is statistically different from
  estimates for all other firms not in indicated
  industry

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Why Employers Self Fund

• Save Money
• Avoid Some State Regulations
• Ability to Carve Out Certain Programs
• Have Better Control of Plan
• Experience of Other Employers
• Plan Flexibility

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Self Funded Plan Flexibility

• Plan Design
• Co-pay and Co-insurance Options
• Carve-out Programs
• Pharmacy
• Behavioral Health
• Disease Management
• Wellness and Health Management
• Educational Programs
• Incentive Programs
• Disease Specific Initiatives

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Positive Aspects of Self Funding

• Favorable Claims Experience Benefits Employer
• Lower Premium Tax
• No Margin or Profit
• Employer Control of Reserves
• Improved Cash Flow
• Favorable ASO Fee Renewal Calculation
• Accumulation of Interest
• Plan Design Flexibility
• Carve-out Program Options

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Negative Aspects of Self Funding

• Assumption of Risk
• Additional Administration
• Additional Administrative Costs
• Requests for Plan Exceptions
• Determination of Plan Interpretation
• Potential for Inadequate Premium Setting
• Potential to Use Reserves for Reoccurring
  Expenses

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Companies Providing Self Funded Services

• Health Plan Carriers on an ASO Basis
• Third Party Administrators
• Specialty Companies
• Pharmacy Benefit Managers
• Behavioral Health Companies
• Disease Management Companies

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Funding Differences
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Administrative Issues Leading to Self Funding

• Administration and Staffing
• Eligibility Issues
• COBRA Administration
• Claim Fiduciary Responsibility
• Claims and Administrative Payment Procedures
• Excess Loss Insurance Protection
• F.S.112.08 Filing
• Claims Payment Variations

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Claims Payment
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Self Funding Administrative Considerations

• Need to Actively Manage the Plan
• Track Experience and Utilization
• Administer Benefits as Specifically Defined in
  the Plan Document
• Implement Programs that Will Improve Health
• Understand the Administrative Services to be
  Provided by the Carrier

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Self Funding Financial Considerations

• Develop Meaningful Financial Reports
• Reconcile Plan Membership
• Treat Premium as if Fully Insured
• Guard Against Surplus Use for Reoccurring
  Expenses
• Protect Against Catastrophic Losses

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Orange County Government 2007 Health Plan
Renewal

• 8 fully insured increase was proposed by UHC for
  2007
• Move to self-funded in 2007 and increased
  premiums by 5 which adequately covered claims
  trend
• Previous consideration was given to self funding
• Claims trend was approximately 8

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Orange County Government Claim Trend Scenarios
for 2007
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Orange County Government 2008 and 2009
Health Plan Experience

• Plan Year 2007 Ending Balance of 12.2 m
• IBNR of 6.2 m
• Reserves of 6.0 m
• Plan Year 2008 Premium Increase of 1.35
• Ending Balance of 18.1 m
• Plan Year 2009 Premium Increase of 5
• Heath Management Initiatives
• HRA and Biometric Screenings
• Diabetes Management Program

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Orange County Government Health Plan
Administration

• Rx Rebates Funding Wellness Activities
• HRA
• Screenings
• Hired Health Plan Accountant
• Co-pay Changes
• ER and Urgent Care
• Outpatient ASC
• Exams and Screenings
• RFP Pharmacy Benefit Management

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Polk Public Schools Health Plan Trend Increase
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Polk Public Schools Health Plan Experience
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Duval County Public Schools Health Plan
Experience

• RFP for 2006-07 Plan Year
• Fully Insured with Self Funded Renewal Option
• On site Customer Service and Wellness
• 2007-08 Change to Self Funding
• Ending Balance of 7.2 m (IBNR 5.8 m)
• Premium Savings of Additional 1.4 m
• Hired Additional Staff
• Plan Year 2008-09 Premium Increase of 4

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Duval County Public Schools Claims Trend
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Duval County Public Schools Health Plan
Management

• Comprehensive Weight Management Program
• 100 Morbidly Obese Members in Program
• Wellness Activities
• Physicians Advisory Council
• Local Physician Involvement
• Review Utilization and Suggest Options
• Connection to Physician Community
• Pharmacy Initiative

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Duval County Public Schools Pharmacy Trend at
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Duval County Public Schools Pharmacy RFP

• Pharmacy Utilization
• PMPM of 85.49
• Generic Fill Rate of 57.6
• 16.2 Rx/Member/Year
• High PPI Use
• RFP Result
• Generic Fill Rate Guarantees
• Discount and Fee Savings of 2.0 m
• Interaction With Physicians
• Implementation of Step Therapy Programs

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Contractual Issues Financial

• Base ASO Fees on an Incurred Claims Basis
• Clarify the Additional Fees Charged
• For Programs
• For Carve-out Plans
• For Excess Loss Reports
• For Detailed Claims and Ad Hoc Reports
• Document Preparation and Distribution

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Contractual Issues Administrative

• Plan Payments
• Banking Arrangement
• Supporting Documentation
• Claims Appeals
• Reports
• Auditing Procedures

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Financial Information Monthly Reports

• Categories to be Broken Down
• Plans Offered
• Employer Entities
• Costs by Relationship
• Retiree Classifications
• Expense Classifications
• Revenue
• Deductions Taken and Premiums Collected
• Premium Equivalents
• Interest

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Financial Information Monthly Expenses

• Claims Categories
• Claims Expenses
• By Claims Month Processed
• By Claims Paid Date
• By Incurred Date
• Claims Adjustments
• Administrative Expenses
• Contracted Services
• Internal Expenses

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Presentation Summary

• 89 of Employers over 5,000 Employees Self Fund
  Health Plans (76 of Employers over 1,000
  Employees)
• Successful Characteristics
• Large Groups with Predictable Trends
• Stable Population
• Active Management of Plan
• Plan Needs to be Properly Funded and Run as a
  Fully Insured Plan
• Timely and Accurate Reporting is Essential

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FGFOASelf-Insured Health PlansJune 2, 2009

• Comments,
• Questions Answers
• For Further Information Contact
• John D. Robinson at
• jrobinson_at_robinsonbush.com