City of Arlington Health Plan Benefit

1
City of ArlingtonHealth Plan Benefit

• July 2, 2004

2
Overview

• Introduction
• GASB Impacts
• Health Plan Benefit Alternatives

3
Health Benefit Change Drivers

• Escalating health care costs
• Citys current plan design
• Workforce demographics
• Accounting and funding for post employment
  benefits

4
Recommendations

• City hired the Hay Group to review the current
  health benefit and to consider
• How do our current benefits compare?
• Where is the market going in the future?
• Hay presented recommendations to achieve three
  goals
• Maintain Market Competitiveness
• Reduce Upcoming GASB Liability
• Moderate the Projected Increases in Health
  Benefit Costs to Address the Continuing
  Structural Deficit

5
Recommendations

• Impacts vary based on class of employee
• Almost 1,000 active employees will see a net pay
  increase as their premiums drop
• Remaining active employees and retirees will see
  an increase in their premiums

6
Difficult Balance

• Employee Impact
• Benefit Competitiveness
• Fiduciary Responsibility

7
GASB
8
Governmental Accounting Standards Board - GASB

• Under Financial Accounting Foundation which
  controls GASB and FASB
• Set standards for financial reporting for state
  and local governments
• Recognized as authoritative by American Institute
  of Certified Public Accountants (AICPA)
• State law requires that the City have an annual
  audit and issue financial statements
• External auditors follow GASB

9
Failure to Adhere to GASB

• Auditors issue a qualified or adverse opinion
  (vs. unqualified)
• Bond underwriters are regulated by SEC and
  require accurate financial information
• City is subject to SEC anti-fraud provisions
• City must disclose all material financial
  information

10
Failure to Fund Retiree Health Benefit

• Lack of funding must be disclosed to financial
  markets and rating agencies
• Lowered city bond rating
• Higher borrowing cost
• As unfunded obligations grow question as to
  going concern
• Unable to issue bonds

11
Health Benefit Alternatives
12
Consideration of Alternatives

• Total Annual FY FY
• GASB GASB 05 05 Current
• 196M 20M 10 1.3M
• All alternatives increase GASB liability
• and FY 05 cost
• 121M 11M 3 300k Proposed

13
Savings Estimates

• Annual savings estimates presented in the June 15
  presentation are calculated
• In Calendar Year terms
• Across all funds
• Representing best case scenario
• Annual savings estimates represented in todays
  discussion are calculated
• In Fiscal 05 terms
• On General Fund impact only
• Representing a conservative projection of outcome

14
Savings Estimates

• Critical Contributing Factors
• Migration analysis (movement from or off
  respective plans)
• Further evaluation of current year claim activity
• Final Council decision on recommendations

15
Plan Design Changes

• Compared to the Hay recommendations, maintaining
  the current benefit has the following impact

A blank space indicates neutral or no impact.
16
Prescription Drug Changes

• Compared to the Hay recommendations, maintaining
  the current benefit and/or adopting alternatives
  has the following impact

A blank space indicates neutral or no impact.
17
Rate Structure Changes

• Compared to the Hay recommendations, maintaining
  the current benefit and/or adopting alternatives
  has the following impact

A blank space indicates neutral or no impact.
18
Eligibility For Retiree Benefit Subsidy

• Compared to the Hay recommendations, maintaining
  the current benefit and/or adopting alternatives
  has the following impact

A blank space indicates neutral or no impact.
19
Contribution Philosophy - Employee

• Compared to the Hay recommendations, maintaining
  the current benefit and/or adopting alternatives
  has the following impact

A blank space indicates neutral or no impact.
20
Contribution Philosophy - Retiree

• Compared to the Hay recommendations, maintaining
  the current benefit and/or adopting alternatives
  has the following impact

A blank space indicates neutral or no impact.
21
Contribution Philosophy Retiree Dependents

• Compared to the Hay recommendations, maintaining
  the current benefit and/or adopting alternatives
  has the following impact

A blank space indicates neutral or no impact.
22
Discussion