Health Care Insurance Committee

1
Health Care Insurance Committee

• Report to the Board of Selectmen
• FINAL November 15, 2005

2
Members of the Committee

• Philip Curtis (Chair)
• Josh Coburn
• Christopher DeLorey
• Martin Klein
• Jeff Levin-Scherz
• Rosario Sacco
• Town Staff
• Diane Jenkins
• Julie Silverman

3
Committee Charge

• Examine from the broadest perspective the
  challenge of controlling retiree and employee
  healthcare costsand recommend short-term and
  long-term measures to control these costs

4
The Committees Working Principles

• Consider and evaluate all options for cost
  savings (no sacred cows)
• Quantify and consider impact of recommendations
  on employees and retirees
• Maintain choice where it is not prohibitively
  expensive
• Obtain savings through administrative means if
  possible.
• Be fair and equitable

5
Health Insurance Increases Will Crowd Out Other
Important Town Priorities
Assumption 13-15 health care premium increases
in 07-09Source Town of Belmont Budget Forecast,
November 8, 2005
6
Belmont is not alone in facing a crisis of health
insurance costs for employees and retirees

• In Massachusetts from 2001 to 2005
• 63 percent increase in tax-funded costs of health
  insurance for municipal employees.
• Municipal health insurance costs increasing more
  than four times faster than local budgets.
• Increases in health care costs consumed four out
  of five dollars in new taxes allowed under
  Proposition 2½.

Source Mass. Taxpayers Foundation
7
State laws play a role in cost of health
insurance for Belmont

• State law limits the towns ability to
  unilaterally change health insurance.1
• Health insurance is included in collective
  bargaining, and changes must be negotiated with
  labor unions.
• The Commonwealth exempts itself from many of its
  own regulations
• Massachusetts has 34 state mandates many more
  than most states.2
• PWC estimated that state and federal mandates
  represent 15 cents of every new health care
  dollar 3
• There are 70 potential mandates before the
  current state legislature 2
• There is also current legislation that might give
  towns more leeway in setting health insurance
  contributions.

Sources (1) Mass Taxpayers Foundation (2) Mass
Assoc of Health Plans, (3) Price Waterhouse
Coopers, 2002
8
Current Statistics (August 2005)

• Harvard Pilgrim Healthcare Subscribers
• Employees Retirees Total
• HMO Family Plan 311 46 357
• HMO Individual 240 66 306
• PPO Family 26 32 58
• PPO Individual 22 59 81
• First Seniority 70 70
• Medicare Supplement 266 266

Source Town of Belmont, 2005
9
Current Annual Costs/Contributions
Cost of health insurance premiums Town 7.8
million Employees/retirees 1.5 million Total
9.4 million
10
Similar Communities Contribution Levels
Portion of Insurance Paid by Town

1. In negotiations to reduce town participation
2. Nonunion is 80 on HMO contributionInformation
   current as of May, 2005. Collected by town staff

Active Employees and those not eligible for
Medicare
11
Possible Ways to Reduce Belmonts Health
Insurance Costs

• Increase percentage of premium paid by employees
  and retirees for health insurance
• Change plan design
• Increase copayments and deductibles
• Use a narrower network of lower cost providers
• Decrease utilization of services
• Utilization management programs
• Wellness programs
• Decrease administrative costs

12
Options Considered by the Committee

• Recommended for Future
• Increase town infrastructure to manage health
  benefit
• Evaluate Self Insurance for 2007
• Consider competitive bidding for 2007
• Evaluate joining purchasing coalition
• Review Medicare Part D implications during 2006
• Medical management programs and wellness programs
  for Town employees
• Promote cost-effective legislative actions

• Recommended Now
• Change benefit design to be consistent with
  market
• Same dollar contribution for PPO as HMO
• Reduce town contribution level from current 90
  to 80

13
Options Considered by the Committee

• Not Recommended Ever
• Differential treatment for retirees not eligible
  for Medicare compared to active employees
• Benefit cap

• Not Recommended At This Point
• Claims audit
• Narrower network
• Health Savings Account with High Deductible
  health plan

14
Recommendation One Adopt HPHC Value 15 or
similar plan

• Current plan
• 5 office visit
• 5/10/20 pharmacy
• 50 ER copay
• No inpatient copay
• No ambulatory surgery copay

• Recommended plan
• 15 office visit
• 10/25/40 pharmacy
• 75 ER copay
• 250 inpatient copay
• 100 ambulatory surgery copay

Savings likely 620,000Impact on employees
Lower premiums and higher payments for care.Will
require bargaining.
15
Recommendation Two Set Town Contribution Based
on Lower Cost Plan

• Current plan
• Town pays 90 of the HMO and 80 of the PPO
  regardless of cost

• Recommended plan
• Town would fix its maximum dollar contribution at
  the less expensive health plan

Savings likely 460K savings from Option 2
alone 1.1 million from Options 1 and 2
togetherImpact on employees Higher premium
deductions from paycheck if employee chooses a
more expensive health planLikely to move some of
the less healthy employees to the HMO, which
could raise future HMO premiums.Will require
bargainingIf town sets Medicare Enhanced
contribution at First Seniority level, could have
additional 300K savings but we dont recommend
this.
16
HPHC enrollment by plan(2005)
17
Recommendation Three Reduce Town Contribution
to 80

• Current plan
• 90 town contribution is among the highest of
  municipalities surveyed

• Recommended plan
• 80 town contribution is more consistent with
  current municipal practice

Savings likely 650,000 from Option 3 alone
1.9 million from Recommendations One, Two and
Three Impact on employees Higher premium
deductions from paychecks.Will require bargaining
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Summary of Recommendations One to Three
Option One Increase copaymentsOption Two
Equivalent town contribution for PPOOption
Three Lower town contribution to 80
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Future Recommendation OneIncrease Town
Oversight of Health Insurance

• Current
• Town has chosen to economize on health benefits
  consulting.

• Recommended
• Seek additional consulting assistance, including
  evaluation of self-funding, competitive bidding
  and regular claims monitoring

Savings likely Belmont will not be able to
evaluate competitive bids or self-funding with
its current administrative infrastructure.
20
Future Recommendation Two Competitively Bid
Contract in 2007

• Current plan
• We are asking for a renewal quote from HPHC in
  the fall, and not offering other health plans the
  opportunity to bid on our business

• Recommended plan
• Belmont will issue an RFP periodically and assess
  competing bids for the highest value to Belmont

Savings likely As much as 5 if we remain fully
insured. In many instances, the threat of bidding
lowers the price for existing carriers. Small
incremental administrative costs are
incurred.Impact on employees If we change
carrier, new cards will be issued and employees
will have to contact a different carrier with
questions regarding payment.
21
Future Recommendation Three Evaluate
Self-Funded Option for 2007 and beyond

• Current plan
• Belmont contracts with HPHC and agrees to a set
  premium and HPHC is responsible for paying all
  bills for covered services

• Recommended plan
• Town is responsible for actual payments and
  contracts with a third party administrator (could
  be HPHC) to pay claims
• Town would purchase reinsurance

Savings likely 8-15This would mean that any
effort to improve employee health would benefit
Belmont, rather than the insurer.
22
Future Recommendation Four Evaluate Joining a
Purchasing Coalition

• Current plan
• Belmont negotiates for its health coverage as a
  single town.

• Recommended plan
• Belmont would purchase insurance through a
  coalition of municipalities.

Savings likely Not possible to estimate at this
point.Small incremental administrative costs are
incurred.
23
Future Recommendation Five Town-Specific Medical
Management and Wellness Programs

• What it is
• Programs to help keep Belmont employees and their
  families healthy and reduce overall medical costs
• Examples include disease management programs,
  nurse coaching, and educational programs to
  encourage healthy lifestyle, exercise, smoking
  cessation and weight loss
• Why we recommend deferring until a future point
• We are currently paying HPHC to perform these
  functions
• If Belmont moves to self-insurance we should
  institute this type of program. Now, any savings
  would go to HPHC

Savings likely Small at outset, but actual
changes in behavior could result in meaningful
savings.
24
Future Recommendation Five Review Medicare Part
D implications after 2006

• Current plan
• Belmont will continue to fund retiree
  prescription benefit in 2006

• Recommended plan
• Obtain an actuarial analysis to determine if we
  should transition drug coverage to federal plan
  in subsequent years

Savings likely Not known
Note that town currently pays 60-69 of retiree
health care costs for retirees eligible for
Medicare . An administrative effort to move
eligible patients to Medicare saved an estimated
100,000.
25
Not Recommended At This PointClaims Audit

• What it is
• A third party reviews HPHCs claims payments to
  see if the health plan has overpaid providers.
• Overpayments can often range to over 10 of total
  expense
• Why we recommend against it now
• HPHC would receive any recoveries as it is the
  insurer. Theoretically, we might get a break on
  future years costs
• We would have to pay a fee to the auditor, and in
  general that fee is a portion of total recoveries
  (which will go to HPHC)
• We should reevaluate this if the Town chooses
  self-funding in the future.

26
Not Recommended At This Point Narrow Physician
or Hospital Network

• What it is
• Belmont employees would be more limited as to
  what providers were available
• Why we recommend against it now
• The market does not have attractive narrow
  network products at this point
• We are too small an account for a health plan to
  develop a select network for us

27
Not Recommended At This Point High Deductible
Health Plans with Health Savings Account

• What it is
• Health plan has a 1,000 deductible, and Belmont
  would provide funds for a portable health care
  savings account to any employee who accepts such
  a health plan (which is substantially less
  expensive than our current plans)
• Savings in part due to beneficiaries being more
  price-sensitive and insisting on more
  cost-effective care.
• Why we recommend against it now
• State regulations would not allow us to mandate
  that all employees move to this type of plan, and
  if only a small group of young, healthy employees
  moved, the costs for Belmont would likely rise.
• This is far from the standard for municipalities
  at this point
• These products are still relatively new, but we
  understand they are likely to become a larger
  market force and we should continue to evaluate
  this option for the future.

28
Not Recommended Treating Retirees And Active
Employees Differently

• What it is
• Belmont would pay a lesser share of health
  insurance premiums for retirees not eligible for
  Medicare
• Why we recommend against it
• We believe that this is not fair or equitable,
  and is not the community standard for
  municipalities

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Not Recommended Benefit Cap (Lifetime or Annual
Maximum)

• What it is
• There would be a maximum payout (e.g. 1
  million) for each insured Belmont employee or
  family member.
• Why we recommend against it
• Difficult for health plans to operationalize
• Projected savings modest
• Bad public policy to have individuals at risk
  for cost of catastrophic events
• Individuals have little discretion in care at
  catastrophic level
• Discriminates against those with devastating
  illness
• Note that if we move to self-funding, reinsurance
  might impose such a limit

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Options Considered by the Committee

• Recommended for Future
• Increase town infrastructure to manage health
  benefit
• Evaluate Self Insurance for 2007
• Consider competitive bidding for 2007
• Evaluate joining purchasing coalition
• Review Medicare Part D implications during 2006
• Medical management programs and wellness programs
  for Town employees
• Promote cost-effective legislative actions

• Recommended Now
• Change benefit design to be consistent with
  market
• Same dollar contribution for PPO as HMO
• Reduce town contribution level from current 90
  to 80

31
Options Considered by the Committee

• Not Recommended Ever
• Differential treatment for retirees not eligible
  for Medicare compared to active employees
• Benefit cap

• Not Recommended At This Point
• Claims audit
• Narrower network
• Health Savings Account with High Deductible
  health plan

32
Appendix
33
Detail from Recommendation One Current vs.
Recommended Plan
34
Administrative actions already taken to reduce
burden of health care cost

• Movement of patients eligible for Medicare to
  Part B and Medigap plan
• Belmont moved 30 eligible enrollees to Medicare
  in 2004-2005.
• Savings to Belmont exceeded 100,000 in the first
  year, and ongoing savings are anticipated.