Medical Plan Self-Insurance Presentation for Committee of the Whole

Transcription

1 CITY OF MINNEAPOLIS Medical Plan Self-Insurance Presentation for Committee of the Whole Prepared by: Departments of Human Resources and Finance April 26, 2017

2 Background and History of Self-Insurance Discussions at the City City s fully insured medical plan experienced significant cost increases over the last decade. To control costs, the City and its Labor partners: made plan design adjustments negotiated cost-sharing arrangements between the employer and employees developed a robust wellness program with incentives negotiated rate caps with the current insurance carrier A continuing point of frustration has been that fully insured plans inherently lack transparency, limiting ability to assess actual plan costs Beginning in 2013, explored self-insurance through collaboration with labor partners and the Benefits Labor Management Committee In 2014 the Council adopted a resolution supporting the transition to a self-insured medical plan as early as 1/1/2015 While work toward self-insurance continued, there were obstacles The City is now in the best position since 2013 to proceed with moving to self-insuring

3 Advantages of Self-Insurance Cost Control Annual cost increases for self-insured plans have historically been significantly less than for fully insured plans The City will avoid certain taxes and fees (premium tax and ACA health insurer tax) Reserves will be retained by the City rather than contributed to the insurance company Improved cost-transparency will lead to greater ability to evaluate plan design Self-insurance allows greater flexibility with plan/program design and administration (e.g., can carve out pharmacy; direct contracting for services to best in class providers)

4 2018 Medical Renewal Insured vs. Self-Insured Medica s Fully Insured Renewal Used 2016 City experience to project 2018 claims Utilized 8.72% annual underwriting trend assumption Medica book-of-business trend factor Included retention components applicable to insured plans that are not applicable under self-insurance: 2% State premium tax, 2% Medica plan reserves, 3.4% ACA Health Insurer Tax (HIT) Quoted rate increase of 7.5% Self-Insured Projection (Deloitte) Used 2016 City experience to project 2018 claims Utilized 7.8% annual underwriting trend assumption Based on survey data, market trends from local health plans, City experience taken into account Included fees for Medica and internal administration for all current benefit components Incorporated stop loss insurance premium ($350k deductible) Included ACA PCORI fee Included reserve margin of approximately 4% Projected rate increase of 5% Savings of 2.5% over Medica s fully insured renewal

5 Staff Recommendation Implement a single-employer, self-insured medical plan effective 1/1/2018 Transition MBC and YCB to other benefit plans for 2018 Maintain the current carrier, benefit plan design, programs and services for 2018 to minimize disruption Purchase individual and aggregate stop-loss insurance to mitigate risk to the City Build into the 2018 premiums an allowance to establish the claims reserve fund proposed 4% Provide updates on plan performance and reserve status to Council first two years and periodically thereafter

6 Self-Insured Reserve Guidelines It is a generally accepted and sound practice for employers with selfinsured benefit programs to establish reserves for unpaid claims liability and/or unexpected claim levels. Reserves are dedicated solely for the medical plan and cannot be used for any other purpose. Common Reserve Components (% of annual paid claims) Incurred but not Paid (IBNP) Claims Liability (8%-11%) For claims incurred during the plan year that haven t been reported/paid by year-end Contingency Reserve for Rate Stabilization (15%-20%) In case of unexpected poor claims experience Reserve for Unpaid Retention Costs (2%-4%) Run-out administration fees and stop loss premium upon plan termination Typical total reserve target (25%-35%)

7 Self-Funding and Reserves Due to the lag in claim reporting/processing, a new self-funded plan will pay a portion (e.g. 85%) of the claims incurred during the first year Reserves are adjusted annually based on the current claim estimate and trend Self Funded Plan Year One Self Funded Plan Year Two Claims Incurred Claims Incurred Reserves Claims Paid Claims Paid

8 Transition Timeline Timing April 28 May May - June February - November May - September January 1, 2018 Tasks City Council approval to implement a single-employer, self-insured medical plan effective January 1, 2018 Communicate to employees Amend the Medica contract to administration only Transition the MBC and YCB to their own benefit programs Establish Internal financial procedures New plan year begins