Joint Labor-Management Benefits Committee COMMITTEE REPORT 17-26

Transcription

1 Joint Labor-Management Benefits Committee COMMITTEE REPORT JOINT LABOR-MANAGEMENT BENEFITS COMMITTEE MEMBERS: Employee Organizations Date: June 22, 2017 To: From: Subject: Joint Labor-Management Benefits Committee Staff LAwell Civilian Benefits Program Annual Service Provider Rate Renewals, Contracts, and Plan Design Changes for Plan Year 2018 Cheryl Parisi, Chairperson Paul Bechely Chris Hannan David Sanders William Violante Management Wendy G. Macy, Vice-Chairperson June Gibson Rich Llewellyn Tony Royster Matthew Rudnick RECOMMENDATION A. Annual Service Provider Rate Renewals That the Joint-Labor Management Benefits Committee (JLMBC) recommend to the General Manager Personnel Department approval of annual service provider rate renewals for the following LAwell Civilian Benefits Program service providers: (1) Kaiser Permanente for a 1.9% premium rate increase for Plan Year 2018 for the LAwell Civilian Benefits Program Staff Model Health Maintenance Organization (HMO) plan. (2) Anthem Blue Cross for premium rate increase for Plan Year 2018 for the LAwell Civilian Benefits Program Preferred Provider Option (PPO) (12.7%), Full Network HMO (12.7%), Narrow Network HMO (12.7%), and Vivity HMO (8.5%) plans. (3) Delta Dental for a 0% premium rate change renewal for Plan Year (4) Managed Health Network for a 0% premium rate change renewal for Plan Year (5) WageWorks for a 0% premium rate change renewal for Plan Year (6) EyeMed for a 0% premium rate change renewal for Plan Year B. Kaiser Permanente Contract Term That the JLMBC recommend to the General Manager Personnel Department that the contract term length for Kaiser Permanente to provide the LAwell Civilian Benefits Program Staff Model HMO plan be extended to three years (January 1, 2017 through December 31, 2019). C. Plan Design Changes That the JLMBC approve the following recommended plan design changes for Plan Year 2018: (1) Basic Disability Insurance Increase the monthly basic disability maximum benefit amount for Plan Year 2018 by $35 from $3,166 to $3,201. (2) Tax-Advantaged Spending Accounts Increase the annual maximum contribution for Healthcare Flexible Spending Account (HFSA) by $50 from $2,550 to $2,600. DISCUSSION This report provides information to the JLMBC regarding decision points involving annual service provider rate renewals and plan design changes for the 2018 LAwell Civilian Benefits JOINT LABOR-MANAGEMENT BENEFITS COMMITTEE

2 Program. Following is a summary of the JLMBC actions to date relative to the development and consideration of procurements for Life, Disability, and Accidental Death and Dismemberment AD&D insurance, Employee Assistance Program (EAP), and Tax- Advantaged Spending Accounts services, and medical plan premium rate renewals: January 5, 2017 the JLMBC approved the Request for Proposals (RFP) for EAP services for Plan Year February 2, 2017 the JLMBC approved the RFP for Life, Disability, and AD&D insurance and Tax-Advantaged Spending Accounts services for Plan Year May 23, 2017 the JLMBC recommended to the General Manager Personnel Department that (a) the 2017 Requests for Proposal (RFPs) for Employee Assistance Program (EAP) and Tax-Advantaged Spending Accounts services be canceled; (b) that the term of Contract No. C with Managed Health Network to provide an Employee Assistance Program be extended through December 31, 2018; and (c) that the term of Contract No. C with WageWorks to provide Tax-Advantaged Spending Accounts services be extended through December 31, May 23, 2017 the JLMBC reviewed information presented by the JLMBC s consultant, Segal Consulting regarding 2018 medical plan rate renewals. June 8, 2017 the JLMBC recommended to the General Manager Personnel Department that The Standard be selected as the combined provider of the LAwell Civilian Benefits Program Life, Disability, and AD&D insurance options. A. ANNUAL SERVICE PROVIDER RATE RENEWALS Annually, the JLMBC reviews and makes recommendations on LAwell Civilian Benefits Program service provider rate renewals for the following plan year. Below is a list of the LAwell Civilian Benefits Program existing service provider contracts that require action relative to rate renewals: Provider Benefit Plan Premium Change JLMBC Recommendations for 2018 Plan Year 1. Kaiser Permanente Staff Model HMO 1.9% Approval of 1.9% premium rate increase for Plan Year Anthem Blue Cross Preferred Provider Option (PPO) 12.7% Approval of 12.7% premium rate increase for Plan Year Anthem Blue Cross Full Network HMO 12.7% Approval of 12.7% premium rate increase for Plan Year Anthem Blue Cross Narrow Network HMO 12.7% Approval of 12.7% premium rate increase for Plan Year Anthem Blue Cross Regional Network HMO (Vivity) 8.5% Approval of 8.5% premium rate increase for Plan Year Delta Dental Dental HMO, PPO, & Preventive Care Plans 0.0% Approval of 0.0% premium rate change renewal for Plan Year Managed Health Network Employee Assistance Program 0.0% Approval of 0.0% premium rate change renewal for Plan Year WageWorks Tax-Advantaged Spending Accounts 0.0% Approval of 0.0% premium rate change renewal for Plan Year EyeMed Vision Plan 0.0% Approval of 0.0% premium rate change renewal for Plan Year

3 1. Kaiser Permanente (Staff Model HMO) Premium Renewal The current insurance provider of the LAwell Civilian Benefits Program staff model HMO plan is Kaiser Permanente (Kaiser). Kaiser submitted correspondence dated April 10, 2017 indicating that it is proposing a 1.9% premium rate increase for Plan Year This rate increase includes Affordable Care Act (ACA) fees and $1 million in annual discretionary wellness funds to support the City s health and wellness initiatives. An overview of the key factors impacting the renewal was presented by Segal Consulting (Segal) at the JLMBC s May 23, 2017 meeting. Additional data and analysis related to the renewal is provided within Attachment A to this report. Segal s analysis indicates that Kaiser s proposed renewal is consistent with the unique factors informing the renewal, and staff concurs with this analysis. As a result, staff recommends that the JLMBC recommend to the General Manager Personnel Department approval of Kaiser s proposed 1.9% premium rate increase for Plan Year Contract Term In 2016, the Personnel Department and JLMBC conducted procurements for Health Plan services, including the LAwell Civilian Benefits Program s Staff Model HMO plan. The JLMBC recommended to the General Manager Personnel Department that Kaiser be selected as the Staff Model HMO provider, but at the time indicated its concerns that Kaiser s proposal did not include commitments with respect to Wellness and on-site member advocacy resources that were commensurate with the proposals received from the non-staff model bidders. Specifically, the selected non-staff model health plans provider, Anthem Blue Cross (Anthem), had proposed a $1 million unrestricted annual funding commitment along with a full-time member advocate to provide members services in the Employee Benefits Division, while Kaiser proposed $250,000 of restricted use funding and no member advocate. As a result, the JLMBC took the additional step at the time of advising the Personnel Department that the contract term length should be determined by the degree to which Kaiser was able to improve its commitments in these areas, as well as its overall responsiveness in contract negotiations. In the subsequent weeks, staff entered into negotiations with Kaiser and was able to secure an increase in Kaiser s Wellness Program funding from $250,000 to $350,000, as well as a commitment to provide an on-site member advocate resource to the City. Kaiser indicated it was not able to provide additional funding for Wellness resources in 2017, but was preparing to address this issue for subsequent years at a level commensurate with what the City would be receiving from Anthem. Staff and the JLMBC noted Kaiser s efforts to approach identifying 2017 Wellness resources creatively, to create a member-advocacy resource for the City, and to prepare for greater funding and discretionary resources beyond However, because Kaiser s 2017 funding commitment was still below Anthem s, and because it was for restricted use only, staff s finding was that the initial contract term with Kaiser should be set for one year and the contract term length revisited the following year. Kaiser is now providing $1 million of unrestricted Wellness funding beginning in 2018 and continuing with this amount ongoing. Given this, and given the ongoing cooperation of 3

4 Kaiser in addressing the City s needs for custom services, staff recommends that the JLMBC recommend to the General Manager Personnel Department that the contract term length be extended to three years (January 1, 2017 through December 31, 2019), which is equal to the contract term length for Anthem. The Los Angeles Administrative Code (LAAC) provides authority for entering into contract terms for Civilian Benefits Program service providers of up to five years without securing City Council approval. The decision about whether to extend the term beyond three years for the health plan contracts can be deferred to a later date. 2. Anthem Blue Cross (PPO, Narrow Network HMO, Full Network HMO, and Vivity HMO) Premium Renewal The current insurance provider of the LAwell Civilian Benefits Program PPO, Narrow Network HMO, Full Network HMO, and Vivity HMO plans is Anthem Blue Cross (Anthem). Anthem submitted correspondence dated March 30, 2017 indicating that it is proposing a 12.5% total premium rate increase for Plan Year This rate increase includes Affordable Care Act (ACA) fees and $1 million in annual discretionary wellness funds to support the City s health and wellness initiatives. Segal Consulting (Segal) presented an overview of the key factors impacting the renewal at the JLMBC s May 23, 2017 meeting. The initial renewal did not include required plan changes to non-preventive pediatric care copays to comply with ACA Section 1557 nondiscrimination provisions. Subsequently, Anthem provided correspondence dated June 13, 2017 proposing a 12.4% total premium rate increase that includes this plan change. Additional data and analysis related to the renewal is provided in Attachment A to this report. At its prior meeting, the JLMBC, Segal, and staff discussed Anthem s proposed renewal. Segal/staff were directed to conduct further analysis and discussions with Anthem and report back. As previously discussed, Anthem s renewal relies on 2016 experience data from Blue Shield. The initial renewal proposal is delineated by plan and as an aggregate total as follows: Plan Proposed Rate Increase PPO Plan: 12.7% Narrow Network HMO: 12.7% Full Network HMO: 12.7% Vivity HMO: 8.5% Aggregate Increase: 12.4% As previously discussed, PPO plan claims experience for 2016 would suggest a much higher rate increase for the PPO plan in 2018 than 12.7%, and a much higher aggregate renewal increase than 12.4%. The rate cap offered by Anthem as a result of the JLMBC s 2016 procurement for healthcare providers has placed a ceiling on the total premium 4

5 increase and resulted in premium savings to the City and Anthem members of approximately $11.5 million. Segal and staff requested that Anthem provide alternate renewal models that would effectively remove the plan-level limits of the rate cap and reallocate the aggregate premium increase in different amounts among the four Anthem plans (though still retaining the aggregate rate cap limit). Each of the alternate models results in a significant increase in the cost of the PPO plan, in the range of approximately 20%. Attachment A breaks out the specifics of the alternate models with a particular focus on an Option B which most closely reflects what the rate increases would be if the plans were rated independently and if a rate cap was removed from the PPO plan. If any of the alternative models were selected, in Segal s and staff s analysis the increase in PPO premium-sharing costs for members with dependents would be at a level that could potentially negatively impact participation and the long-term viability of the PPO plan. PPO membership has been relatively stable over time. Maintaining that stability is important to maintaining a viable PPO option for the LAwell Civilian Benefits Program. It is important to note that PPO claims experience can be volatile, and one year s experience (particularly from a former provider) does not make a trend. Both staff and Segal believe it is important to build and evaluate claims data and trends under Anthem s administration of the PPO plan. The ten-year average rate increase for the PPO plan has been about 6.7%, but within that period of time there has been substantial volatility, with premium rate changes ranging from decreases to a 20% increase. The rate cap guarantee provides an important tool for the City to manage volatility, and in staff s and Segal s view the initial proposal from Anthem as limited by the rate cap allows the City to maintain pricing stability for all of the non-staff model plans. Nevertheless, long-term risks may exist for the PPO plan, so the City must be proactive in employing strategies for managing that risk. A major focus of discussion with Anthem has been on steps that can be taken jointly with the City to attempt to mitigate risks. In staff s view, the most fundamental factor to reduce costs involves improving population health. Anthem offers an enhanced member support service called Anthem Health Guide. Anthem Health Guide is a high-touch clinical engagement and customer service resource that includes a special team of Customer Service Representatives (CSRs) interacting with members seeking services. Anthem Health Guide representatives are empowered with greater authority than traditional CSRs to support and advocate for members and provide intervention in issue resolution. Representatives are also equipped with special technological resources giving them instant access to member data and claim history, such that when a member calls for assistance, the CSR is in a position to not merely be responsive to the immediate request but to help connect the member with Anthem s specialized care management programs or to clinical resources supporting adherence to treatment protocols. The technology includes speech recognition software that can instantly match the member s needs or unique health challenges with a support service or care plan. 5

6 Anthem typically offers this as a buy-up option for non-fully insured plans. In the case of the City s PPO plan, however, following discussions and requests for alternatives supportive of the PPO plan, Anthem identified this service and indicated it will add the resource at no additional cost to the City. The City and Anthem will work together to promote the resource to PPO members. In addition, staff will work with Anthem and the JLMBC s consultants to explore other options and analysis that may support the PPO plan on a long-term basis. One option for additional data gathering involves reaching out directly to PPO members. Similar to what staff proposed at the JLMBC s May 23, 2017 meeting relative to the Anthem Full Network and Delta Dental Preventive Care Plan member populations, some manner of PPO member assessment (survey, focus groups, and the like) would provide better understanding of the needs and preferences of the PPO population. This feedback can guide additional cost-management strategies and better inform future decision-making for the PPO plan. Given this, staff recommends that the JLMBC recommend to the General Manager Personnel Department approval of Anthem s proposed premium rate increase for Plan Year 2018 for the LAwell Civilian Benefits Program Preferred Provider Option (PPO) (12.7%), Full Network HMO (12.7%), Narrow Network HMO (12.7%), and Vivity HMO (8.5%) plans. 3. Delta Dental (Dental HMO, PPO, Preventive Care Plan) In 2016, following a procurement process, the City selected Delta Dental to be the provider of the LAwell Civilian Benefits Program s HMO, PPO, and Preventive Care Plan options. Delta s proposal included a multi-year rate guarantee including plan years 2017, 2018, and As a result, there is a 0% premium rate renewal for the second year of the contract for Plan Year Staff recommends that the JLMBC recommend to the General Manager Personnel Department approval of a 0% premium rate change renewal for the LAwell Civilian Benefits Program dental HMO, PPO, and Preventive Care Plan options provided by Delta Dental for Plan Year Managed Health Network (Employee Assistance Program) The current service provider of the LAwell Civilian Benefits Program Employee Assistance Program (EAP) services is Managed Health Network (MHN). An RFP for EAP services was released on February 22, 2017 and subsequently canceled in May 2017 due to disqualification of one of two proposals thereby requiring the current contract with MHN to be extended for an additional year through December 31, MHN is currently in its fifth contract year and has agreed to continue the current EAP rates (0% change) for Plan Year Staff recommends that the JLMBC recommend to the General Manager Personnel Department approval of a 0% premium rate change renewal for MHN for Plan Year

7 5. WageWorks (Tax-Advantaged Spending Accounts) The current service provider of the LAwell Civilian Benefits Program Tax-Advantaged Spending Accounts is WageWorks. These spending accounts include Healthcare Flexible Spending Account (HFSA), Dependent Care Reimbursement Account (DCRA), Transit Spending Account (TSA), and Parking Spending Account (PSA). An RFP for these services was released on March 2, 2017 and subsequently canceled in May 2017 due to disqualification of one of two proposals thereby requiring the current contract with WageWorks to be extended for an additional year through December 31, WageWorks is currently in its fifth contract year and has agreed to continue the current HFSA, DCRA, TSA, and PSA rates paid by participants (0% change) for Plan Year Staff recommends that the JLMBC recommend to the General Manager Personnel Department approval of a 0% premium rate change renewal for Tax-Advantaged Spending Accounts (HFSA, DCRA, TSA, and PSA) for WageWorks for Plan Year EyeMed (Vision Plan) In 2016, following a procurement process, the City selected EyeMed to be the provider of the LAwell Civilian Benefits Program stand-alone vision plan. EyeMed s proposal included a multi-year rate guarantee including plan years 2017, 2018, and As a result, there is a 0% premium rate renewal for the second year of the contract for Plan Year Staff recommends that the JLMBC recommend to the General Manager Personnel Department approval of a 0% premium rate renewal for the LAwell Civilian Benefits Program stand-alone vision plan provided by EyeMed for Plan Year B. PLAN DESIGN CHANGES 1. Basic Disability Insurance (Maximum Benefit Amount) The LAwell Civilian Benefits Program has been providing civilian employees with basic disability insurance since The basic disability insurance coverage generally provides eligible employees with replacement income up to 50% of the employee s salary, or $3,166 per month, whichever is less, for up to 24 months. Each year, the JLMBC reviews and adopts a maximum monthly benefit amount for the new plan year. The 2017 maximum benefit amount is $3,166 per month. Since this benefit was first offered, the basic disability insurance maximum benefit amount has been adjusted upward annually at a rate equivalent to civilian employee cost of living salary adjustments. Per the Office of the City Administrative Officer, the average weighted salary increase for 2017 is 1.1%. Applying this weighted percentage increase will result in an increase to the current basic disability maximum benefit amount of $35 from $3,166 to $3,201. Following is a summary of the basic disability maximum benefit amount, dollar increase, and percentage increase by plan year. 7

8 BASIC DISABILITY MAXIMUM BENEFIT AMOUNT Plan Year Disability Maximum Benefit Amount Dollar Increase Over Prior Plan Year Percent Increase Over Prior Plan Year 2007 $2, $2,763 $ % 2009 $2,807 $ % 2010 $2,913 $ % 2011 $2,998 $ % 2012 $3,014 $ % 2013 $3,014 Frozen 0.00% 2014 $3,059 $ % 2015 $3,102 $ % 2016 $3,129 $ % 2017 $3,166 $ % 2018 $3,201 (estimated) $35 (estimated) 1.10% Based on the average weighted salary increase for 2017 of 1.1%, staff recommends that the monthly basic disability maximum benefit amount for Plan Year 2018 be increased by $35 from $3,166 to $3, Tax-Advantaged Spending Accounts (Maximum Contribution) The LAwell Civilian Benefits program currently offers four types of tax-advantaged spending accounts Healthcare Flexible Spending Account (HFSA), Dependent Care Reimbursement Account (DCRA), Transit Spending Account (TSA), and Parking Spending Account (PSA) to support employees in saving pre-tax dollars to pay for eligible healthcare, dependent care, and commuter expenses. The current annual maximum contribution for the DCRA, TSA, and PSA for Plan Year 2017 is set at the maximum allowed by the Internal Revenue Service (IRS). However, the current annual maximum contribution for the HFSA is set slightly under the maximum allowed by the IRS at $2,550 for Plan Year In October 2016, the IRS issued Revenue Procedure which increased the maximum HFSA contribution by $50 from $2,550 to $2,600 effective for plan years beginning on or after January 1, As the IRS announcement was issued after all final decisions for Plan Year 2017 needed to be made by July 1, 2016, the maximum contribution limit remained at $2,550. Thus, staff recommends that the annual maximum contribution for Healthcare Flexible Spending Account be increased by $50 from $2,550 to $2,600 for Plan Year Cash-in-Lieu (CIL) Program A separate plan design change related to the Cash-in- Lieu program is provided in Committee Report C. LAwell Civilian Benefits Program Projected Expenditures for Fiscal Year Once the LAwell Civilian Benefits Program plan design decisions are finalized, staff will generate a full projection of plan year costs for the Civilian Benefits Program. This information will be presented to the JLMBC at its next meeting. 8

9 Submitted by: Jenny M. Yau Approved by: Steven Montagna 9

10 ATTACHMENT A City of Los Angeles 2018 Health Plan Renewals June 22, 2017 Presented by Stephen Murphy & Robert Mitchell Copyright 2017 by The Segal Group, Inc. All rights reserved.

11 Agenda 2018 Kaiser Renewal 2018 Anthem Renewal 2

12 2018 Kaiser Renewal 3

13 2018 Kaiser Permanente Renewal Experience Period Current: January 2016 December 2016 Prior: January 2015 December 2015 City s covered member demographic factor improved slightly (0.2%) compared to the prior period Total Cost Per Member Per Month (PMPM) for the City increased 3.3%, which is lower than the average Kaiser PMPM increase for 2016 Other Observations Pharmacy scripts were flat at 5.6 Per Member Per Year Inpatient admissions per 1,000 members were down 15.0%, but the average length of stay increased 11.1% City members with claims exceeding $650,000 increased from 5 in 2015 to 8 in 2016 One claimant incurred almost $2.6 million in expenses in 2016 $4.4M in paid claims were excluded from the 2018 renewal calculation SIGNIFICANT INCREASE IN THE NUMBER OF CATASTROPHIC CLAIMS >$650,000 During 2016 aggregate claims in excess of the $650,000 individual catastrophic pooling level totaled $4.4 million. 4

14 2018 Kaiser Permanente Renewal Proposed Renewal 1.9% increase in premium rates reflects: ACA fees 2018 Patient-Centered Outcomes Research Institute (PCORI) fee of $0.20 PMPM 2018 Insurer fee of 1% of total premium This fee was suspended in 2017 Increase in non-preventive services pediatric care copays from $0 to $7 or $15, depending on the type of service Required change in order to comply with ACA Section 1557 non-discrimination provisions $1M in annual discretionary wellness funds to support the City s health and wellness initiatives 5

15 2018 Kaiser Permanente Renewal Aggregate premiums based on recent enrollment data including fulltime and half-time employees Contribution illustrations for full-time employee contribution structures only Aggregate Premiums $ Difference % Difference Total Premiums $183,568,800 $187,063,600 $3,494, % Employee Cost $ 4,168,200 $ 4,247,700 $ 79, % City Cost $179,400,600 $182,815,900 $3,415, % LAwell Plan LAwell Pay Plan Cost per Pay Period Full-time Employees $ Difference % Difference Employee Cost Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ - $ - $ - 0.0% Employee + Child(ren) $ - $ - $ - 0.0% Family $ - $ - $ - 0.0% City Cost Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % Cost per Pay Period Full-time Employees $ Difference % Difference $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % 6

16 2018 Kaiser Permanente Renewal Premium Rate Development Factors Claims Trend Expected future increases in benefit expenses, expressed as a percentage of the prior year s expense. Margin A recommended amount added to the benefit expenses to cover future fluctuations in expenses. Other Charges (% of 2018 premium) Large Claim Pooling Charges A per member per month charge included in the cost to compensate for the removal of large claims above a certain threshold. ACA Insurer and PCORI Fees The PCORI fee is used to fund the Patient Centered Outcomes Research Institute. The ACA Insurer tax is used to help fund federal and state exchanges. Retention (% of 2018 premium) Administration, other taxes, profit The portion of premium retained by Kaiser to coverage health plan administration expenses such as billing, member services and marketing. Kaiser Segal Comments 5.2% 7.4% Segal annually surveys over 100 health insurers and managed care organizations nationally to monitor average trend forecasts. Kaiser's trend development calculation differs from other health insurers and is reflected in the variance with Segal's survey results. 0.0% 0.0% Based on the City's total enrollment, no margin is recommended in the renewal calculation. 0.8% The large claim pooling threshold will remain $650,000 during the 2018 plan year. On a PMPM basis, the cost of coverage is unchanged from the prior year. 1.0% The annual fee on health insurance providers is based on their market share of net premiums written, or the sum of premiums earned from all policies, during the previous year. Certain tax-exempt, not-for-profit insurers have half their premiums excluded from the tax calculation. 5.6% Kaiser's retention expenses are increasing from 5.0% to 5.6% of premium. This change includes concierge resource at City Hall and $1,000,000 in funding for City wellness initiatives. 7

17 2018 Anthem Renewal 8

18 2018 Anthem Renewal Experience Period: Based on claims data provided by Blue Shield of California Current: January 2016 December 2016 Prior: January 2015 December 2015 Experience highlights by plan Paid claims on a PEPM basis before large claim adjustments HMO increased 2.1% PPO increased 25.7% City members with claims over $300,000 in the PPO plan increased from 5 in 2015 to 18 in 2016 SIGNIFICANT INCREASE IN THE NUMBER OF PPO CATASTROPHIC CLAIMS >$300,000 9

19 2018 Anthem Renewal Anthem s 2018 Rate Premium Cap Overview The rate cap for 2018 was a 9.00% aggregate increase for all plans. Assumptions No change in benefits offered No change in employee contribution of more than 5% Member/Subscriber ratio does not change by more than 5% Base ratio established at 2.26 Caveats The proposed rate premium cap excludes the impact of: State or Federal mandated benefit enhancements or administrative requirements (i.e., ACA fees) Customer requested enhancements or administration changes 10

20 2018 Anthem Renewal Rate Increases The 2018 Segal and Anthem calculated increases are provided to illustrate the value of the negotiated first-year premium rate cap Segal and Anthem s 2018 renewal projections based on: 25.00% Anthem Plans Combined 2016 Blue Shield of CA claims experience 20.89% Premium rate development factor assumptions summarized on pages (e.g., claims trend projection, administration expenses, taxes, etc.) 20.00% 15.00% 14.83% 12.40% Anthem increase with rate cap includes: 10.00% Impact of ACA fees (i.e., 3.4% of total premium) Increase in non-preventive services pediatric care copays to comply with ACA Section 1557 non-discrimination provisions $1M in annual discretionary wellness funds to support the City s health and wellness initiatives 5.00% 0.00% Segal 2018 Renewal Projection Anthem 2018 Renewal Projection 2018 Anthem increase with rate cap The rate cap provides a savings value of $11.5M compared to the Anthem projected increase. 11

21 2018 Anthem Renewal Premium Rate Cap Impact Advantage The negotiated 2018 rate cap provides aggregate premium rate stability during the transition from Blue Shield of California to Anthem Disadvantage 2018 HMO premium rates are higher than claims experience would dictate in order to offset the above average PPO claims experience Considerations Multiple renewal scenarios were examined to mitigate the HMO premium rate increases and support affordability of the PPO plan Each scenario accelerated the PPO payroll contribution particularly for employees with dependent coverage» A contributing factor to PPO payroll contribution increases is the moderate change in the 2018 Kaiser family rate, since the Kaiser family rate determines the City s maximum subsidy. 12

22 2018 Anthem Initial Renewal Rate Increases by Plan Vivity HMO Narrow and Full Network HMO 9.00% 8.00% 7.00% 8.52% 8.52% 16.00% 14.00% 12.00% 14.25% 12.70% 6.00% 5.00% 4.00% 3.00% 2.00% 4.05% 10.00% 8.00% 6.00% 4.00% 7.54% 1.00% 2.00% 0.00% Segal 2018 Renewal Projection Anthem 2018 Renewal Projection 2018 Anthem increase with rate cap* 0.00% Segal 2018 Renewal Projection Anthem 2018 Renewal Projection 2018 Anthem increase with rate cap* PPO 45.00% 40.00% 35.00% 30.00% 25.00% 33.28% 38.31% * Based on the initial Anthem renewal increase with the rate cap that results in an overall increase of 12.40% 20.00% 15.00% 12.70% 10.00% 5.00% 0.00% Segal 2018 Renewal Projection Anthem 2018 Renewal Projection 2018 Anthem increase with rate cap* 13

23 2018 Anthem Renewal Alternative Models Anthem provided alternative scenarios to the Initial Renewal proposal that reallocates the premium increase across the plans All scenarios result in the same overall increase of 12.4% based on the current enrollment distribution All scenarios are inclusive of ACA fees The impact to the premiums for the initial renewal and Option B are provided in the following pages to illustrate the range of impact to the Employee premiums as a result of these scenarios. Vivity HMO Narrow and Full Network HMO PPO Combined Initial Renewal with Rate Cap 8.52% 12.70% 12.70% 12.40% Option A 8.70% 9.00% 20.68% 12.40% Option B* 5.00% 9.00% 21.60% 12.40% Option C 8.70% 10.00% 18.52% 12.40% Option D 0.00% 9.00% 22.84% 12.40% *Contingent upon Anthem s ability to market to Narrow and Full HMO members than can migrate to Vivity without experiencing provider disruption. 14

24 2018 Anthem Renewal Monthly Premiums Initial Renewal Premium per Employee per Month $ Difference % Difference Vivity HMO Employee Only $ $ $ % Employee + Spouse / DP $ 1, $ 1, $ % Employee + Child(ren) $ 1, $ 1, $ % Family $ 1, $ 1, $ % Narrow HMO Employee Only $ $ $ % Employee + Spouse / DP $ 1, $ 1, $ % Employee + Child(ren) $ 1, $ 1, $ % Family $ 1, $ 1, $ % Full Network HMO Employee Only $ $ $ % Employee + Spouse / DP $ 1, $ 1, $ % Employee + Child(ren) $ 1, $ 1, $ % Family $ 2, $ 2, $ % PPO Employee Only $ $ $ % Employee + Spouse / DP $ 1, $ 2, $ % Employee + Child(ren) $ 1, $ 1, $ % Family $ 2, $ 2, $ % Renewal Option B Premium per Employee per Month $ Difference % Difference $ $ $ % $ 1, $ 1, $ % $ 1, $ 1, $ % $ 1, $ 1, $ % $ $ $ % $ 1, $ 1, $ % $ 1, $ 1, $ % $ 1, $ 1, $ % $ $ $ % $ 1, $ 1, $ % $ 1, $ 1, $ % $ 2, $ 2, $ % $ $ 1, $ % $ 1, $ 2, $ % $ 1, $ 2, $ % $ 2, $ 2, $ % 15

25 2018 Anthem Renewal Initial Renewal Proposal Annual Premiums Aggregate Premiums $ Difference % Difference Total Premiums Vivity HMO $ 9,800,500 $ 10,636,000 $ 835, % Narrow HMO 83,629,100 94,250,200 10,621, % Full Network HMO 1,895,200 2,135, , % PPO 39,413,600 44,418,900 5,005, % Total $134,738,400 $151,441,000 $16,702, % Employee Cost Vivity HMO $ 355,300 $ 385,600 $ 30, % Narrow HMO 2,211,400 4,463,900 2,252, % Full Network HMO 604, , , % PPO 5,553,200 8,231,500 2,678, % Total $ 8,724,100 $ 13,794,000 $ 5,069, % City Cost Vivity HMO $ 9,445,200 $ 10,250,400 $ 805, % Narrow HMO 81,417,700 89,786,300 8,368, % Full Network HMO 1,291,000 1,422, , % PPO 33,860,400 36,187,400 2,327, % Total $126,014,300 $137,647,000 $11,632, % Aggregate premiums based on recent enrollment data as provided by Anthem including fulltime and half-time employees (excludes COBRA and Cal-COBRA participants) Contribution illustrations for full-time employee contribution structures only Despite the Anthem premium rate cap, some employees may experience above average increases due to the moderate change in the 2018 Kaiser family rate (since the Kaiser family rate determines the maximum subsidy). 16

26 2018 Anthem Renewal Initial Renewal Proposal City Cost LAwell Plan LAwell Pay Plan City Cost per Pay Period Full-time Employees $ Difference % Difference Vivity HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % Narrow HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % Full Network HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % PPO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % City Cost per Pay Period Full-time Employees $ Difference % Difference $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % City cost is based on the Anthem premium rate up to the 2018 Kaiser family rate of $1, per month, or $ per pay period for the LAwell Plan. For the LAwell Pay Plan, the City contributes 90% of the premium rate up to 90% of the Kaiser family rate. 17

27 2018 Anthem Renewal Initial Renewal Proposal Employee Cost LAwell Plan Employee Cost per Pay Period Full-time Employees $ Difference % Difference Vivity HMO Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ - $ - $ - 0.0% Employee + Child(ren) $ - $ - $ - 0.0% Family $ - $ - $ - 0.0% Narrow HMO Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ - $ - $ - 0.0% Employee + Child(ren) $ - $ - $ - 0.0% Family $ - $ $ N/A Full Network HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % PPO Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % LAwell Pay Plan Employee Cost per Pay Period Full-time Employees $ Difference % Difference $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % Employee cost is based on the differential between the 2018 Anthem premium rate and the 2018 Kaiser family rate of $1, per month, or $ per pay period for the LAwell Plan. For the LAwell Pay Plan, the City contributes 90% of the premium rate up to 90% of the Kaiser family rate and the employee pays the difference. Despite the Anthem premium rate cap, some employees may experience above average increases due to the moderate change in the 2018 Kaiser family rate. 18

28 2018 Anthem Renewal Option B Annual Premiums Aggregate Premiums $ Difference % Difference Total Premiums Vivity HMO $ 9,800,500 $ 10,290,300 $ 489, % Narrow HMO 83,629,100 91,158,300 7,529, % Full Network HMO 1,895,200 2,065, , % PPO 39,413,600 47,927,900 8,514, % Total $134,738,400 $151,442,400 $16,704, % Employee Cost Vivity HMO $ 355,300 $ 373,100 $ 17, % Narrow HMO 2,211,400 2,811, , % Full Network HMO 604, ,200 61, % PPO 5,553,200 10,353,100 4,799, % Total $ 8,724,100 $ 14,203,000 $ 5,478, % City Cost Vivity HMO $ 9,445,200 $ 9,917,200 $ 472, % Narrow HMO 81,417,700 88,346,700 6,929, % Full Network HMO 1,291,000 1,400, , % PPO 33,860,400 37,574,800 3,714, % Total $126,014,300 $137,239,400 $11,225, % Aggregate premiums based on recent enrollment data as provided by Anthem including fulltime and half-time employees (excludes COBRA and Cal-COBRA participants) Contribution illustrations for full-time employee contribution structures only Despite the Anthem premium rate cap, some employees may experience above average increases due to the moderate change in the 2018 Kaiser family rate (since the Kaiser family rate determines the maximum subsidy). 19

29 2018 Anthem Renewal Option B City Cost LAwell Plan City Cost per Pay Period Full-time Employees $ Difference % Difference Vivity HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % Narrow HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % Full Network HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % PPO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % LAwell Pay Plan City Cost per Pay Period Full-time Employees $ Difference % Difference $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % City cost is based on the Anthem premium rate up to the 2018 Kaiser family rate of $1, per month, or $ per pay period for the LAwell Plan. For the LAwell Pay Plan, the City contributes 90% of the premium rate up to 90% of the Kaiser family rate. 20

30 2018 Anthem Renewal Option B Employee Cost LAwell Plan Employee Cost per Pay Period Full-time Employees $ Difference % Difference Vivity HMO Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ - $ - $ - 0.0% Employee + Child(ren) $ - $ - $ - 0.0% Family $ - $ - $ - 0.0% Narrow HMO Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ - $ - $ - 0.0% Employee + Child(ren) $ - $ - $ - 0.0% Family $ - $ 6.94 $ 6.94 N/A Full Network HMO Employee Only $ $ $ % Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % PPO Employee Only $ - $ - $ - 0.0% Employee + Spouse / DP $ $ $ % Employee + Child(ren) $ $ $ % Family $ $ $ % LAwell Pay Plan Employee Cost per Pay Period Full-time Employees $ Difference % Difference $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % $ $ $ % Employee cost is based on the differential between the 2018 Anthem premium rate and the 2018 Kaiser family rate of $1, per month, or $ per pay period for the LAwell Plan. For the LAwell Pay Plan, the City contributes 90% of the premium rate up to 90% of the Kaiser family rate and the employee pays the difference. Despite the Anthem premium rate cap, some employees may experience above average increases due to the moderate change in the 2018 Kaiser family rate. 21

31 2018 Anthem Renewal Recommendations Adopt Anthem s Initial Renewal offer Provides employees with access to Narrow Network and Vivity HMO coverage with no or low payroll contribution requirements Minimizes the immediate financial impact to PPO participants, particularly those enrolling in family coverage, and supports the long-term viability of the PPO plan for the City and PPO members. PPO Strategies Implement Anthem s Health Guide in 2018 at no cost to participants or the City Technology enhanced call center connects patients to clinicians and other resources to impact their individual health and help manage costs Monitor large claim trends to determine if cost drivers are catastrophic events or chronic conditions Assess participation levels in Anthem s chronic condition management programs to identify and implement strategies to overcome possible engagement barriers Evaluate potential plan design modifications (i.e., coinsurance, out-of-pocket maximum, etc.) that balance affordability and individual engagement 22

32 2018 Anthem Renewal Premium Rate Development Factors - HMOs Claims Trend - Expected future increases in benefit expenses, expressed as a percentage of the prior year s expense. Margin - A recommended amount added to the benefit expenses to cover future fluctuations in expenses. Capitation (% of 2018 premium) Direct to provider risk share compensation to manage patient care. Other Charges (% of 2018 premium) Large Claim Pooling Charges A per member per month charge included in the cost to compensate for the removal of large claims above a certain threshold. ACA Insurer Fee The ACA Insurer tax is used to help fund federal and state exchanges. Retention (% of 2018 premium) Administration, other taxes, profit The portion of premium retained by Anthem to cover health plan administration expenses such as billing, member services and marketing. Wellness Fund Investments to promote City s employee wellness initiatives Health & Wellness Fees Investments to promote City s employee wellness initiatives Anthem Segal Medical Rx Total Medical Rx Total* Comments 10.2% 13.1% 11.2% 7.0% 11.0% 8.4% Segal annually surveys over 100 health insurers and managed care organizations nationally to monitor average trend forecasts. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Based on the City's total enrollment, no margin is recommended in the renewal calculation. 58.5% 0.0% 46.3% 57.9% 0.0% 45.5% Segal's lower capitation projection based on 2017 experience provided by Anthem with a 3% increase for % 0.0% 2.0% 2.7% 0.0% 2.1% The large claim pooling threshold will remain $300,000 during the 2018 plan year. 3.4% 3.4% 3.4% 3.4% 3.4% 3.4% The annual fee on health insurance providers is based on their market share of net premiums written, or the sum of premiums earned from all policies, during the previous year. Certain taxexempt, not-for-profit insurers have half their premiums excluded from the tax calculation. 4.8% 5.0% On a PMPM basis, Anthem is proposing a 6.6% increase compared to Segal's annual adjustment of 3.0% 0.8% 0.9% Includes concierge resource at City Hall and $1,000,000 in funding for City wellness initiatives 0.5% 0.5% Condition management resources including 24/7 Nurseline, Future Moms Maternity, Disease Management, etc. Total Retention 6.1% 6.4% Note: Based on the original renewal analysis provided by Anthem and does not include adjustment for future benefit change for the Pediatric copays. * Large claim and retention charges are slightly higher for Segal's calculation since the percentage is based on lower aggregate premium required. 23

33 2018 Anthem Renewal Premium Rate Development Factors - PPO Claims Trend Expected future increases in benefit expenses, expressed as a percentage of the prior year s expense. Margin A recommended amount added to the benefit expenses to cover future fluctuations in expenses. Other Charges (% of 2018 Premium) Large Claim Pooling Charges A per member per month charge included in the cost to compensate for the removal of large claims above a certain threshold. ACA Insurer Fee The ACA Insurer tax is used to help fund federal and state exchanges. Retention (% of 2018 Premium) Administration, other taxes, profit The portion of premium retained by Anthem to cover health plan administration expenses such as billing, member services and marketing. Wellness Fund Investments to promote City s employee wellness initiatives Health & Wellness Fees Investments to promote City s employee wellness initiatives Anthem Segal Medical Rx Total Medical Rx Total Comments 9.5% 13.2% 10.3% 8.0% 11.0% 8.7%Segal annually surveys over 100 health insurers and managed care organizations nationally to monitor average trend forecasts. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Based on the City's total enrollment, no margin is recommended in the renewal calculation. 7.75% 0.0% 6.1% 7.33% 0.0% 5.8%The large claim pooling threshold will remain $300,000 during the 2018 plan year. On a per member per month (PMPM) basis Anthem is proposing a 22.7% increase, compared to Segal's annual adjustment of 12.0%. 3.4% 3.4% 3.4% 3.4% 3.4% 3.4%The annual fee on health insurance providers is based on their market share of net premiums written, or the sum of premiums earned from all policies, during the previous year. Certain taxexempt, not-for-profit insurers have half their premiums excluded from the tax calculation. Total Retention 4.7% 4.3% 3.8% 3.4%On a PMPM basis, Anthem is proposing an 18.1% increase compared to Segal's annual adjustment of 3.0% 0.6% 0.6%Includes concierge resource at City Hall and $1,000,000 in funding for City wellness initiatives. 0.3% 0.3%Condition management resources including 24/7 Nurseline, Future Moms Maternity, Disease Management, etc. Note: Based on the original renewal analysis provided by Anthem and does not include adjustment for future benefit change for the Pediatric copays. 24

34 Thank you! # v17 25