County of Sonoma. Information Briefing on OPEB & Health Insurance for Employees & Retirees. December 2007

Transcription

1 County of Sonoma Information Briefing on OPEB & Health Insurance for Employees & Retirees December 2007

2 Introductions & Agenda Joint Labor Management Benefits Committee (JLMBC) Representative(s) Human Resources/County Administrator s Office Management Staff One hour County staff informational presentation Half hour open dialogue between audience and JLMBC representative(s) 2

3 Purpose of Presentation To answer the following questions: 1. Why is the cost of health insurance a problem and what are Other Post Employment Benefits (OPEB)? 2. How do Sonoma medical benefits compare with other Counties? 3. How has this problem been addressed and communicated? 4. What options are the County considering to reduce the OPEB liability and preserve the retiree medical benefit? 5. How can I provide my feedback? 3

4 Cost of Health Insurance & OPEB Question #1 Why is the cost of health insurance a problem and what are Other Post Employment Benefits (OPEB)? 4

5 What is the Problem? The County's health plan costs* more than doubled from $30.6M to $70.9M from year 00/01 to year 06/07 The County has a significant unfunded OPEB liability of approximately $400M (cost of retiree health) The County s Strategic Plan identified that the increasing costs of employee and retiree benefits jeopardizes the County s ability to provide essential public services and is a major public policy issue confronting the County *Health plan costs include medical, vision, dental, long-term disability, life insurance 5

6 What is the Cost of Health Insurance? For fiscal year 2005/2006: Total salary cost was $271.9 million Total benefit* cost was $145.5 million, of which: $52.5 was medical insurance cost (employees & retirees) $45.2 was retirement pension cost $47.8 was cost for all other benefits (e.g., FICA, LTD, 401A) Total cost for medical insurance fiscal year 06/07 was approximately $61M $41 million active employee $20 million retiree 6

7 What is OPEB? Other Post Employment Benefits For the County, this is retiree medical insurance only Government Accounting Standards Board (GASB) requires public sector to account for long-term expenditures in retiree health benefits GASB intended to shine the light on these long term forecasted expenditures to hopefully avoid the collapses in benefit plans that occurred in the private sector 7

8 What is the OPEB picture in Sonoma County? The first actuary report identified the County s liability/cost of our pool of existing employees and retirees over the course of our lifetimes, at approximately $400 million (based on 2004 data) OPEB reports are required every 2 years, starting

9 What is the OPEB picture in Sonoma County? The actuary report also identified how much would need to be set aside in 2004 ($37.2M* or 14.68% of payroll), if the full amount of the Annual Required Contribution (ARC) was funded to pay for the annual premiums and the amortized portion of the unfunded liability $16.9 million ( pay-as-you-go /premiums) 6.68% $20.3 million (amortization of liability) 8.0% *Growing at 4.5% a year 9

10 140.0 Original OPEB Actuary Report as of December 2004 Current Plan Total Normal Cost 30-year Amortization of UAL $ million

11 What is the OPEB picture in Sonoma County? The County is currently only budgeting for the annual health care premiums of current retirees, called pay-as-you-go, and putting zero aside for our current employees and retirees future retiree medical benefits The pay-as-you-go amount in fiscal year 2006/2007 was approximately $20 million or 7.6% of payroll 11

12 Current Pay-As-You-Go Fiscal Year Retiree Health Benefits Costs % of Payroll Percentage Increase $20M (budget) 7.60% 38% $15.7M 5.92% 29% $12.4M 4.53% 26% $ 9.6M 4.00% 20% $ 8.4M 3.40% 17% $ 6.7M 2.85% 12

13 CAO/Board of Supervisors Sustainability Target The fiscal sustainability goal established by the County Administrator, and confirmed by the Board of Supervisors, is to spend 5% to 7.5% of payroll annually on the retiree medical program At the current level of benefits*, if fully funded, the County would be paying 14.68% of payroll toward retiree medical *Based on 2004 actuary report 13

14 OPEB Nationwide Issue County s OPEB actuary advised the JLMBC that: All public agencies are facing the challenge of balancing friction of benefit changes and interest of employees/retirees Likely most, if not all, will have to feel some pain General trend nationally: Reducing/eliminating medical trend (inflation) Eliminating contribution toward dependent coverage Changing benefit for new hires (although does not reduce existing OPEB liability) 14

15 What happens if the County does nothing? Potential impact to the County s bond rating Actuary advises on the impact of taking no further action (continue with pay-as- you go ): In 5 years, the unfunded liability is estimated at $900 million, with ARC of roughly $80 million To fully fund an ARC of $80 million, without changing current benefits, approximately 700 employees would have to be laid off to pay for retiree health benefits, resulting in a reduction to programs and services 15

16 Sonoma Benefits Compared to Other Counties Question #2: How do County medical benefits compare to other counties? 16

17 County s Contribution Toward Medical is Above Market Average A benchmarking study of other counties (Alameda, Contra Costa, Marin, Monterey, Napa, Santa Barbara, Santa Cruz, Solano) indicates the County s contribution toward medical insurance is above this labor market average 17

18 County s Benefits & Plan Design Is Above Market Average Medical benefit levels, such as deductibles, office co-pays are generally 6 21% more generous than this labor market The changes to benefits seen by unrepresented employees, some law enforcement employees*, and retirees brought benefits closer to average Represented employees benefits are covered by their respective MOUs *DSA, DSLEM, SCLEMA, SCPDIA 18

19 FY 06/07 - Sonoma s Contribution Toward Employees Medical PPO PLAN (County Health Plan) Level of Coverage County Benchmarking Average Monthly Contribution Sonoma s PPO Monthly Contribution Sonoma s contribution toward PPO is Self $452 $603 33% higher than average Self + 1 $718 $1,186 65% higher than average Family $831 $1, % higher than average Kaiser Level of Coverage County Benchmarking Average Monthly Contribution Sonoma s Kaiser Monthly Contribution Sonoma s contribution toward Kaiser is Self $376 $379 1% higher than average Self + 1 $679 $758 12% higher than average Family $838 $1,072 28% higher than average OTHER HMO (PacifiCare) Level of County Benchmarking Sonoma s Other Sonoma s contribution toward Coverage Average Monthly HMO Monthly Other HMO is Contribution Contribution Self $397 $450 13% higher than average Self + 1 $763 $901 18% higher than average Family $922 $1,216 32% higher than average 18

20 Sonoma s Retiree Medical v. Market For retirees, four counties contribute a flat dollar amount toward the retirees costs For example, County of Monterey & Solano contribute $65 per month Five counties do not contribute toward the cost of retirees dependents coverage 20

21 FY 06/07 - Sonoma s Contribution Toward Under 65 Retiree Medical PPO PLAN (County Health Plan) Level of County Benchmarking Sonoma s PPO Sonoma s contribution toward Coverage Average Monthly Monthly PPO is Contribution Contribution Self $333 $596 79% higher than average Self + 1 $493 $1, % higher than average Family $551 $1, % higher than average Kaiser Level of County Benchmarking Sonoma s Kaiser Sonoma s contribution toward Coverage Average Monthly Monthly Kaiser is Contribution Contribution Self $281 $350 25% higher than average Self + 1 $412 $700 70% higher than average Family $454 $ % higher than average OTHER HMO (PacifiCare) Level of County Benchmarking Sonoma s Other Sonoma s contribution toward Coverage Average Monthly HMO Monthly other HMO is Contribution Contribution Self $280 $445 59% higher than average Self + 1 $437 $ % higher than average Family $482 $1, % higher than average 20

22 FY 06/07 -Sonoma s Contribution Toward Over 65 Retiree Medical PPO PLAN (County Health Plan) Level of County Benchmarking Sonoma s PPO Sonoma s contribution toward Coverage Average Monthly Monthly PPO is Contribution Contribution Self $238 $321 35% higher than average Self + 1 $294 $ % higher than average Family $301 $1, % higher than average Kaiser Level of County Benchmarking Sonoma s Kaiser Sonoma s contribution toward Coverage Average Monthly Monthly Kaiser is Contribution Contribution Self $181 $254 41% higher than average Self + 1 $258 $508 97% higher than average Family $266 $ % higher than average OTHER HMO (PacifiCare) Level of County Benchmarking Sonoma s Other Sonoma s contribution toward Coverage Average Monthly HMO Monthly Other HMO is Contribution Contribution Self $183 $269 47% higher than average Self + 1 $235 $ % higher than average Family $243 $ % higher than average 21

23 Problem Solving & Communication Question #3: How has this problem been addressed and communicated? 23

24 August 2006 April 2007 Board of Supervisors was presented the first actuarial report on County s unfunded OPEB liability Joint Labor Management Benefits Committee (JLMBC) expanded representation and meets at least monthly Reviewed county comparison/benchmarking data and evaluated numerous different contribution scenarios 24

25 August 2006 April 2007 JLMBC discussed OPEB options, possible solutions, proposal for County s benefit changes, new PPO plan, RFP process for HMO plan County held a series of informational meetings about proposed changes to benefits April 10, 2007 Board of Supervisors authorized changes to certain medical benefits for unrepresented employees and retirees 25

26 May November 2007 JLMBC came to consensus on goals Develop and maintain a fiscally sustainable health program Evaluate fact based financial impact of options to address OPEB Honor integrity of all groups 26

27 May November 2007, Continued JLMBC and its subcommittee met approximately 30 times Presentations by subject matter experts Gabriel Roeder & Smith OPEB Actuarial Firm Towers Perrin Health Benefits Consultant List compiled of potential options for addressing OPEB and the JLMBC received a target goal from the CAO Over 50 options have been analyzed for potential OPEB cost savings 27

28 May November 2007, Continued Subcommittee sent two letters to all employees and retirees to: Inform all constituents how the OPEB issue is being addressed, and Provide an opportunity to give their feedback Created a customized website to post all fact based jointly developed communications Created criteria to evaluation options 28

29 JLMBC Evaluation Criteria for Options to Address OPEB Cost Savings Fairness Impact on County s Ability to Provide Services Quality Health Care Program Flexible Plan for long-term sustainability Significant savings impact Long term solution Make progress towards target Minimize level of pain (health benefit costs for those with lower income have greater impact) Grandfather (honor years of service and honor expectations of current employees and retirees) Protection to the most vulnerable (defined as age and income) Consider ability to pay, Impact on retirees Recruit and retain quality employees Balance cost savings with negative impact on employees and retirees Ease of administration Ease of measurement and ease of understanding Minimize impact on services to public Accessible to users (geographic/portability) Access to group health insurance (regardless of who pays) Access to health care providers Affordable Choice in health plans Flexibility to respond to changes in the state and national healthcare landscape Accommodate potential change to state and federal healthcare 28

30 May November 2007, Continued JLMBC representative and County staff presented an update to the Board of Supervisors on JLMBC progress - August 14, 2007 County staff presented to the Board of Supervisors the building blocks of a recommendation on November 6, 2007, for example: Reduce/eliminate medical inflation Reduce number of people eligible Reduce premiums through benefit changes 30

31 September December 2007 JLMBC evaluated actuarial studies of over 50 different options Various employee groups (SCAMC, SCCEA, SCARE, DAHA) proposed their preferred options and priorities The JLMBC did not reach consensus on the options proposed by County staff in this presentation 31

32 HR/CAO Staff Options Being Considered Question#4: What options are the County considering to reduce the OPEB liability and preserve the retiree medical benefit? 32

33 HR/CAO Staff Options Being Considered The options are still being evaluated and staff recommendations will be considered by the Board on January 15, 2008 No immediate implementation The County will be negotiating with employee organizations as their MOUs expire, or as parties agree to meet and confer on this critical issue 33

34 HR/CAO Staff Options Being Considered The criteria/basis for the County s options are: Access is provided to all eligible retirees and dependents The benefit is not eliminated for any current employee or retiree Considers ability to pay for pre-enhanced pensioners and over-65 retirees Benefits are in line with market average Closest to the County s fiscal sustainability target The give and take of the collective bargaining process may change what the final recommendation is and the timing of any changes 34

35 HR/CAO Staff Options Being Considered Components of any retiree medical OPEB option: 1. Access to County group plans for eligible retirees and dependents 2. Eliminate dual coverage 3. Allow deferral of retiree medical 4. Mitigate effect of implicit subsidy 5. Implement wellness program 6. For new hires, replace current retiree medical benefit with employer paid deferred comp type account (e.g., HSA) 7. Implement pre-tax voluntary health savings accounts for active employees 35

36 HR/CAO Staff Options Being Considered For current retirees and current active employees, who were/will be eligible for the retiree medical insurance benefit when they retired/retiree All options allow for the Board of Supervisors to consider ad hoc Cost of Living Adjustments (COLAs) 36

37 HR/CAO Staff Options Being Considered Option A: Change retiree benefit to flat $20 per year of service, with minimum 10 years of service 10 years = $200 per month 15 years = $300 per month 20 years = $400 per month 25 years = $500 per month 30 years = $600 per month Mitigation measures: Assume all currently eligible retirees have 10 years of service Provide some increased dollar amount per year of service for current retirees under 65 without enhanced pensions 37

38 HR/CAO Staff Options Being Considered Option B: Change benefit to flat $500 a month, with minimum 10 years of service (Refer to Attachment 1 of this presentation) Mitigation measure: Assume all currently eligible retirees have 10 years of service Option C: Change benefit to flat $250 a month for 10 years of service; add $50 a month for each additional year of service, up to a $500 max at 15 years of service or more Mitigation measure: Assume all currently eligible retirees have 10 years of service 38

39 HR/CAO Staff Options Being Considered Option D: Change benefit for current retirees to flat $500 a month, with minimum 10 years of service and change benefit for current active employees at retirement to $20 per year of service, with minimum 10 years of service Mitigation measure: Assume all currently eligible retirees have 10 years of service 39

40 The County s Commitment April 10, 2007 WHEREAS, the Board of Supervisors is committed to working to preserve employee and retiree medical benefits to the extent this can be done responsibly in light of the significant impacts that the increasing costs of this benefit, and the County s OPEB liability, have on the County s ability to provide essential public services to the residents of Sonoma County, and 40

41 Employee/Retiree Feedback Question #5: How can I provide my feedback? 41

42 How do I provide my feedback? Contact a JLMBC representative (Refer to Attachment 2 of this presentation for specific contact information) If you are a represented employees, contact your specific employee organization representative 42