NCGOA SPRING 2019 CONFERENCE HEALTH BENEFITS AND OPEB SESSION. Copyright 2018 Mercer (US) Inc. All rights reserved.

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1 NCGOA SPRING 2019 CONFERENCE HEALTH BENEFITS AND OPEB SESSION 0

2 WHAT TYPE OF WELLNESS PROGRAMS AND INCENTIVES ARE OFFERED TO EMPLOYEES? $100 Personal Health Assessment and Biometric Screening $ % Telephonic - Health Coach or Onsite Clinic Health Coaching (only one reward) 13.8 % $75 Preventive Care (Annual Physical, OB/GYN Exam, Mammogram, Colon Cancer Screening, Cervical Cancer Screening, Prostate Cancer Screening) (Onsite Clinic Physical ) (Only one reward) $300 $25 Dental Screenings Complete Annual Dental Screening % % 1

3 Wellness Sweepstakes Challenge Wellness Walks Fruit Campaigns Nutrition Kiosks % 10-N-10 Club (Loos Weight) Blood Drives Try It Series Health Fair Fitness Performance Life Health Management Programs Fit Bit Sales Wellness Clinics Biometric Screenings Flu Vaccinations On-Site Blood Pressure Checks Facebook Page % Lunch & Learn Sessions 2.4 % % 2

4 WHAT TYPE OF HEALTH INSURANCE STRUCTURES ARE USED? Health Savings Account, Core, Enhanced, Dental % Spousal Surcharge & Tobacco Surcharge 4.7 % Salary Based Graduated Insurance Premiums < $32K Base - (>$32K < $47K 10% incr) (>$47K <$62K 30% incr) (>62K 50% incr) % % 3

5 ARE THERE ANY BENEFITS TO HAVING A HEALTH CLINIC ON- SITE? % 4.7 % % % 4

6 ARE THERE ANY HEALTH CLINIC SAVINGS? Indirect Cost Savings % The typical employee will spend approximately 2 hours to visit an off-site clinic, including travel time. On-site clinic visits were held to approximately 20 minutes, saving about 1.67 hours of lost productivity for workers. If an average worker - makes $26.00 an hour, this 2.4 accounts to $43.42 % saved per visit to the physician. 4.7 % % 5

7 HAVE ANY CHANGES BEEN MADE TO OPEB? Members hired prior to July 1, 2011 who retire with At least 20 years of service Pre 65 Commission contributes 95% of the estimated cost Post 65 - shall have their coverage transferred to a Medicare Supplemental plan after qualifying for Medicare, with the Commission continuing to pay the same dollars toward the premium cost as it pays for retirees under the base plan Less than 20 Years of Service Can participate but employee must pay 100% of the estimated cost -1.8% 2.2 % For retired employees hired on or after July 1, 2011 Pre years of service (50 65% paid by employer) (age dependent) 3.1% 25+ years 2.3 of service (75-95% paid by employer) (age dependent) % Post years of service $250 towards health benefits Less than 20 years of service not eligible for health benefits 6

8 DO YOU HAVE AN OPEB TRUST FUND? Established Trust Fund FY 2012 Started with $250K annual contribution -1.8% 2.2 % Annual contribution currently $500K Balance at 6/30/18 $3.9 million 3.1% 2.3 % Net OPEB liability $36 million 7

9 WHAT IS THE TYPICAL EMPLOYER PROFILE? 8

10 NUMBER OF PARTICIPANTS The employer groups shown in this presentation are: Employers Number of participants Government South North Carolina

11 DEMOGRAPHICS Government 500+ South 500+ North Carolina 500+ Average employee age % of female employees 42% 45% 49% % of union employees 32% 5% 2% 10

12 WHAT IS THE MEDICAL PLAN PREVALENCE? 11

13 TYPE OF MEDICAL PLAN OFFERED PERCENT OF EMPLOYERS OFFERING EACH TYPE OF MEDICAL PLAN PPO / POS* HSA-eligible CDHP HRA-based CDHP Either type of CDHP HMO 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 87% 83% 82% 67% 62% 56% 41% 42% 31% 20% 15% 27% 10% 21% 20% Government 500+ South 500+ North Carolina 500+ *Includes traditional indemnity plans 12

14 WHAT ARE THE TYPICAL COST, CONTRIBUTIONS AND FUNDING? 13

15 AVERAGE TOTAL HEALTH BENEFIT COST* PER EMPLOYEE 2017 $14, % change $13,500 $13,655 $13,000 $13,132 $12,500 $12,000 $11,500 $11,000 $11,634 $11,441 $11,387 $11,958 $10, % 1.7% 5.0% $10,000 Government 500+ South 500+ North Carolina 500+ *Total health cost includes medical, dental, Rx and specialty benefits 14

16 EMPLOYEE CONTRIBUTION FOR INDIVIDUAL COVERAGE AVERAGE MONTHLY CONTRIBUTION ($) Government 500+ South 500+ North Carolina 500+ PPO / POS $93 $162 $110 HSA-eligible CDHP $64 $97 $82 HRA-based CDHP ID $111 $105 HMO $73 $137 $132 Dental $18 $20 $21 15

17 EMPLOYEE CONTRIBUTION FOR FAMILY COVERAGE* AVERAGE MONTHLY CONTRIBUTION ($) Government 500+ South 500+ North Carolina 500+ PPO / POS $448 $565 $552 HSA-eligible CDHP $315 $404 $360 HRA-based CDHP $375 $450 $459 HMO $317 $603 $479 Dental $54 $63 $64 *Family coverage is defined as coverage for employee, spouse and two children 16

18 WHAT IS THE PREVAILING COVERAGE ELIGIBILITY, ELECTION? 17

19 SPOUSAL PROVISIONS Government 500+ South 500+ North Carolina 500+ Spouses with other coverage available are not eligible 6% 18% 12% Surcharge applies for spouses with other coverage available 7% 13% 24% Median monthly surcharge amount ($) ID $100 $100 18

20 IS IT TIME FOR STRATEGIC PLANNING? 19

21 OFFER POINT SOLUTIONS FOR SPECIFIC HEALTH CONDITIONS 70% Through the health plan Through a specialty vendor outside the health plan Not offered 60% 50% 43% 51% 46% 43% 57% 40% 30% 26% 28% 20% 10% 8% 13% 0% Government 500+ South 500+ North Carolina

22 OFFER ON- SITE OR NEAR- SITE MEDICAL SERVICES 45% 40% 35% Occupational health clinic Primary care clinic 43% 30% 25% 20% 15% 22% 27% 19% 21% 26% 10% 5% 0% Government 500+ South 500+ North Carolina 500+ Based on employers with 500 or more employees 21

23 STRATEGIES TO ACHIEVE LOWER COST, BETTER QUALITY AND MORE ENGAGED EMPLOYEES OVER THE NEXT FIVE YEARS % EMPLOYERS RANKING AS IMPORTANT / VERY IMPORTANT Government 500+ South 500+ North Carolina 500+ ACO / other high-performance network strategies 21% 24% 29% Focused action to manage cost for specialty pharmacy 70% 68% 75% Monitoring, managing high-cost claimants 75% 82% 88% Offering employees more plan or benefit options with decision support tools 44% 44% 51% Focused strategy for creating a culture of health 70% 77% 73% Point solutions high-tech or high-touch support for condition management Evaluate / adopt geographic-specific health care options outside national health care options 34% 43% 63% 9% 14% 13% Focused strategies for behavioral health 43% 45% 58% Improving patient empowerment through advocacy, shared decision-making, multi-channel care navigation, etc. 34% 47% 58% Based on employers with 500 or more employees 22

24 WHAT ABOUT HSA- ELIGIBLE CONSUMER- DIRECTED HEALTH PLANS? 23

25 AVERAGE HSA- ELIGIBLE CDHP COST PER EMPLOYEE*, FOR ACTIVE EMPLOYEES 2017 $12, $10,000 $8,000 $10,663 $11,217 $10,174 $9,129 $9,390 $9,296 % change $6,000 $4,000 $2,000 $0 5.2% 11.4% -1.0% Government 500+ South 500+ North Carolina 500+ *Includes employer account contribution, if any 24

26 HSA- ELIGIBLE CDHP DEDUCTIBLES Government 500+ South 500+ North Carolina 500+ In-Network services Median individual deductible $2,500 $2,000 $1,850 Median family deductible $5,000 $4,000 $3,650 Out-of-Network services Median individual deductible $3,000 $3,500 $3,850 Median family deductible $6,000 $8,000 $7,400 25

27 HSA- ELIGIBLE CDHP EMPLOYER CONTRIBUTIONS AMONG EMPLOYERS CONTRIBUTING TO THE ACCOUNT Employer contribution to account Government 500+ South 500+ North Carolina 500+ Median for employee-only coverage $922 $600 $675 Median for family coverage $1,350 $1,000 $1,040 Make matching / incentive-based contributions Matching contributions 5% 12% 13% Incentive-based contributions 14% 17% 47% 26

28 PRIMARY OBJECTIVE FOR HSA- ELIGIBLE PLAN Government 500+ South 500+ North Carolina 500+ Plan is our core health plan; high enrollment is a goal Plan is offered as a low-cost option to provide medical plan choice Plan was implemented primarily to meet ACA affordability requirements 16% 27% 27% 51% 60% 60% 16% 5% 0% 27

29 ARE THERE ANY CHANGES IN PRESCRIPTION DRUG BENEFITS? 28

30 ANNUAL CHANGE IN COST PER EMPLOYEE FOR PRESCRIPTION DRUG BENEFITS For % Expected % 7% 6% 5% 6.5% 6.1% 6.1% 7.1% 5.7% 7.8% 4% 3% 2% 1% 0% Government 500+ South 500+ North Carolina

31 HOW DRUG BENEFITS ARE PROVIDED Contract directly with PBM (carve-out) 80% 70% 60% 76% 71% Medical plan provides pharmacy benefit or contracts with PBM (carve-in) 50% 40% 46% 54% 30% 20% 10% 24% 28% 0% Government 500+ South 500+ North Carolina

32 DRUG PLAN FEATURES AMONG EMPLOYERS WITH 500 OR MORE EMPLOYEES Government 500+ South 500+ North Carolina 500+ Mandatory generics (with or without physician override) 35% 33% 34% Step therapy (generics / preferred brands required before nonpreferred brands) 63% 71% 68% Drug category exclusions 33% 42% 39% Prior authorization 60% 64% 63% Split fill programs for select medications (pharmacies may provide a partial supply of certain medications known to have a high discontinuation rate) 8% 11% 7% Closed formulary (formulary with non-preferred drug exclusions) 26% 22% 34% Mandatory mail-order (maintenance drugs must be filled by mail after 2-4 fills at a retail pharmacy) Retail penalty program (maintenance drugs are subject to higher cost sharing after 2-4 fills at a retail pharmacy) Members may fill 90-day maintenance drugs at specific retail pharmacy 9% 15% 27% 7% 9% 10% 36% 41% 49% 31

33 ENCOURAGE USE OF SPECIALTY PHARMACY AMONG EMPLOYERS WITH 500 OR MORE EMPLOYEES Government 500+ South 500+ North Carolina 500+ Offer lower cost-sharing when filled at specialty pharmacy 16% 12% 12% Exclude some or all specialty medications from coverage under the retail pharmacy benefit or medical benefit 43% 35% 48% Other method 10% 12% 17% Do not steer members to specialty pharmacy 40% 44% 31% 32

34 ARE EMPLOYEE WELL- BEING PROGRAMS IMPORTANT? 33

35 STEPS TAKEN TO BUILD A CULTURE OF HEALTH Government 500+ South 500+ North Carolina 500+ Company vision/mission statement supports a healthy workplace culture 37% 37% 47% Offer onsite fitness facility 42% 44% 40% Have modified physical work environment to promote physical activity 33% 23% 34% Have policies to promote healthy work/life balance 46% 41% 51% Healthy food choices in cafeteria, company meeting or events 43% 59% 66% No smoking anywhere on campus 59% 51% 60% None of the above 9% 10% 4% 34

36 WHAT ARE THE IMPACTS OF RETIREE HEALTH CARE? 35

37 OFFER AN EMPLOYER- SPONSORED MEDICAL PLAN (INCLUDING PRIVATE EXCHANGE) TO RETIREES* 70% To pre-medicare-eligible retirees To Medicare-eligible retirees 60% 62% 50% 40% 30% 20% 10% 37% 29% 19% 20% 20% 0% Government 500+ South 500+ North Carolina 500+ *On an ongoing basis (new hires will be eligible) 36

38 CONTRIBUTION REQUIREMENTS FOR RETIREE- ONLY COVERAGE PRE-MEDICARE-ELIGIBLE RETIREES Employer pays all Cost is shared Retiree pays all Government % 45% 44% South % 54% 36% North Carolina % 61% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Based on employers with 500 or more employees 37

39 CONTRIBUTION REQUIREMENTS FOR RETIREE- ONLY COVERAGE MEDICARE-ELIGIBLE RETIREES Employer pays all Cost is shared Retiree pays all Government % 42% 47% South % 51% 35% North Carolina % 56% 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Based on employers with 500 or more employees 38

40 AVERAGE RETIREE CONTRIBUTION* AS A PERCENT OF PREMIUM, WHEN COST IS SHARED Government 500+ South 500+ North Carolina 500+ Pre-Medicare-eligible retirees 34% 34% 27% Medicare-eligible retirees 28% 28% 39% *For retiree-only coverage Based on employers with 500 or more employees 39

41 LIKELY TO ADD PRIVATE EXCHANGES IN THE NEXT FIVE YEARS 18% For Pre-Medicare-eligible retirees For Medicare-eligible retirees 16% 17% 14% 12% 10% 14% 11% 12% 8% 6% 4% 2% 0% 6% Government 500+ South 500+ North Carolina % *On an ongoing basis (new hires will be eligible) 40

42 Why Should a Unit Care About OPEB? Future Costs and Liabilities Any Assets? Unfunded Liabilities in Financial Statements GASB Risks to Manage: - Interest/Discount Rates - Asset Returns Bond Rating Agencies Real $ Boomershine Consulting Group North Carolina State Treasurer s Office 41

43 How do the New GASB Rules Impact OPEB Reporting? The OLD Way (43/45) The NEW Way (74/75) Focus on long term/ funding of actuarial contributions Accounting # s just a subset of the funding # s (One report) Annual Required Contribution (ARC) Net Pension/OPEB Obligation: Have you been making your contributions? One measure of liability Asset Smoothing and Amortization of gains/losses = low volatility GASB Changes Focus on short term/ funding progress Different # s for each purpose (likely Two reports) Pension/OPEB Expense Net Pension/OPEB Liability: How far off target are you? Disclose sensitivity = 3-5 measures NO Asset Smoothing, and rapid recognition of gains/losses = high volatility Boomershine Consulting Group North Carolina State Treasurer s Office 42

44 What are the Key Results of an Actuarial Valuation? Actuarial liabilities vs. Assets: Funding Ratio Unfunded Actuarial Liability (UAL) Annual Cost Normal Cost Amortization of UAL Past trends Projected costs trends Maturity of Plan: Retirees vs. Actives Funding basis Any significant changes Plan Actuarial basis Volatility Boomershine Consulting Group North Carolina State Treasurer s Office 43

45 What are the Bond Rating Agencies Concerns about OPEB? More Attention Now! Funding Plan/Policy Funding % Contributions vs. Actuarially Determined Employer Cost ( ADEC ) Annual cost as a % of Budget Actuarial Assumptions GASB changes - Liabilities - Expense - Discount Rate Boomershine Consulting Group North Carolina State Treasurer s Office 44

46 How Does OPEB Impact Review and Approval by the LGC on a Local Unit s Ability to Issue Debt? Indirectly through delaying completion of audit Waiting on actuarial studies LGC receiving OPEB liabilities report as part of monthly agenda packet Units present at meetings are asked about plans to address OPEB liability At this time there is no direct impact on the unit s ability to issue debt. Boomershine Consulting Group North Carolina State Treasurer s Office 45

47 What are Some Steps a Unit Could Take to Mitigate the Impact of OPEB? Assess current situation Other Funding? Rating Agency Concerns Review Revising Plan Design Establish Trust Fund Review Actuarial Assumption Base/Experience Fund ADEC each year Potential Significant Cost Reduction Impact on Discount Rate Boomershine Consulting Group North Carolina State Treasurer s Office 46

48 What affect does funding have on my liability? Discount rate used to calculate liability Assets on hand to help liquidate liability at some point in the future Possibility to invest trust assets in longer-term investments with higher earning potential Boomershine Consulting Group North Carolina State Treasurer s Office 47

49 What affect does funding have on my liability? (Cont d) Investment Return Simulated Return Probabilities: 7.00%: 51.4% 6.75%: 53.4% Boomershine Consulting Group North Carolina State Treasurer s Office 48

50 What affect does funding have on my liability? (Cont d) GASB 74/75 Discount Rates Fully Pre-Funded, rate = 7.00% (invested rate) Partially Pre-funded Plan (example) Rate = 6.15% Unfunded Plan: 6/30 ~3.50% 20 Year Muni AA Bond Index (no diagram) Boomershine Consulting Group North Carolina State Treasurer s Office 49

51 How Difficult is it for a Unit to establish an OPEB Trust? Strongly recommend using an attorney Board approval Name trustee(s) Establishment of trust and funding are two separate processes Template trust agreement on DST website ms-instructions/pages/agpip.aspx Boomershine Consulting Group North Carolina State Treasurer s Office 50

52 NCGOA SPRING 2019 CONFERENCE HEALTH BENEFITS AND OPEB SESSION Sharon Edmundson, MPA, CPA Director, Fiscal Management Section State and Local Government Finance Division Office: (919) David S. Boomershine Senior Actuary Boomershine Consulting Group, LLC Executive Center I 3300 North Ridge Road, Suite 300 Ellicott City, MD Office: dboomershine@boomershineconsulting.com Jeff McCauley, CPA Chief Financial Officer Greenville Utilities Commission 401 S. Greene Street Greenville, NC mccauljw@guc.com Office: (252) Steve Graybill Principal Mercer 100 N. Tryon St., Suite 3600 Charlotte, NC USA phone: steve.graybill@mercer.com Boomershine Consulting Group

53 Appendix: Additional Survey Data Boomershine Consulting Group

54 AVERAGE TOTAL HEALTH BENEFIT COST AS A PERCENTAGE OF PAYROLL FOR % 20% 20.9% 15% 15.6% 16.6% 10% 5% 0% Government 500+ South 500+ North Carolina

55 BENEFITS OF OFFERING SURGICAL DECISION- SUPPORT SERVICES Government 500+ South 500+ North Carolina 500+ Lower incidence of some procedures (e.g., back surgery) 3% 5% 20% Higher use of Centers of Excellence 3% 4% 13% Better quality outcomes (e.g., fewer complications) 4% 7% 13% Other positive benefits 3% 3% 27% No positive benefits 2% 1% 0% Not able to measure 87% 88% 67% Based on employers with 500 or more employees 54

56 SURGICAL TREATMENT DECISION- SUPPORT SERVICES Require members to call decision-support in order for certain procedures to be covered Assess a penalty and/or provide incentive for using the service Government 500+ South 500+ North Carolina % 2% 0% 2% 3% 9% Offer service but do not provide incentives 50% 43% 36% Employees do not have access to this type of service 46% 52% 55% Based on employers with 500 or more employees 55

57 BENEFITS OF HEALTH ADVOCACY SERVICES Government 500+ South 500+ North Carolina 500+ Better management of high-cost claimants 50% 17% 35% Lower cost or cost trends 27% 18% 24% Increased participation in health improvement programs 31% 19% 29% Higher use of high-quality providers 24% 19% 29% Higher employee satisfaction 38% 44% 35% Other benefits 21% 13% 24% No benefit seen yet 26% 39% 41% Based on employers with 500 or more employees 56

58 AVERAGE CHANGE IN PER- EMPLOYEE COST FOR SPECIALTY MEDICATIONS AT LAST RENEWAL AMONG EMPLOYERS WITH 500 OR MORE EMPLOYEES 14% 12% 10% 11.2% 12.7% 11.1% 8% 6% 4% 2% 0% Government 500+ South 500+ North Carolina

59 TOBACCO NON- USE INCENTIVES Incentives for non-use of tobacco Government 500+ South 500+ North Carolina 500+ Lower premium contribution 9% 31% 42% Other incentive 13% 16% 17% No incentives provided 79% 56% 48% Annual reduction in premium for nontobacco-users, when provided (median) $328 $600 $600 58

60 USE INCENTIVES IN CONNECTION WITH HEALTH AND WELL- BEING PROGRAM Government 500+ South 500+ North Carolina 500+ Financial rewards 63% 63% 63% Financial penalties 20% 15% 23% Charitable contributions 0% 3% 5% Non-financial rewards (including all lotteries) 36% 23% 19% Do not use any incentives 17% 26% 19% 59