City of Paterson Selection of Medical, Dental and Prescription Benefit Vendors

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Allan Crawford
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1 City of Paterson Selection of Medical, Dental and Prescription Benefit Vendors USI Insurance Services LLC 300 Executive Drive West Orange NJ April 1, 2014

2 Summary Purpose: To review the methodology for City of Paterson benefit vendor selections To recommend to the Paterson City Council those benefit vendors selected to manage the City s medical, dental and prescription benefit plans IMPORTANT NOTE: This presentation summarizes the City of Paterson Medical, Prescription and Dental Benefits RFP Evaluation Committee Report. The City Council vendor selection resolutions discussed at the April 1, 2014 Workshop were drafted based on this report. 2

3 Background The City of Paterson currently operates Self-Funded Medical and Prescription Benefit plans and Fully-Insured Dental benefit plans Benefit levels are set by the Council and by collectively bargained agreements with Paterson s unions Paterson s contract for benefits provided to employees is the Plan Documents and Collectively Bargained Agreements Paterson s benefit vendors administer Paterson s plans in accordance with the Plan documents, and are paid an administration fee The Paterson Benefits Administration RFP was developed in accordance with current benefit plans and practices, but with flexibility to update plans and practices The Paterson Benefits Administration RFP Report includes changing some benefits from self-funded to fully-insured 3

4 Selection Criteria Vendors evaluated on multiple criteria, including: 1. Responsiveness to the City s RFP process (complete, transparent proposal) 2. Technical Competence a. Ability to efficiently and effectively administer Paterson s benefit plans b. Provider access / disruption for employees 3. Management and Expertise 4. Cost a. Level of Services provided to Paterson and employees within the Administrative Services agreement a. Network strength and provider discounts b. Cash Flow management (medical) c. Total Net Cost of providing current benefits to employees d. Administrative Fees charged for services 4

5 Medical Section Part 1, Active and Early Retiree Benefits A. Proposals submitted by four vendors: a. Aetna Life Insurance Company b. Horizon Blue Cross Blue Shield c. MagnaCare d. QualCare B. Overall Rating by Evaluation Committee ADMINISTRATOR RATING 1. Horizon Blue Cross Blue Shield Aetna Life Insurance Company MagnaCare QualCare 39 5

6 Medical Section Part 1, Active and Early Retiree Benefits Recommendation Horizon Blue Cross Blue Shield Justification: a. Lowest NET Cost 1. $ 325,000 higher administration cost over three years than Aetna (second highest ranked vendor) 2. Administration cost includes Wellness Services valued at more than $450,000 over three years. 3. Horizon s provider network offers broader in-network coverage and deeper provider discounts on the majority of covered services providing projected claim savings of $927,000 over three years. 4. The addition of MultiPlan for providers not in the Horizon PPO network enhances Horizon s cost advantage 6

7 Medical Section Part 1, Active and Early Retiree Benefits City of Paterson Estimate of Claims Cost and Vendor Reimbursement Discounts Horizon Aetna Total Billed Charges $86,820,000 $86,820,000 Estimated Out-of-Network (OON) Billed Charges $18,860,000 $20,235,000 Est. Reimbursement of OON $8,487,000 $9,106,000 In-Network Billed Charges $67,960,000 $66,585,000 In-Network Service Allocation Inpatient Hospital Billed Charges (35% of charges) $23,786,000 $23,305,000 Estimated Discount 76.00% 70.90% Allowed Amount - Charges x (1 - Discount) $5,709,000 $6,782,000 Less: Member 1.0% of Billed Charges $238,000 $233,000 Estimated Paid Claims $5,471,000 $6,549,000 Outpatient Hospital Billed Charges (23% of charges) $15,631,000 $15,315,000 Estimated Discount 61.00% 66.90% Allowed Amount - Charges x (1 - Discount) $6,096,000 $5,069,000 Less: Member 2.0% of Billed Charges $313,000 $306,000 Estimated Paid Claims $5,783,000 $4,763,000 Professional Billed Charges (42% of charges) $28,543,000 $27,965,000 Estimated Discount 54.50% 55.00% Allowed Amount - Charges x (1 - Discount) $12,987,000 $12,584,000 Less: Member 6.0% of Billed Charges $1,713,000 $1,678,000 Estimated Paid Claims $11,274,000 $10,906,000 Total Estimated Paid Claims $31,015,000 $31,324,000 Administrative Expenses $841,500 $719,596 Total Estimated Plan Cost $31,856,500 $32,043,596 Horizon s total projected annual cost is $187,000 lower than Aetna s total projected annual cost MagnaCare s total annual cost would be over $600,000 higher than Horizon s based on the level of discounts indicated on their RFP response, even taking into account their low administration expenses. 7

8 Medical Section Part 1, Active and Early Retiree Benefits Justification (continued): b. Horizon s proposal contains Wellness Services including: 1. Administration of Health Risk Assessments 2. Administration of Biometric Screenings 3. Educational Workshops for employees 4. Employee Wellness Counseling c. Horizon provides advantageous claim funding cash flow d. Horizon s network is known to employees and will not cause employee treatment disruption e. Selection of Horizon does not require transition to a new carrier, and the internal costs associated with such transition 8

9 Medical Section Part 2, Medicare-eligible Retiree Benefits A. Proposals submitted by two vendors: a. Aetna Life Insurance Company b. Horizon Blue Cross Blue Shield B. Overall Rating by Evaluation Committee based on cost ADMINISTRATOR Year 1 Cost 1. Aetna Life Insurance Company $1,835, Horizon Blue Cross Blue Shield $1,948,319 Note: Medicare Advantage plans include Medicare Part B (in hospital) drugs, but do not include Medicare Part D prescription drugs, which will continue to be covered under Paterson s self-funded prescription benefit plan. 9

10 Medical Section Part 2, Medicare-eligible Retiree Benefits Recommendation Aetna Medicare Advantage Plan Justification: a. Both Aetna and Horizon use the same Medicare providers b. Aetna has guaranteed equal to or better than benefits for all Medicare-eligible retirees, both Traditional and PPO plans c. Aetna has the lowest first year Premium Cost d. Highest STAR rating with the Center for Medicare and Medicaid Services ( CMS ), which will drive lower future costs Note: Medicare Advantage costs are set annually for each provider in conjunction with the Department of Health and Human Services, Center for Medicare and Medicaid Services (CMS) and are based on overall healthcare costs and the carriers specific STAR ratings. 10

11 Dental Section Part 1, Dental PPO Benefits A. Self-Funded Dental Proposals were submitted by five vendors: a. Aetna Life Insurance Company b. CIGNA c. Delta Dental of NJ d. Horizon Blue Cross Blue Shield e. Humana Dental Insurance Company B. Fully-Insured Dental Proposals were submitted by three vendors: a. Delta Dental of NJ (Dental PPO plans) b. Horizon Blue Cross Blue Shield (Dental PPO plans) c. Healthplex, Inc. (Dental Maintenance Organization, or DMO, plan) C. Because insufficient claim data not available to adequately price the self-funded risk, the Committee set aside all self-funded dental proposals and has evaluated only insured dental products (insured Dental PPO plans were offered only by Horizon and Delta Dental). 11

12 Dental Section Part 1, Dental PPO Benefits D. Overall Rating by Evaluation Committee DENTAL INSURER RATING 1. Delta Dental of NJ Horizon Blue Cross Blue Shield 84 12

13 Dental Section Part 1, Dental PPO Benefits Recommendation Delta Dental of NJ Justification: a. Delta Dental and Horizon Blue Cross Blue Shield have both matched the current Dental PPO benefit plan designs b. Delta Dental offers a more extensive provider network than Horizon Blue Cross Blue Shield c. Delta Dental provides a slightly lower cost than Horizon Blue Cross Blue Shield 13

14 Dental Section Part 2, DMO Benefits Only one vendor, Healthplex, Inc., has submitted a proposal that meets the RFP requirements: Healthplex offers: A distinctive schedule of benefits A proprietary dentist network Reasonable, competitive cost A substantial number (603) of Paterson employees have selected the Healthplex plan, and moving to another plan that cannot match network or benefits would result in significant treatment disruption and, ultimately, higher cost. Recommendation Healthplex, Inc. 14

15 Prescription Benefit Section A. Proposals submitted by ten vendors: a. Aetna Life Insurance Company b. BeneCard c. Citizens Rx d. Express Scripts e. Horizon Blue Cross Blue Shield f. Humana g. MagnaCare h. Optum Rx i. PCA Pharmacy j. QualCare 15

16 Prescription Benefit Section B. Overall Rating by Evaluation Committee PRESCRIPTION BENEFIT ADMINISTRATOR RATING 1. Citizens Rx Aetna Life Insurance Company BeneCard Express Scripts Horizon Blue Cross Blue Shield QualCare Pharmacy Corporation of America ( PCA ) Humana Optum Rx MagnaCare 59 16

17 Prescription Benefit Section Recommendation Citizens Rx Justification: a. Lowest NET Cost 1. $56,000 higher administration cost per year than the vendor with the lowest administrative cost (Horizon) 2. One of four vendors to provide a fully-transparent Prescription Benefit Management proposal 3. Best combination of low administrative costs, low dispensing fees, high claim discount guarantees and high rebate guarantees 4. Estimated Net Cost of $9,656,161 in the first year is $111,000 lower than the next lowest vendor (Optum Rx) 17

18 Net Results compared to current costs If the recommendations above are implemented, the net potential savings to the City compared to current costs will be: Medical: $ 112,000 Medicare Advantage: $ 1,046,000 Prescription Benefit Management: $ 976,000 Dental: $ 50,000 TOTAL: $ 2,184,000 18

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