SELF-FUNDED PPO HEALTH PLAN RATE REQUIREMENTS RETIREES JANUARY 1, 2018 DECEMBER 31, 2018 COUNTY OF ORANGE JUNE 2017 Page 1 of 12
COUNTY OF ORANGE CONTENTS 1. Introduction...3 2. Rate Adjustment...4 3. Reserve Fund...6 4. Exhibits...8 Page 2 of 12
1 Introduction Based on the past twelve months of claims data for retirees and annual trends of 7.0% for medical and 10.0% for prescription drug, Mercer recommends the current rate levels for the Wellwise Retiree and Sharewell Retiree plans be decreased by 0.1% on average (with rate adjustments varying by enrollment tier and plan) for the plan year effective January 1, 2018. While claims are estimated to increase at 7.0% for medical and 10.0% for prescription drug, it has been moderated by favorable claims experience, and the result is an overall decrease. Mercer is recommending application of separate rate adjustments by plan and coverage tier to improve consistency and reasonability, better align plan values (including Medicare offsets) and better accommodate Medicare Part D subsidy credits. To allocate the decrease across retiree rates by enrollment tier and plan, Mercer considers the following factors: The value of the plan design differential between Wellwise Retiree and Sharewell Retiree The value of Medicare for Medicare eligible retirees Claim utilization experience for Wellwise Retiree and Sharewell Retiree participants (Medicare and non-medicare) Number of retirees in the Wellwise and Sharewell plans to determine if claims experience is credible Appropriateness of rates compared to other plans offered to retirees Appropriately apply Medicare Part D subsidy credits This proposed rate action of -0.1% (in addition to the rate adjustment made for active employees) should result in a projected fund balance of $22,500,000 to $24,500,000 as of December 31, 2018. This projected fund balance is for both active and retired employees and is above the fund balance necessary to cover all incurred but not reported claims (the IBNR should the County terminate the selffunded arrangement of these plans) and the cost of administering these claims. We recommend the County continue the self-funded arrangement of these plans. The low administrative expense, cash flow available to the County, and flexibility of this funding arrangement make self-funding the most advantageous funding vehicle available for these plans. In addition, self-funded plans are not subject to the health insurer fee under the Affordable Care Act (reintroduced in 2018 after its moratorium in 2017). Page 3 of 12
2 Rate Adjustment The most recent twelve months of experience are totaled using paid claims of retired employees from May 1, 2016 through April 30, 2017 as the beginning claims cost. These paid claims are adjusted for plan design changes and to incurred claims by lagging enrollment by 2 months for medical claims and 1 month for pharmacy claims. This adjusts for the change in the IBNR claim reserve liability from the beginning of the experience period to the end reflecting changes in paid claim patterns and enrollment. The result is an estimate of retiree claims that were actually incurred from May 1, 2016 through April 30, 2017. An additional adjustment was made to the Wellwise pharmacy claims to reflect improved contractual terms with OptumRx. The County engaged Mercer to conduct a pharmacy market price check in 2016 to ensure competitive pricing, and this resulted in multi-year savings to the County. These incurred claims are then projected to 2018 levels using annual cost trend assumptions of 7.0% for medical and 10.0% for pharmacy. These trend levels are based on a combination of historic County medical and prescription drug claim experience of the selffunded plans and general industry trend factors used by similar plan sponsors. The medical and pharmacy trends are consistent with the trends used in the 2017 self-funded projections. National health trends provided by the major insurance carriers for 2017 are at 8% - 11% for PPO plans and 11% - 15% for prescription drug card programs. The County s own trend outlook may be viewed more favorably than survey data based on better PPO network discounts and historic claims experience that has outperformed insurance carrier trend rates. Self-funded employers similar to the County have generally been using trend factors in the range of 4% - 10% for projection purposes. A claim credit was applied in the amount of $1,052,000 for the estimated Medicare Retiree Drug Subsidy for 2018. We recommend the County continue to apply for the Medicare Retiree Drug subsidy. Additionally, the pharmacy rebates expected in 2018 were applied proportionately to active employees and retirees. An administration adjustment was applied to the projected claims for claims administration; utilization review, case management, disease management, and PPO network access fees. Administration also reflects the claims administration fees associated with the pharmacy contract with OptumRx. The overall 2018 premium needed is compared to the 2017 premium to determine the recommended rate decrease of 0.1% on average, with rate adjustments varying by enrollment tier and plan. The recommended renewal decrease of 0.1% assumes no buy-down on the fund balance; however, the typical 2.5% claim fluctuation margin which covers the variability high cost claims was removed. Page 4 of 12
2018 Renewal Adjustments* Pre-65 Post-65 Wellwise -15.0% -3.0% Sharewell 6.0% 0.0% Overall -0.1% *Actual change may vary based on number of dependents and their Medicare status There are a few elements that contributed to this recommended adjustment, but the main driver is favorable claims experience over the past 12 months. The exhibits at the end of the report provide the details to the rate calculation: Exhibit I Exhibit II Exhibit III Provides the details of the rate calculation Presents the premium and paid claims by month Details the enrollment by plan Page 5 of 12
3 Reserve Fund The County maintains a surplus of revenue over expenses called the Fund Balance. Based on Mercer and County staff recommendations, and as determined by the Board of Supervisors, the Fund Balance: 1. Acts as a Premium Stabilization Reserve (PSR), to serve as a hedge against unfavorable claim fluctuations and to absorb unusually high individual claims that may emerge from time to time 2. Funds Incurred But Not Reported (IBNR) claim reserves, claims incurred prior to a potential termination of the plan or portion of the plan. Mercer recommends the Self-Funded PPO reserve target be set to cover 100% of the IBNR reserve and an additional amount as a Premium Stabilization Reserve (PSR). The IBNR reserve is estimated to be 15% of the annual projected claims and the basis for the PSR component is 15% of projected annual claims. Therefore, Mercer continues to target reserve level of 30% of annual claims, with a margin of +/- 3% to accommodate fluctuations in experience consistent with the target policy established by the Board of Supervisors in 2011 for the Self-Funded PPO reserve. The recommended target reserve level for 2018 is $20,000,000. The current fund balance is approximately $25,800,000, $5,800,000 above the 2017 target fund level. The proposed active rates include a reduction in the fund balance, equivalent to about $1,700,000, with the strategy to gradually reduce the fund balance to the target level over several years. The reduction is anticipated to leave an estimated balance of $22,500,000 to $24,500,000 as of December 31, 2018. While the Fund Balance is expected to drop, the estimated balance is still above the target reserve level providing some margin for unexpected claim fluctuation volatility and unforeseen catastrophic claims. These are estimates based on the current benefit plans remaining in place and assume a continuation of current enrollment levels and emerging claims experience consistent with projections. Page 6 of 12
While the IBNR reserve covers the claims runout for claims incurred but not yet paid, the PSR is used to smooth out premium increases from year to year caused by unfavorable claims fluctuations. A reasonable PSR level for an ongoing self-funded program should represent about 15% of expected annual claim cost, which translates to approximately $10,000,000 for the County s programs (actives and retirees combined) as of December 31, 2018. Any projection of the expected fund balance as of December 31, 2017 or 2018 is subject to considerable fluctuation due to changing claim trends and utilization patterns as well as the timing of payments from the fund. All estimates are based upon the information available at a point in time, and are subject to unforeseen and random events. Therefore, any projection must be interpreted as having a likely range of variability from the estimate. Any estimate or projection may not be used or relied upon by any other party or for any other purpose than for which it was issued by Mercer. Mercer is not responsible for the consequences of any unauthorized use Page 7 of 12
4 Exhibits Page 8 of 12
Exhibit I County of Orange Most Recent 12 Months Experience 2018 PPO Budget Projection Experience Period: May 1, 2016 - April 30, 2017 Retirees Projection period: January 1, 2018 - December 31, 2018 Wellwise Pre-65 Wellwise Post-65 Sharewell Pre-65 Sharewell Post-65 Overall Medical Paid Claims $672,000 $5,141,000 $6,018,700 $2,661,500 $14,493,200 Pharmacy Paid Claims $214,100 $5,792,100 $983,900 $561,100 $7,551,200 Total Claims $886,100 $10,933,100 $7,002,600 $3,222,600 $22,044,400 Adjusted Medical Paid Claims $672,000 $5,141,000 $6,018,700 $2,661,500 $14,493,200 Adjusted Pharmacy Paid Claims $196,700 $5,321,300 $983,900 $561,100 $7,063,000 Total Adjusted Claims $868,700 $10,462,300 $7,002,600 $3,222,600 $21,556,200 Average Enrollment 58 1,398 709 513 2,677 Monthly Claims Per Capita $1,259 $624 $823 $524 $671 Current Enrollment 36 1,367 736 505 2,644 Claims Adjusted for Enrollment $543,700 $10,230,900 $7,269,300 $3,173,500 $21,217,400 Combined Trend 1.143 1.157 1.139 1.141 Plan Design Adjustment 0.975 0.944 1.000 0.999 Margin 1.025 1.025 1.025 1.025 Adjusted Projected Incurred Claims $621,000 $11,460,300 $8,483,400 $3,705,300 $24,270,000 Health Care Reform / Reinsurer Fee $0 $0 $0 $0 $0 Less: Rx Rebates ($11,500) ($310,900) $0 $0 ($322,400) Less: Part D Subsidy $0 ($1,051,600) $0 $0 ($1,051,600) Administration $18,900 $719,400 $361,100 $247,800 $1,347,200 2018 Premium $628,400 $10,817,200 $8,844,500 $3,953,100 $24,243,200 2017 Premium $901,100 $11,556,600 $7,821,000 $3,790,600 $24,069,300 2018 Premium -30.3% -6.4% 13.1% 4.3% 0.7% Without 2.5% Margin 2018 Premium $613,300 $10,537,700 $8,637,600 $3,862,727 $23,651,249 2018 Premium -31.9% -8.8% 10.4% 1.9% -1.7% Recommended Increase 2018 Premium $765,935 $11,209,902 $8,290,260 $3,790,600 $24,056,697 2018 Premium -15.0% -3.0% 6.0% 0.0% -0.1% All estimates are based upon the information available at a point in time, and are subject to unforeseen and random events. Therefore, any projection must be interpreted as having a likely range of variability from the estimate. Any estimate or projection may not be used or relied upon by any other party or for any other purpose than for which it was issued by Mercer. Mercer is not responsible for the consequences of any unauthorized use Page 9 of 12
Exhibit II WellWise Month Retirees Loss Enrollment Premium Medical Rx Claims Ratio May-16 1,471 $1,023,298 $628,935 $447,178 $1,076,113 105% Jun-16 1,462 $1,016,884 $488,857 $491,703 $980,561 96% Jul-16 1,459 $1,011,432 $631,691 $438,793 $1,070,484 106% Aug-16 1,467 $1,019,074 $659,560 $469,288 $1,128,848 111% Sep-16 1,460 $1,007,898 $375,338 $509,239 $884,577 88% Oct-16 1,460 $1,012,794 $357,834 $487,146 $844,980 83% Nov-16 1,456 $1,008,870 $458,849 $455,061 $913,910 91% Dec-16 1,446 $998,966 $365,480 $525,012 $890,492 89% Jan-17 1,424 $1,088,140 $437,140 $534,797 $971,937 89% Feb-17 1,444 $1,118,579 $435,106 $518,624 $953,730 85% Mar-17 1,395 $1,036,715 $484,765 $579,807 $1,064,572 103% Apr-17 1,403 $1,038,141 $489,479 $549,475 $1,038,954 100% May-16 to Apr-17 17,347 $12,380,791 $5,813,033 $6,006,125 $11,819,158 95% Sharewell Month Retirees Loss Enrollment Premium Medical Rx Claims Ratio May-16 1,224 $838,421 $761,088 $111,221 $872,309 104% Jun-16 1,218 $831,549 $842,395 $128,462 $970,857 117% Jul-16 1,218 $829,086 $931,796 $148,178 $1,079,974 130% Aug-16 1,225 $831,860 $765,333 $138,797 $904,130 109% Sep-16 1,227 $832,021 $967,243 $164,494 $1,131,737 136% Oct-16 1,228 $833,389 $839,302 $146,955 $986,257 118% Nov-16 1,240 $838,353 $594,793 $181,528 $776,321 93% Dec-16 1,235 $834,928 $835,754 $195,304 $1,031,058 123% Jan-17 1,190 $925,579 $802,655 $127,668 $930,323 101% Feb-17 1,225 $952,070 $317,327 $42,141 $359,468 38% Mar-17 1,203 $934,242 $470,827 $67,189 $538,016 58% Apr-17 1,241 $967,635 $551,596 $92,995 $644,591 67% May-16 to Apr-17 14,674 $10,449,133 $8,680,109 $1,544,932 $10,225,042 98% WellWise & Sharewell Combined Month Retirees Loss Enrollment Premium Medical Rx Total Ratio May-16 2,695 $1,861,719 $1,390,023 $558,400 $1,948,423 105% Jun-16 2,680 $1,848,433 $1,331,252 $620,165 $1,951,417 106% Jul-16 2,677 $1,840,518 $1,563,487 $586,970 $2,150,458 117% Aug-16 2,692 $1,850,934 $1,424,893 $608,085 $2,032,978 110% Sep-16 2,687 $1,839,919 $1,342,581 $673,733 $2,016,314 110% Oct-16 2,688 $1,846,184 $1,197,135 $634,102 $1,831,237 99% Nov-16 2,696 $1,847,223 $1,053,642 $636,589 $1,690,231 92% Dec-16 2,681 $1,833,894 $1,201,234 $720,316 $1,921,550 105% Jan-17 2,614 $2,013,720 $1,239,795 $662,465 $1,902,260 94% Feb-17 2,669 $2,070,648 $752,433 $560,766 $1,313,198 63% Mar-17 2,598 $1,970,957 $955,592 $646,996 $1,602,588 81% Apr-17 2,644 $2,005,776 $1,041,075 $642,470 $1,683,545 84% May-16 to Apr-17 32,021 $22,829,924 $14,493,143 $7,551,057 $22,044,200 97% Exhibit III Wellwise Retiree Enrollment 2016 Sharewell Retiree Enrollment Page 10 of 12
Month Retirees Enrollment Jan-16 1,472 Feb-16 1,472 Mar-16 1,468 Apr-16 1,475 May-16 1,471 Jun-16 1,462 Jul-16 1,459 Aug-16 1,467 Sep-16 1,460 Oct-16 1,460 Nov-16 1,456 Dec-16 1,446 Month Retirees Enrollment Jan-16 1,200 Feb-16 1,204 Mar-16 1,205 Apr-16 1,226 May-16 1,224 Jun-16 1,218 Jul-16 1,218 Aug-16 1,225 Sep-16 1,227 Oct-16 1,228 Nov-16 1,240 Dec-16 1,235 Wellwise Retiree Enrollment Month Retirees Enrollment Jan-17 1,424 Feb-17 1,444 Mar-17 1,395 Apr-17 1,403 May-17 0 Jun-17 0 Jul-17 0 Aug-17 0 Sep-17 0 Oct-17 0 Nov-17 0 Dec-17 0 2017 Sharewell Retiree Enrollment Month Retirees Enrollment Jan-17 1,190 Feb-17 1,225 Mar-17 1,203 Apr-17 1,241 May-17 0 Jun-17 0 Jul-17 0 Aug-17 0 Sep-17 0 Oct-17 0 Nov-17 0 Dec-17 0 Page 11 of 12
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