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Retiree Medical Insurance Update. March 10, 2003 Sue Autry, Human Resources Manager Steve Hilfers, Director of Finance Marisa Walker, Principal Analyst . Current Issues … The Retiree Perspective. Significant upsurge in medical healthcare costs in recent years of 15%-30% per year

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Retiree Medical Insurance Update

March 10, 2003

Sue Autry, Human Resources Manager

Steve Hilfers, Director of Finance

Marisa Walker, Principal Analyst


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Current Issues …The Retiree Perspective

  • Significant upsurge in medical healthcare costs in recent years of 15%-30% per year

  • Impact on employees/retirees through cost shifting:

    • Higher deductibles

    • Higher co-pays, co-insurance

    • Higher out-of-pocket maximums

    • Higher premiums

    • Increase in share of premiums

  • Future uncontrolled escalation of healthcare costs


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    Current Issues …The Employer Perspective

    • Significant increase in medical healthcare costs

    • Growing retiree population

    • Failure of Medicare to offer prescription drug coverage

    • Decreasing Medicare reimbursements

    • GASB consideration of employer accounting for retiree health coverage liability


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    Employer Trends in Offering Retiree Benefits

    Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 1999-2000 and KPMG Survey of Employer-Sponsored Health Benefits: 1988, 1991, 1993, 1995 for Large Employers (1,000-4,999 workers)


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    Industry Trends in Offering Retiree Benefits

    Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits 2001 (Large Firms 200 or more workers)


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    Comparison City Retiree Benefit Trends - 2002 Survey

    • 94% have a medical coverage program for retirees

    • 28% subsidize retiree medical coverage



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    City of Colorado Springs

    Sworn Retirees On City Medical Plan


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    PreMedicare City Retirees:

    Health Insurance Continuation Options

    • SWORN RETIREES

    • Remain on City health insurance plan

    • Obtain health insurance coverage elsewhere

    • CIVILIAN RETIREES

    • Join PERA health insurance plan

    • Obtain health insurance coverage elsewhere


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    City Health Insurance Subsidy Levels

    • Fully paid

      • (Eligible to retire before 1/1/1979)

    • Partially paid - $91.40 per month

      • (Eligible to retire on or after 1/1/1979 and hired before 8/1/1988)

    • No subsidy

      • (Employees hired on or after 8/1/1988)




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    PreMedicare Sworn/Civilian Retiree

    2003Health Insurance Cost Comparison



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    2003 PreMedicare Monthly Rate Comparison

    With PERA Subsidy*

    Sworn/Civilian Retirees

    * Presumes employee has earned full 20 year credit subsidy amount of $230 per month


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    Medicare Sworn/Civilian Retiree

    2003Health Insurance Cost Comparison


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    2003 Medicare Monthly Rate Comparison

    Sworn/Civilian Retirees


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    2003 Medicare Monthly Rate Comparison

    With PERA Subsidy*

    Sworn/Civilian Retirees

    * Presumes employee has earned full 20 year credit subsidy amount of $115 per month


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    Retiree Subsidy Program Funding

    • 2002 Annual Funding

    • Sworn Retirees

      • Partial Subsidy :$312,588

      • Full Subsidy : $309,512

      • “PERA” Subsidy * : $525,000

    • Sworn Retiree Total $1,147,100

    • Civilian Retirees

      • Partial Subsidy : $442,010

      • Full Subsidy : $ 62,750

  • Civilian Retiree Total $504,760

  • Total Annual City Cost : $1,651,860

  • * Technically, the “PERA” subsidy goes to sworn actives, but works to the benefit of sworn retirees


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    Current and Future Retiree

    Partial Subsidy Level Summary


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    Funding the Future Partial Subsidy Program

    Current Retirees

    Current Retirees +Future Retirees


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    Future Funding Requirements for

    Partial Subsidy Program

    • Annual Cost to City - $91.40

    • (includes current and future partial subsidy eligible retirees)

    • Sworn Retirees -$728,275 annual cost to City

    • Civilian Retirees -$914,731 annual cost to City

    • Total $1,643,006

    • Increase of $ 888,408


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    Sworn Retiree City Rate Setting Process

    • In 1997 Council authorized staff to set sworn retiree rates using a 'blending' process.

    • Blending process averages projected active and retired claims experience for setting rates.


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    City Rate Setting Process

    Blending Strategy

    • Step 1: Average the projected higher claims experience of retirees with the projected lower claims experience of actives to arrive at a blended or average rate.

    • Step 2:Utilizes an additional subsidy from General Fund, “PERA subsidy” to buy the higher active sworn rates back down to or as near as possible, to civilian rates. Amount of PERA subsidy is number of PreMedicare and Medicare retirees times comparable PERA Health Trust fund subsidy. (currently approximately $525,000 per year)

      • RESULT: Lower retiree rates and slightly higher active sworn rates.


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    Sworn Retiree Claims Experience

    1999-2002

    $- 1,149,505 deficit

    $- 328,404 deficit

    $ -225,724 deficit


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    Active Partial Subsidy

    Eligibility Summary

    • Summary Eligibility Status as Percent of Current Employee Population:

    • Active Sworn

    • 37% eligible

    • 63% ineligible

    • Active Civilian

    • 29% eligible

    • 71% ineligible


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    Future Pre-Tax Funding Options

    • PERA 'carved out' a separate Health Care Trust fund from existing pension fund. Bill in Legislature for FPPA to establish a health care trust fund similar to PERA

    • Several vehicles available to save money for post retirement health care expenses..IRC section 457, 401(k), IRA's, Roth IRA's, VEBA's

    • City is examining a custom plan offered by ICMA that allows employee to set aside dollars for future health care expenses

    • Recent federal proposals to restructure defined contribution plans and individual retirement arrangements could alter all plans in future


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