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Keeping Health Care Costs Down – Our Approach

Keeping Health Care Costs Down – Our Approach. Presented by: Valerie F. Hernandez City of Chandler. Looking Back – Fully Insured. What we did: Installed a retrospective pricing arrangement ! Refund surplus if rates were set to high. Deficits rolled over from year to year.

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Keeping Health Care Costs Down – Our Approach

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  1. Keeping Health Care Costs Down – Our Approach Presented by: Valerie F. Hernandez City of Chandler

  2. Looking Back – Fully Insured.. • What we did: Installed a retrospective pricing arrangement! • Refund surplus if rates were set to high. • Deficits rolled over from year to year. • Carrier pays rolling forward surplus 4-6 months following year end. • No payout by City if program terminates with deficit. • What we found: • Aetna increased rates to account for program risk. • Utilized surplus of 2008 to hold rates for 2010. • No impact on rising health care costs, only insurance company management of funds. • Took 2009 surplus payment since insured program would end 2010. • Expected 2010 plan year will end in a deficient for carrier due to cash out of 2009 plan year. • City budget could not sustain continued cost increases or 90% contribution to these costs.

  3. Self-funding: The journey begins…. • Step 1: Executive and Management team contract for an Actuarial Review and Cost forecast of Fully Insured vs. Self Funding. Results showed: • 4-6% Expected savings from three areas: • Administrative Fees: 1-2% Risk • Premium Tax paid to State of AZ: 2% • Lower Trend (Actual vs. Carrier projected): 1-3% • lst year only: Deferred costs of 15-20%

  4. Savings projections…

  5. Critical to steps to move forward with decision to Self-fund • Educate details of ROI (savings) and program requirements to Health Care Task Force • Review recommendation to Director Level & above to uncover opportunities/barriers: • HR • Finance • Operations • It • Present recommendation to Mayor and Council • Education on self funding • Details of requirements/actions if approved • Estimate Return on Investment for change

  6. The journey for success continues: Our approach • Hire professional consultant to assist in implementation • Establishment of a Trust Fund Account and Board • Fund managed by finance with oversight by outside board • Trust Fund Board reports to Mayor and Council on financial viability only (plan change remain with HR Health Care Task Force to Mayor and Council) • RFP for appropriate vendors • Stay conservative for lst 3 years and bundle with insurance carriers to maximize networks within Arizona and outside to accommodate both actives and retirees. • Focus groups with HR, finance, operations, IT, Health Care Task Force to establish administration and program cost needs to include in RFP • Obtain and re-price network claims using 12 months of current claims • Establish goals for benefit plan design • Measure twice – cut once • Actuarial forecast for next 3-5 years • Review cost forecast against budget constraints • Begin discussions for cost & contribution change from 90/10 to 80/20 • Revise! Revise! Revise! to meet current and future financial and employee needs.

  7. Journey for success continued… • Additional actions taken: • Pre-fund reserves for: • Claims incurred in plan year and paid after plan year end (IBNR) • Changes in catastrophic claim experience and stop loss coverage. • Unanticipated change in plan, risk, governmental requirements, industry change, catastrophic environmental events. • Spread contribution change over 3 years using level “3” pre-fund reserve's to soften impacts to employee contribution change from 10% to 20%. • Review expected cost changes over next 3-years • Establish commitment with task force to keep benefit plan the same in transition year. • Monitor monthly claims costs of the fully insured program against future year self funded forecast.

  8. Where are we going… • 2011 increase of 7% self-funding vs. fully insured estimate renewal of 14% • Benefits remain the same • Kick off Wellness initiatives (early phase of plan) • Biometric Screenings • Health Risk Appraisals • Health Care Task force: • reviews projection updates • reviews opportunities to enhance plan value while reducing cost trends • Quarterly Trust Board Meetings • Addition of Wellness activities in 2011 to: • Approval of 5-year plan roll-out designed to: • reduce claim costs • reduce employee absenteeism • increase employee satisfaction with plan • promote healthy living styles • encourage behavior change • educate employees on how they can keep their benefit costs down

  9. We are in Phase 1 & 2 of the Strategic Approach Phase I: Discover 2010 Phase II: Assess 2011 Phase III:Architect 2011 & 2012 Phase IV: Implement 2012 Phase V: Evaluate 2013 • Understand the current environment • Work with senior leaders to obtain buy-in and advocacy • Identify program objectives • Establish health and wellness strategic direction • Inventory current health and wellness programs • Conduct employee research (survey) • Conduct population risk analysis • Identify workplace issues (cafeteria, facilities, etc.) • Assemble a “wellness team” • Identify, define and prioritize potential programs • Develop short- and long- term strategy; establish project plan • Test with leaders and employees; find readiness barriers and gaps • Refine strategy and create detailed implementation and communication plan • Execute implementation plan • Select vendor partners; roll out • Finalize and execute communication plan • Measure program effectiveness • Program participation • Employee satisfaction surveys • Population risk levels • Health cost trend • Absence/sick days • Productivity • Refine programs • = activity underway or completed 9

  10. Buck Global survey indicates 43% of US respondents report a reduction of 2-5% trend percentage points per year. Most successful approaches engage… Target by behavior-based segmentation: SURVIVAL STEADY STRIVING SUCCESS SIGNIFICANCE I am just making it through the day I need to make some changes, but not now I know I can do better, but need a plan to get there I am healthy and financially secure I am engaged in greater success • ASSUMPTIONS: • Enlightened self interest is the biggest motivator • Financial incentives will drive participation

  11. The Opportunity of Wellness – A Case Study 2:1 return on investment in wellness 2%-4% average reduction in health care costs employee company case study results: 50% participation $729 per employee per year wellness program cost $9,036 per employee per year 2009 health care claims 10 year projected savings from wellness: $31 million EMPLOYEE ENGAGEMENT REQUIRED

  12. Consumerism reduces trends 3-6% over 3-7 year period… • Introduction of consumerism product design for 2012 to reduce costs and encourage • Health Savings Account Plan design • Establish illustrative rates on benefit differentials • Adjust illustrative rate structure to reflect the Cities desired results rather then Aetna’s product results. • Design program to be cost neutral to the City while providing incentives for employees to enroll.

  13. Keys to Success… • Educate all stakeholders • Allow time to plan and prepare • Measure twice…cut once! • Communicate! Communicate! Communicate! • Established branding • Alerts to employees on what’s coming • Incentives Awards for participation • Splash & Kickoff • Keep momentum going

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