091206 Budget DriverHealth Care As Budget Driver
City Council Briefing
September 12, 2006
EXPENDITURES
FY07-08 Major Categories
FY 2007-08 Major Categories
$863.5M
Reserves
8%
Debt Service
$72M*
* Includes $45.8M = rollover
11%
compensation
$95M
Capital
1%
$6M
Personnel
45%
$392M
$299M
Operations
35%
PersonnelOperationsCapitalDebt ServiceReserves
FY07-08 Personnel Costs
$391.6M**
Health Insurance
7.53%
Miscellaneous Fringe
Benefits
0.22%
Life Insurance
0.82%
Retirement
** Does not include $45.8M rollover
11.48%
compensation in reserves (salary & health)
F.I.C.A
5.54%
Other Personnel Costs
1.94%
Full-Time
66.97%
Overtime
2.26%
Part-Time
3.24%
Full-TimePart-TimeOvertime
Other Personnel CostsF.I.C.ARetirement
Life InsuranceHealth InsuranceMiscellaneous Fringe Benefits
Introduction
Health Care is a benefit offered as part of
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the City’s total compensation package
A competitive package is critical to the
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recruitment and retention of a quality
workforce
The challenge is to manage increasing
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costs to ensure affordability into the future
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Background
Created City and Schools Consolidated
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Benefits Office in 1994 as a
consolidated service administered by
the VBCPS
Moved to self-funding from fully-
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insured by insurance provider in 2000
(Cost = actual health care service + administration +
stop-loss premiums)
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Background
Formed Benefits Executive Committee
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in 2002
Selected Mercer Human Resources
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Consulting in 2002 to assist with issues
relating to health insurance and
employee benefits
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Background
Moved to one managed care carrier in
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2003
Basic plan option added in 2004
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POS plan added for new retirees in
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2005
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Trends ~ Cost Drivers
Higher utilization of services
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New medical treatments
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More intensive diagnostic testing
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Defensive medicine
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(Source:Studies from America’s Health Insurance Plans and PriceWaterhouse Coopers –Employee
Benefits News, September 1, 2006 and Mercer Human Resources Consulting)
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Trends ~ Cost Drivers
Aging workforce
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Growing retiree population
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Unhealthy lifestyles
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Fixed dollar co-pays in plan design
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Double-digit prescription drug trends
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(Source:Studies from America’s Health Insurance Plans and PriceWaterhouse Coopers –
Employee Benefits News, September 1, 2006 and Mercer Human Resources Consulting)
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Trends ~
High Prevalence
Disease and Conditions
Cancer
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Joint conditions and replacement
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Heart disease
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Diabetes
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Maternity
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Hypertension
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(Source:Studies from America’s Health Insurance Plans and PriceWaterhouse Coopers –
Employee Benefits News, September 1, 2006 and Mercer Human Resources Consulting)
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Historical Health Plan Costs
Plan Total Health Plan Aggregate + Expenses for City & Schools
YearCity Split
2001$50,200,000$18,474,000
2002$56,400,000$20,642,000
2003$60,900,000$22,655,000
2004$68,000,000$26,180,000
2005$80,300,000$32,200,000
2006$87,700,000$37,886,000
2007*$97,700,000$42,206,000
Projected
*
National Average for Health Care
Increases for Governmental Employers
2005 over 2004 = 12%(18.2%)
2004 over 2003 = 14%(18.6%)
2003 over 2002 = 13.5%(6.2%)
(Source:Mercer Human Resources Consulting)
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% of Government Employers Offering
Retiree Medical Coverage (2005)
Pre-Medicare81%
Medicare-eligible 60%
(Source:Mercer Human Resources Consulting)
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CITY
YEAREmployer Contribution% Increase From Prior
Year
2000$2,280
2001$2,4005.26%
2002$2,5205.00%
2003 –January$3,15525.20%
2003 –July$3,3506.18%
2004$3,68910.12%
2005$4,16913.01%
2006$4,5859.98%
SCHOOLS
YEAREmployer Contribution% Increase From Prior
Year
2000$2,280
2001$2,4005.26%
2002$2,5205.00%
2003$3,15525.20%
2004$3,3506.18%
2005$3,85214.99%
2006$4,43015.01%
Health Plan Review
Plan Year 2006 Plan and Projections
9.1% revised trend, down from original
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projection of 10.3% due to greater than
expected savings from pharmacy changes
Co-insurance introduced on 3and 4tier
rdth
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pharmacy
Co-payment added for high cost diagnostic
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imaging
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Health Plan Review
Plan Year 2007 Plan and Projections
City continues to fully cover the premium cost of
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the ”employee only”tier (HMO)
City & Schools contributions are equal
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City Employees
(actives)
Current Enrollees: 5,116
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Projected cost increase (total for
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employee and City premiums)is 12%
Employee premium costs will increase
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on average:
PPO –1.8%
HMO –5.2%
Basic PPO –9.0%
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City Retirees
Current Enrollees:
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567 Retirees on a plan
544 receiving the City’s contribution
Projected cost increase (total for retiree
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and City premiums)is 20.3%
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City Retirees
Retiree premium increases include
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eliminating, over ten years, the implicit
subsidy to cover real costs and help
reduce the future liability.
Retiree* premium costs will increase on
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average:
POS –26.7%
HMO –44.4%
*For those retirees with 25 or more years of service
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Upcoming Work:
Open Enrollment for Plan Year 2007 in
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October for employees and November
for retirees
RFP for carrier(s) for Plan Year 2008,
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including medical, pharmacy and
dental
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Upcoming Work:
Wellness and Disease Management
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expanded offerings
Data Analysis
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Sentara Disease Management Programs
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Cardio4Life
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Health Risk Assessment
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24-Hour Nurse Line
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Fitness/Weight Management
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Website
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Wellness Programs
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Pending Decisions and
Upcoming Work:
Retiree Benefits
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Continue to offer access to Health Care
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Coverage until Medicare eligibility
Continue eligibility for City contribution
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upon retirement for current employees
with 25 years of service
Address the unfunded liability to support
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future retirees
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Conclusions:
Health Care Costs for City and Schools
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is Approaching $100 Million
Managing Increasing Costs is
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Imperative in Order to Continue the
Benefit
Retiree Health Unfunded Liability Must
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Be Addressed
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