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CITY-SCHOOLS CONSOLIDATED HEALTH FUND 10.8.24City/Schools Health Plan Informational Briefing Monica Croskey, Deputy City Manager David Keogh, Senior Health & Benefits Consultant, Mercer Monica Wasik, ASA, MAAA, Senior Associate,Actuarial Group, Mercer October 8, 2024 The Agenda •Historical Overview •Consolidated Benefits Office •Benefits Executive Committee (BEC) •Health Plan Timeline •Self-insured •Current Plan Offerings & Enrollment •Claims Trends •Health Fund Balance The Ask: Receive as information; no request for action is being made of Council at this time 2 Historical Overview Consolidated Benefits Office - 1994 •Staffed by Schools employees, managed by Director of Benefits under direction of Schools’ CFO •Keeps costs down for City & Schools health insurance •Handles day-to-day administration of benefit plans, wellness offerings, programs, services and resources to City and School employees, City Council and School Board Members, Retirees, and COBRA Participants, and their families. Self-Insured change - 2000 •Citing rising costs across the organization for healthcare, the City sent out a Request for Proposal (RFP) for health insurance March 1999 in anticipation of fully-insured contracts with area healthcare providers expiring that year. •Pricing options for sole source, dual option, self-funded, and fully-insured plan structures were requested from each bidding vendor. •After reviewing the available choices, the Health Insurance RFP Committee recommended a self-insured plan structure, which was voted on and adopted by City Council on October 26, 1999. •Factors for the change to self-insured included lower costs, more flexibility in the budget, and ownership over claims data. Benefits Executive Committee Formed - 2003 •Intent of committee is to have key staff members for both City and Schools routinely updated on status of health fund as well as remain informed on market trends or plan needs. That information is then carried into the budget development process with any proposed plan design changes or additional funding needs to be included in the budget. 3 Benefits Executive Committee (BEC) •Consist of: •Chief Financial Officer, Schools •Chief Human Resources Officer, Schools •Director of Human Resources, Schools •Director of Business Services, Schools •Director of Benefits, Schools & City •Deputy City Manager, City •Director of Finance, City •Co-Directors of Human Resources, City •Director of Budget and Management Services, City •Meets monthly 4 Health Plan Timeline •Decisions for significant changes historically occur early in fiscal year well in advance of the completion of the Proposed City Manager’s Budget for the following fiscal year. •Calendar year plan requires thinking through resource allocation as a part of a fiscal year budget. •Example: •Open Enrollment for CY 2025 begins in October 2024 •Planning for Offerings/Rates for CY 2026 begins this fall •Resources Programmed for CY 2026 plan in March-May 2025 as part of budget process •Open Enrollment for CY 2026 begins in October 2025 5 Self-insured •A self-insured (or self-funded) plan collects the monies paid by members and through employer contributions and pays the claims costs specifically for its members (through third-party administrator) and pays a third-party administrator fee to administer. •Contracted third-party administrator is Sentara. •Large self-insured plans are able to leverage risk, do not pay health insurers for assumed risk and profit margin, or state premiums tax. •Uses a health care consultant, Mercer, to provide actuarial services, compliance consulting, expert industry knowledge and professional services. •Self-insured plans have flexibility to set rates, control cash flow with reserves in health fund, change plan design, and has the opportunity to impact health outcomes through wellness programming and care coordination. •Virginia Beach has stop loss insurance - claims that exceed $600k in a plan year for a single individual are absorbed by the stop loss reinsurance carrier 6 Self-insured vs Fully-insured •Budgeted amounts set aside in contributions are used to cover claims costs and administrative expenses •The self-insured financial position is less costly over the long term because premium tax, risk margin, and profit are not paid to a third party (generally equates to 4-8%) Projected Claims Projected Claims Administrative Expenses Administrative Expenses Premium Tax, risk margin, profit Self-Insured Fully-Insured 7 Self-insured Impact on Health Fund •The total projected costs are used to set the budget which is funded through employee and employer contributions. •The Health Fund balance is impacted based on actual plan performance compared to budget. Employee Contribution Employee Contribution Employee Contribution Employer Contribution Employer Contribution Employer Contribution Surplus Added to Health Fund Deficit Taken from Health Fund Projected Cost Actual Below Projected Actual Above Projected 8 Current Plan Offerings •Health Plan Choices 1.Point of Service (POS) 2.Consumer-driven health plan (CDHP/HSA-eligible) •Employer contributes to the HSA •Employee may also choose to contribute to the HSA Plans are very competitive relative to those of other entities in Hampton Roads •Vision •Dental •Wellness 9 Current Plan Enrollment Approximately 90% of eligible City employees enroll in the plan and about 75% of eligible School employees enroll in the plan. 42% 58% Health Enrollment by Entity City Schools 61%8% 31%Plan Demographics Subscribers Spouse Children 62% 64% 16% 12% 9% 9% 6% 6% 7% 9% 0%10%20%30%40%50%60%70%POS (70%)CDHP (30%)Enrollment by Plan and Tier Family Subscriber + Spouse Subscriber + Children Subscriber + Child Subscriber Only Active and Retiree Enrollees by Entity Actives Retirees City 90%10% Schools 93%7% 10 Historical Claims Trend There has been material volatility in the trend; The combined City and Schools Annualized 4-Year trend is 7.23% (composite for medical and pharmacy), with the most recent trend significantly exceeding the average. $500 $600 $700 $800 $900 $1,000 $1,100 2019 2020 2021 2022 2023 2024 Historical PEPM Claims (med/drug) City Schools *Year to date (YTD) claims represent medical and pharmacy claims from January – June of each respective year. Historical PEPM Claims Trends (unadjusted for plan changes) City Schools 2017 5.3%3.6% 2018 -1.4%0.8% 2019 -0.3%7.9% 2020 1.8%0.2% 2021 23.0%13.3% 2022 -4.1%-0.1% 2023 11.7%15.3% 2024 YTD*13.3%14.1% 11 5 Year History of Health Fund Balance Over the last 5 years, the combined health fund balance has been in a financially strong position creating a unique situation; however, if current trends hold, the health fund balance could reach an unfavorable position in the future. Health Fund Balance ($) Entity FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 (est) School Year End Balance 21,897,020 34,759,043 35,773,890 38,391,974 35,538,507 26,572,647 City Year End Balance 22,931,075 32,355,018 37,050,317 33,536,205 35,956,169 30,559,094 Combined 44,828,095 67,114,061 72,824,207 71,928,179 71,494,676 57,131,741 The industry standard is to retain 2 months of total health plan costs in a fund balance; for FY25 that equates to $13.2M for City and $18.5M for the Schools ($31.7M Combined). Virginia Beach is currently in a favorable position.12 Observations/Takeaways •Virginia Beach is in a good position but needs to plan for the potential of rising plan costs •The City has been unique in the market with holding employee contribution rates flat (and below the rate of increase experienced by the plan) •Prior practice (and common in the industry) was to find a balance of sharing the cost of the plan •Example: 80% Employer / 20% Employee •Annual increases to employer share and employee share keep pace with the overall increase to the plan •Benchmarking of the plans to peer groups indicates strong relative position 13 Questions?