retiree medical insurance update march 10, 2003 sue autry, human resources manager steve hilfers,...
TRANSCRIPT
Retiree Retiree Medical Insurance Medical Insurance
UpdateUpdate
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
•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
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
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)
Percentage of Large Employers Offering Retiree Health Benefits
67%
56%
48%55%
44%37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Year1988
Year1991
Year1993
Year1995
Year2000
Year2001
Industry Trends in Offering Retiree Benefits
Percentage of Employers Offering Retiree Health Benefits By Industry - 2001
49%
27%
58%
10%
33%
40%
21%
80%
0% 20% 40% 60% 80% 100%
Mining
Manufacturing
Transportation/Utility
Retail
Finance
Service
State/Local Government
Healthcare
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits 2001 (Large Firms 200 or more workers)
Comparison City Retiree Benefit Trends - 2002 Survey
•94% have a medical coverage program for retirees
•28% subsidize retiree medical coverage
City of Colorado Springs Retiree Profile
360
463
0
100
200
300
400
500
1
Retiree Count as of January 31, 2003
Sworn Retirees
Civilian Retirees
City of Colorado Springs Sworn Retirees On City Medical
PlanPercentage of Sworn Retirees
PreMedicare vs. Medicare Eligible
55%45%
PreMedicare Retirees(147)
Medicare Eligible (120 retirees)
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
City Health Insurance Subsidy Levels
1. Fully paid
(Eligible to retire before 1/1/1979)
2. Partially paid - $91.40 per month
(Eligible to retire on or after 1/1/1979 and hired before 8/1/1988)
3. No subsidy
(Employees hired on or after 8/1/1988)
Sworn Retiree Subsidy Level Summary
Sworn Retiree Subsidy Level Data (Shown as a percentage of total sworn retiree population)
79%
20%
1%Fully Paid Subsidy (72 retirees)
Partially Paid Subsidy (285 retirees)
No Subsidy (3 retirees)
Civilian Retiree Subsidy Level Summary
PERA Civilian Retiree Subsidy Level Data(Shown as Percentage of Total Civlian Retiree Population)
87%
6% 7%Fully Paid Subsidy (31 retirees)
Partially Paid Subsidy(403 retirees)
No Subsidy - ineligible(29 retirees)
PreMedicare Sworn/Civilian Retiree
2003Health Insurance Cost Comparison
CITY PreMedicare EPO Retiree Rates2003
Monthly RateRetiree Only $390.34Retiree + Spouse $780.68Retiree + Child $741.65Retiree + Family $1,131.99
PERA Pre-Medicare retiree rates - CIGNA HMO2003
HMO #1Monthly Rates
Retiree Only $672.00Retiree + Spouse $1,378.00Retiree + Child $1,210.00Retiree + Family $1,882.00
2003 PreMedicare Monthly Rate Comparison
Sworn/Civilian Retirees
$390
$672$781
$1,378
$742
$1,210$1,132
$1,882
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Retiree Only Retiree + Spouse Retiree + Child(ren) Retiree + Family
City EPO Plan (sworn)
PERA HMO # 1 Plan (civilian)
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
$390$442
$781
$1,148
$742
$980$1,132
$1,652
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Retiree Only Retiree + Spouse Retiree + Child(ren) Retiree + Family
City EPO Plan (sworn)
PERA HMO # 1 Plan (civilian)
Medicare Sworn/Civilian Retiree
2003Health Insurance Cost Comparison
CITY Medicare EPO Retiree Rates 2003Monthly
RateRetiree or Surviving Spouse with AB $246.24
Retiree & Spouse with AB $492.46
PERA Medicare Retiree RatesMutual of Omaha
2003Monthly
RateBenefit Recipient - All Medicare Coverage $227
Benefit Recipient + Spouse – All Medicare Coverage $439
2003 Medicare Monthly Rate Comparison
Sworn/Civilian Retirees
$246$227
$492$439
$0
$100
$200
$300
$400
$500
Retiree or Surviving Spouse with AB Retiree & Spouse with AB
CITY EPO (sworn)
PERA Mutual of Omaha (civilian)
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
$246
$112
$492
$324
$0
$100
$200
$300
$400
$500
Retiree or Surviving Spouse with AB Retiree & Spouse with AB
CITY EPO (sworn)
PERA Mutual of Omaha (civilian)
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
Current and Future Retiree
Partial Subsidy Level Summary
262
379403 431
0
50
100
150
200
250
300
350
400
450
Partial Subsidy Sworn Partial Subsidy Civilian
Retirees ReceivingPartial Subsidy(current)
Eligible Actives (future)
Funding the Future Partial Subsidy Program
$312,588
$442,010
$728,275
$914,731
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
Partial Subsidy to Current Retirees Partial Subsidy to Current + Future
Retirees
Annual Cost to City: Partial Retiree Subsidy Current and Potential Future Population
Sworn
Civilian
Current Retirees Current Retirees +Future Retirees
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
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.
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.
Sworn Retiree Claims Experience
1999-2002
$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000
2002
2001
2000
1999
Total Revenues
Total Expenses
$- 881,836 deficit
$- 1,149,505 deficit
$- 328,404 deficit
$ -225,724 deficit
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
379431
647
1046
0
200
400
600
800
1000
1200
ELIGIBLE INELIGIBLE
Number of Sworn and Civilian Active Employees Eligible vs. Ineligible for Partial Subsidy
Upon Retirement
Sworn
Civilian
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