TRANSMITTAL LETTER FOR BOARD MEETING OF AUGUST 6, 2015
COMMITTEE ON PENSION, HUMAN RESOURCES AND CIVIL SERVICE
Mr. David St. Pierre, Executive Director
Title
Requesting Approval to Amend Health Care Benefits for Pre-65 and Medicare-eligible Retirees and Introduce a Medicare Advantage Plan with Part D Coverage
Body
Dear Sir:
The District has been working with its benefits consultant, Deloitte Consulting (Deloitte), to explore cost-effective options for retiree health care benefits that would provide retirees with quality health care coverage while helping the District control rising health care costs. The goal was to identify possible products or plan designs available in the marketplace that would allow the District to manage health care costs, including exposure to the excise or “Cadillac” tax coming on line in 2018, without requiring significant changes in the benefits offered or significant increases in the costs incurred by retirees.
In October 2014, the Human Resources Department and Deloitte held strategy discussions with the Budget Office, Treasury and the MWRD Retirement Fund. Deloitte presented three major retiree benefit strategies being used by organizations similar to the District to control health care costs. These strategies were: continuing to offer a traditional group plan but reducing coverage levels through plan design changes and eligibility rules; introducing a group Medicare Advantage plan to replace traditional PPO and HMO plans; or moving retirees to private or public Medicare Exchanges. The group discussed the cost implications of each option and the impact it would have on the retiree population. Based on this initial review, the group felt the Medicare Advantage plan option warranted further exploration.
In March 2015, Deloitte presented additional information on Medicare Advantage plans including an estimate of potential cost savings that could be achieved if the District moved to this option. A Medicare Advantage Plan with Part D coverage, referred to as an MAPD plan, is a Medicare-approved plan that combines the benefits of Medicare Part A (hospital insurance), Medicare Part B (physician services and ancillary products) and Medicare Part D (outpatient prescription drugs) into a single plan. An MAPD plan is a fully-insured health insurance plan administered by a major insurance carrier. Although it is a Medicare-approved plan, the District can build the plan design to look similar to the coverage offered to retirees today. This would allow the District to continue to control such elements as the deductible, co-insurance, prescription drug co-payments and the maximum out-of-pocket. This would help ensure that the coverage being offered is consistent with what is in place today. It is important to note that an MAPD plan is an all-in-one insurance plan and not just a Medicare supplement plan. Only Medicare-eligible retirees would be eligible for this plan. Pre-65 retirees would continue to be offered a traditional group insurance plan (i.e. PPO and HMO plan) as they are today. Pre-65 retirees would be transitioned to the MAPD plan as they become eligible for Medicare benefits. Medicare enrollment is currently required for retirees to maintain coverage under the District health plan after age 65.
The implementation of an MAPD plan would provide some additional benefits for retirees. The MAPD model promotes preventative services, better coordination of care and improved management of chronic conditions. These plans seek better overall health outcomes for the patient and design programs to accomplish this goal. For example, most plans offer expanded programs for transition of care. This helps ensure that a patient receives appropriate follow-up care, sometimes in the home, after a hospital stay. Other programs offered by plans include wellness programs, expanded behavioral and social care programs, 24-hour nursing services and diabetes management programs. The menu of program options will vary by plan provider.
Cost savings for the implementation of an MAPD plan are generated through additional subsidies offered by the Centers for Medicare and Medicaid Services (CMS) and through incentives offered to the carrier for managing the health of the retiree population. Based on projections provided by Blue Cross Blue Shield, the District estimates that an MAPD plan with the current retiree plan design would result in a reduction in cost of approximately 45% for the Medicare-eligible population. This would be an annual cost savings of $1,400,000.00 for retirees and $2,900,000.00 for the District for a total savings of $4,300,000.00. As a reference, a Medicare-eligible retiree enrolled in the MAPD plan would see a reduction in monthly premium of approximately $75.00 for single coverage and $150.00 for single-plus-one coverage. In addition to these cost savings, the implementation of an MAPD plan would eliminate the District’s exposure to the excise tax under Patient Protection and Affordable Care Act (PPACA) for the Medicare-eligible retiree population. This would be an estimated cost savings of $18,000.00 in 2018 increasing to a savings of approximately $36,000.00 by 2021. Finally, the implementation of an MAPD plan will have a positive impact on the District’s OPEB liability under the current Governmental Accounting Standard Board (GASB) regulations by reducing the future liability for retiree health care benefits.
After consideration of the information presented by Deloitte, the group recommends that the District implement an MAPD plan as the core of its retiree benefits strategy moving forward. The retiree strategy will include several other changes to align the level of coverage for retirees with the current coverage for active employees. These changes include: changing the co-insurance to 85%, increasing the deductibles and adding a fourth specialty tier to the prescription drug coverage. Each of the steps in the implementation of this strategy is described in more detail below:
Change in co-insurance, deductibles and prescription drug tiers for pre-65 and Medicare-eligible retirees effective January 1, 2016
The Board of Commissioners approved several changes to the active employee plan design as part of a multi-year benefits strategy at the Board meeting on December 18, 2014. These changes included a decrease in the co-insurance under the PPO plan, an increase in the deductible for the PPO plan and the creation of a fourth tier for specialty drugs under the prescription drug coverage. These same changes will be implemented as part of the retiree benefits strategy to provide consistency between the benefits for active employees and retirees.
The first change is related to the co-insurance for in-network services under the PPO plan. The co-insurance for the active employees was changed to 85% effective January 1, 2015. The current co-insurance for retirees enrolled in the PPO plan is 90%. Beginning January 1, 2016, the co-insurance for retirees would be changed to 85% for retirees (pre-65 and Medicare-eligible) enrolled in the PPO plan consistent with the active employee plan. The plan design for the MAPD plan would also include a co-insurance of 85% when it is implemented in January 2017. This change in co-insurance would result in a cost savings to the plan of approximately $106,000.00 per year. It would also reduce the calculated value of the health care benefits for purposes of the excise tax.
The deductibles under the PPO plan would also be changed to be consistent with the active employee benefits. The current deductibles for the active employee and retiree PPO plans are $300.00 for individual coverage, $600.00 for employee-plus-one coverage and $900.00 for family coverage. Effective January 1, 2016, the deductibles for active employees will be increased to $350.00 for individual coverage, $700.00 for employee-plus-one coverage and $1,050.00 for family coverage in accordance with collective bargaining agreements and the non-represented employee benefits strategy approved by the Board of Commissioners on December 18, 2014. The deductibles for retirees (pre-65 and Medicare-eligible) enrolled in the PPO plan would be set at this level as well effective January 1, 2016. The plan design for the MAPD plan would also include these deductibles when it is implemented in January 2017. This change in co-insurance would result in a cost savings to the plan of approximately $55,500.00 per year. It would also further reduce the calculated value of the health benefits for purposes of the excise tax.
Finally, the prescription drug co-payment structure would be changed to include a fourth tier related to specialty drugs. Specialty drugs are high-cost, highly complex pharmaceuticals, often developed through biotech research, that are used to treat serious medical conditions including cancer, multiple sclerosis, rheumatoid arthritis and other diseases. This fourth tier was added to the active employee plan effective January 1, 2015 with a co-payment of $100.00. The prescription drug plan for retirees (pre-65 and Medicare-eligible) would be revised to include this fourth tier effective January 1, 2016. The fourth tier would also be included in the MAPD plan when it is implemented in January 2017.
Implementation of an MAPD plan for all Medicare-eligible retirees effective January 1, 2017
Effective January 1, 2017, the District would move all Medicare-eligible retirees to an MAPD plan. This plan would be the only health care plan offered to Medicare-eligible retirees. The District would build the plan design to look similar to the current PPO plan design for active employees. Selecting an implementation date of January 1, 2017 would allow the District to conduct an RFP in early 2016 to choose a vendor. This would provide ample time to communicate the change to Medicare-eligible retirees and answer any questions they have prior to the transition to the new plan.
The MAPD plan would include the Medicare Part D prescription drug coverage in addition to the major medical coverage. Prescription drug coverage is currently carved-out of the medical plan and is provided under the District’s Employer Group Waiver Plan. These benefits would no longer be carved out from the medical coverage eliminating the need for a retiree to carry a separate prescription drug card and deal with a separate provider for these benefits. It would also eliminate the need for the District to contract with a separate pharmacy benefits manager for the retiree group. The current co-payment structure of $9.00 for generic drugs, $25.00 for formulary brand drugs and $45.00 for non-formulary brand drugs would continue to be used for the MAPD plan with the addition of the $100 specialty drug tier discussed in the prior section.
Finally, the implementation of the MAPD plan would require a change in the benefits plan year for Medicare-eligible retirees. All Medicare plans are required to operate on a calendar-year basis. The current District plan year begins July 1st and ends June 30th of each year. Under the MAPD plan, the plan year would be changed to a calendar year beginning January 1st and ending December 31st each year. It is anticipated that the open enrollment period for Medicare-eligible retirees would occur in October/November each year.
Pre-65 retirees would continue to be offered a PPO and HMO plan option with a plan design consistent with the active employee population. The plan year for this group would also be changed to a calendar-year basis as with the MAPD plan. Given that pre-65 retirees would transition to the MAPD plan as they become eligible for Medicare, the plan years for these groups must be the same.
In summary, the retiree benefits strategy being proposed in this recommendation helps the District manage the rising cost of retiree health care while maintaining a level of coverage similar to that offered to retirees today. The strategy would provide consistency between the benefits offered to active employees and those offered to retirees. It would also introduce an MAPD plan for Medicare-eligible retirees that would result in significant cost savings for both the retirees and the District. The retiree strategy will reduce the District’s exposure to the excise tax for the pre-65 population and eliminate any exposure for the Medicare-eligible population. Finally, these changes would positively impact the District’s OPEB Trust by reducing the future liability for retiree health care coverage.
Approval is requested to implement plan design changes for retirees and introduce an MAPD plan for Medicare-eligible retirees in accordance with the description above.
Requested, Denice E. Korcal, Director of Human Resources
Respectfully Submitted, Mariyana T. Spyropoulos, Chairman, Committee on Pension, Human Resources & Civil Service
Disposition of this agenda item will be documented in the official Regular Board Meeting Minutes of the Board of Commissioners for August 6, 2015