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CITY OF MISSOULA EMPLOYEE BENEFITS COMMITTEE MEMO Date: May 5, 2009 To: Mayor Engen, Bruce Bender (CAO), Brentt Ramharter (Finance), Gail Verlanic (HR), Jim Nugent (Attorney), City Council and Budget Review Committee From: Jilayne Lee, Chair of EBC and Members - Brian Boot (Vehicle Maintenance), Joby Dufresne (Street), Erik Lee (Street), Bea Happ (Police), Jamie Merifield (Police), Chris Shermer (Police), Christopher Gray (Parks & Recreation), Dave Scott (Parks & Recreation), Jolene Ellerton (Public Works), Lynn McCamant (WWTP), Ali Matthews (IT), Cyndie Winchell (Parking Commission), Terran Lohman (Fire), Jeff Brandt (Fire) and Dale Hovdey/Keith Lewis (retirees), Shane McLaren (WWTP) Re: FY10 Budget – Recommendations from the EBC for Health Benefit Plan Over the past year the EBC has reviewed employee and administration suggestions for changes to the City’s Health Benefit Plan. Particularly during these tough economic times, we continue be mindful of our fiduciary responsibility of keeping an adequate fund balance in the City’s Health Benefit Plan both to keep our reinsurance costs down and to minimize potential adverse impacts to the City and our Plan participants. Current financial information for the Health Benefit Plan was unavailable to EBC during deliberations. Therefore, we are making these recommendations based on the last financial report received. As of November 30, 2008, the fund balance was $2,306,586. Traditionally, the Plan experiences higher claims costs during the last few months of the year. The following recommendations are made for your consideration for FY10: 1. Maintain four months of Plan Operating Expenses (including claims, health programs, administration, etc.) in reserve or retained earnings. Per Allegiance, for FY10 this amount equates to approximately $1.562 million. 2. Increase eligible chiropractic visits from 35 to 52 per Plan year. Estimated additional cost to the Plan would be $8,000. Recommend funding this cost from Plan’s retained earnings. 1 ---PAGE BREAK--- 3. Add previous Vision benefit back into the Health Benefit Plan with an increase to the Vision Examination (spectacle lenses only) maximum benefit from $45 to $60, and with an increase to the Contact Lenses (examination & fitting) maximum benefit from $150 to $165. Note: Either contact lenses or spectacle lenses, but not both, are eligible during any 365 day period. Estimated additional cost to Plan would be $56,572. Recommend funding this cost from Plan’s retained earnings. 4. Add basic Hearing Examination Benefit (no cap) under existing wellness benefit. Wellness benefit maximum will remain the same at $400 per participant per plan year. Estimate zero impact to the Plan. 5. Eliminate $10 employee premium that was implemented in FY04. Estimated loss of revenue to the Plan is $58,000. Recommend absorbing this loss with Plan’s retained earnings. 6. The City of Missoula should work with each union and non-union/association/elected employee group to determine whether to implement using all or a portion of the Health Benefit Plan premium, paid by the City on behalf of employees, towards calculation of retirement benefits. 7. Implement mandate by the State of Montana Legislature that Health Plans provide coverage for Autism Spectrum Disorders. Due to the potential financial impacts to the Plan, the EBC recommends that the City of Missoula find additional outside funding to meet this State mandate. 8. City of Missoula should not reduce its premium contribution by $100 Per Employee Per Month (PEPM) from $670 to $570, as requested. The estimated loss of revenue to the Plan for this request is $500,000. A majority of the EBC members voted down this request. The following reasons were given for their action: • Trust (that the reduction would be permanent even in the face of escalating costs) • Benefits were taken away when plan was in deficit and have never been reinstated • Health Benefit Plan is a benefit to the employees, retirees and elected officials. It is considered part of their compensation package. Reducing the City’s premium is effectively reducing this benefit and compensation. • The Plan’s reserve amount has grown and should benefit the Plan participants • Concern that job cuts could still occur • Interest rates are low now so Plan will not grow as much (low investment earnings) • Concerned the City would not increase their premiums back up to $670 • Concerned the City is looking at this as a funding mechanism for the general fund for longer than one year • Changing the City’s premium contribution is a contractual issue for unions • Well being and health of our Plan participants is unpredictable; Plan’s reserve could be used up quickly Please read the attached resolution for additional information on changes to the Health Benefit Plan over the last 10 years. 2 ---PAGE BREAK--- Resolution of the Employee Benefit Committee May 5, 2009 WHEREAS, in FY99 & FY00, the City did not increase its premium contribution to the Health Benefits Plan, and WHEREAS, for several years, medical inflation typically ran 15-20%, and WHEREAS, for several years the Plan experienced high claims costs, and WHEREAS, for four fiscal years (FY00-FY03), the Health Benefit Plan ended the year with a negative retained earnings (fund balance): 1997 79,771 1998 143,557 1999 53,421 2000 (470,786) 2001 (282,302) 2002 (257,992) 2003 (398,579) 2004 301,965 2005 506,944 2006 987,251 2007 1,526,303 2008 1,981,873, and WHEREAS, beginning in FY01, the City began to increase its premium contribution to the Plan by the following amounts: FY01 - $40, from $350 to $390 FY02 - $50, from $390 to $440 FY03 - $50, from $440 to $490 FY04 - $100, from $490 to $590 FY05 - $20, from $590 to $610 FY06 - $30, from $610 to $640 FY07 - $30, from $640 to $670 FY08 - remained at $670 FY09 - remained at $670, and WHEREAS, in FY04, the City began to levy mills outside of the levy cap to fund the Health Plan premiums, as provided for by a State law that went into effect 7/1/01, and WHEREAS, in FY01, implemented 60% (versus $80%) Plan copay for use of providers outside of the Preferred Provider Network, $25/month spouse premium implemented, $20/month child (without spouse on plan) premium implemented, $5/month premium for each additional child implemented, and 3 ---PAGE BREAK--- WHEREAS, in FY02, spouse premiums increased to $45, child premium increased to $10 per child, supplemental accident benefits were eliminated, copay percentage was changed from 80/20 to 70/30, deductibles increased to $200 ind./$600 fam. and copay maximum increased to $2,500 ind./$5,000 fam., triple-tier (generic 10%, formulary 20%, name brand 50%) copay for RX (drug) program was implemented, wellness benefit increased from $125 to $250, retiree contributions set at 85% of Plan premium, and WHEREAS, in FY04, $10/ month employee premium implemented, spouse premium increased to $65, child premium increased to $22.50, $50 deductible was added to RX (drug) program, minimum copays were implemented for RX (drug) program, vision benefit was eliminated, orthodontia benefit reduced from $1,500 to $750 per year, dental maximum decreased from $1,600 to $1,000 per year, dental basic care services benefit decreased from 100% to 80%, Non-PPO Plan copay reduced from 60% to 50%, deductibles increased to $300 ind./$900 fam., and WHEREAS, in FY04, during negotiations with the Fire Department Union IAFF Local 271, the City agreed that the value in lost benefits and increased premiums to Plan participants over the past few years was $165 Per Employee Per Month (PEPM), and WHEREAS, in FY05, coverage for dental sealants added, orthodontia coverage maintained at $750 but as a lifetime benefit, and to cover these benefits, child premiums increased to $27.50/ month, and WHEREAS, in FY06, wellness benefit increased to $300 paid at 100%, number of items eligible under wellness increased, Fit City budget increased to $30,000, and WHEREAS, in FY07, Voluntary Deductible/Co-payment Reduction Program implemented providing one free blood screening per adult plan participant per year, Fit City budget increased to $80,000 to cover and WHEREAS, in FY08, deductible increased to $400 ind./$900 fam. and copayment maximum increased to $2,300 ind. /$4,300 fam. but employees spouses) participating in the Voluntary Deductible/Copayment Reduction Program could maintain previous deductible and copayment amounts, expanded coverage under wellness benefit and increased Well Child benefit to $400, and WHEREAS, in FY09, State Mandate to cover dependents up to age of 25 implemented, State Mandate to add immunizations to well child and provide first dollar coverage implemented, physical therapy benefit increased from $2,000 to $5,000 max per benefit year, increase to the stop/loss carrier is 1% in fixed costs which is $4,140.96/yr based on the City increasing the exposure from $100,000 to $110,000 per person, dental benefit increased from $1,000 to $1,600/yr, increased City’s premium contributions for seasonal and regular part-time employees, and WHEREAS, the EBC has focused on educating Plan participants to be smarter health benefit consumers, and 4 ---PAGE BREAK--- 5 WHEREAS, the EBC has promoted and secured increased funding for Wellness benefit and for the City’s Wellness Program (Fit City), which is funded from Plan premium contributions, not the General Fund, and WHEREAS, changes in Medicare law has allowed retirees to drop the City’s Plan, therefore reducing costs to the Plan in claims and costs to the City in saved premium contributions on behalf of the retirees, and WHEREAS, as a result of all of the above, the Plan’s retained earnings has experienced positive growth and the year-end fund balance for FY08 was $1,981,873, and WHEREAS, the EBC and Allegiance recommend keeping four months of claims costs in retained earnings ($1.562 million for FY10) to keep reinsurance costs down and to have a safety net for Plan participants, and NOW, THEREFORE, BE IT RESOLVED BY THE EMPLOYEE BENEFIT COMMITTEE: The following recommendations (in summary form) are made for your consideration for FY10: • Maintain four months of Plan Operating Expenses (including claims, health programs, administration, etc.) in reserve or retained earnings. • Increase eligible chiropractic visits from 35 to 52 per Plan year. • Add previous Vision benefit back into the Health Benefit Plan. • Add basic Hearing Examination Benefit (no cap) under existing wellness benefit. • Eliminate $10 employee premium that was implemented in FY04. • City of Missoula should work with each union and non-union employee group to determine whether to implement using all or a portion of the Health Benefit premium paid by the City on behalf of employees towards calculation of retirement benefits. • Implement State mandate to provide coverage for Autism Spectrum Disorders. • City of Missoula should not reduce its premium contribution by $100 Per Employee Per Month (PEPM) from $670 to $570.