The County of Santa Clara
California

Agreement/Amendment
90397

Approve proposed premium rates for the County of Santa Clara employee and/or retiree medical, dental and vision plans for the 2018-2019 plan year, subject to final approval of the associated agreements in May 2018.

Information

Department:Employee Services AgencySponsors:
Category:Agreement

Body

FISCAL IMPLICATIONS

The estimated FY 2019 County costs for the renewal of all current employee medical plan rates for active employees are approximately $321.23 million, based on the current level of medical plan coverage and enrollment.  This amount represents a 8.5% or $25.3 million cost increase over the prior year’s amount of $295.93 million.  This increase is due to a combination of a 4.49% increase in cost per active employee and an increase in the number of active employees by 684.

The projected County costs for all retiree medical premiums and related costs for FY 2019 are approximately $62.45 million.  This amount represents an 11.2% increase or $6.29 million cost increase over the prior year’s amount of $56.16 million.  This increase is due to a combination of a 4.98% increase in cost per retiree and an increase in the number of retirees by 593.

The total County costs for both actives and retirees are included in the County Executive’s FY 2019 Recommended Budget.

CONTRACT HISTORY

The following plans provide insurance coverage for existing County benefit programs.  These plans have been previously negotiated with the County’s labor unions, and the scopes of coverage for the various benefit plans are generally stipulated in the negotiated labor agreements.

·        Kaiser Permanente Health Plan:  The original agreement was executed in 1963.

·        Valley Health Plan:  The original agreement was executed on October 22, 1985.

·        Health Net of California:  The original agreement was executed on March 1, 1999.

·        Delta Dental: The original group service agreement for dental administration services for the County’s previous self-insured dental program was approved on July 19, 1978 and was terminated on June 18, 2017. The current agreement for fully-insured group dental insurance coverage was executed on June 19, 2017 and runs through June 14, 2020.

·        Liberty Dental: The original group service agreement for dental insurance was executed on September 1, 2010. The current agreement runs through June 14, 2020.

·        Vision Service Plan: The original agreement was executed on August 21, 1989. The current agreement runs through June 14, 2020.

REASONS FOR RECOMMENDATION

The County renews its various benefit plan agreements on July 1st of each year to coincide with its fiscal year.  Beginning in May 2016, Administration moved the annual Open Enrollment Period for all County health plans for its employees and retirees to coincide with this renewal cycle.  Coordinating the renewal of the health plan agreements/contracts with the open enrollment period provides ease of administration and improved customer service.  In addition, employees and retirees now have an opportunity to make health plan changes before the implementation of any premium changes.

The recommended action requests approval for the proposed medical plan rates for the 2018-2019 plan year, allowing the Administration to provide timely advanced notification and billing to County employees and retirees who may be required to pay a share of the premiums for their own coverage and/or for their dependents.  The actual plan renewal agreements/contracts will be completed and submitted to the Board of Supervisors for formal approval in May.

On September 13, 2016, the Board approved an agreement with The Segal Company to provide crucial leverage and actuarial analysis when working with the County’s benefit plan providers on premium rate renewals.  Segal assists the County with obtaining the lowest pricing possible and provides consulting services on best practices in plan design and plan offerings.  Segal reviewed the renewals for the 2018-2019 plan year and performed an assessment of the assumptions, trends and other factors that were used by each health plan provider in its annual rate setting process.

The premium rates for all three of the County’s medical plans are based solely on past utilization and the projected claims experience of the County members enrolled in each plan. Attachments A and B compare the current total premium rates and the proposed premium rates for the 2018-2019 plan year for Active Employees and Retirees respectively.

Moratorium on the Health Insurance Providers Fee

Section 9010 of the Patient Protection and Affordable Care Act (ACA) imposed a fee on each covered entity engaged in the business of providing health insurance for United States health risks. The first fees were due September 30, 2014. There was a moratorium on the fee for the 2017 calendar year, but the fee resumed January 1, 2018.

Enacted on January 22, 2018, along with continuing resolution legislation, H.R. 195, Division D – Suspension of Certain Health-Related Taxes, § 4003, suspends collection of the fee for the 2019 calendar year only. As a result, the proposed premium rates for the County’s 2018-2019 plan include a minor temporary reduction to reflect the period the carriers will not be charged the Health Insurer Providers Fee.

The following is a brief summary of the 2018-2019 plan year premium changes for each of the County’s plans:

Kaiser Permanente Plan Renewal

For the 2018-2019 plan year, Kaiser Permanente is proposing an increase to the County’s current premium rates for actives and early retirees and an increase for Medicare retirees.  Kaiser’s proposed changes for the 2018-2019 plan year are as follows:

·        Traditional Plan – Active Employees & Early Retirees (Under age 65):  3.12% increase

·        Medicare Retirees (65 and older):  8.84% increase

For the 2018-2019 plan year, the increase in premium rates for active employees and early retirees can be attributed to a 4.5% increase in the combined utilization of the County group during the rating periodThe average claim costs per member per month increased from $459.37 to $480.10.  Combined utilization is comprised of Inpatient, Outpatient, Pharmacy and Other (Ambulance, Durable Medical Equipment, Care Management, etc.) costs. The only category of utilization that saw a decrease this period was Pharmacy claims, which decreased by 8.3%.

The 8.4% increase in premiums for Kaiser Medicare Retirees is significantly impacted by a correction to adjust for a past rate setting error. Kaiser recently discovered that, in January 2012, they mistakenly applied a Medicare Part D credit to the County’s rates. With the Medicare Modernization Act of 2003, Medicare prescription drug coverage was made available to all Medicare members. Employers who sponsored group medical plans for Medicare-eligible retirees had the option to either buy an Employer Group Wrap Product with Medicare Part D discounts applied through the medical plan carrier or to apply for a Retiree Drug Subsidy (RDS) directly. Although the County chose to and notified Kaiser that it was applying for the RDS directly, Kaiser mistakenly applied the Part D credit to the County’s plan. The actual increase needed to correct Kaiser’s oversight would have been a 16.2% increase for the 2017-2018 plan year; however, Kaiser agreed to limit the requested increase to a 9.9% increase that year and revisit the issue for the 2018-2019 plan year to determine if any further adjustment is necessary. Kaiser has stated that the current proposed increase of 8.4% includes additional necessary correction for the prior Medicare Part D error but that no further correction would be needed. It should also be noted that the adjustment being applied corrects the County’s Kaiser premium rates on a go-forward basis only; Kaiser is not attempting to collect any historical losses related to this error.

Other Kaiser developments:

During the spring of 2018, Kaiser will open a new 4-story, 153,000-square-foot medical office building in San Jose located at Skyport Dr. and Technology Dr. Services will include adult medicine, pediatrics, ob-gyn, dermatology, and orthopedics.

Valley Health Plan Renewal

Valley Health Plan (VHP) proposed rate increases for the 2018-2019 plan year as follows:

·        Classic Network Plan

o       Active Employees: 2.19% increase

o       Early Retirees (Under age 65):  1.85% increase

o       Medicare Retirees (65 or older):  1.85% increase

·        Retiree Preferred Network Plan

o       Early Retirees (Under age 65):  0.75% increase

o       Medicare Retirees (65 or older): 0.75% increase

·        Preferred Network Plan for Non-Coded Employees (ACA Plan)

o       Eligible Extra-Help Employees: 0.75% increase

The above proposed rate changes do not include the subsidy for County retirees enrolled in the VHP Classic Network plan approved by the Board on June 9, 2015 for the 2015-2016 plan year. The subsidy was reduced to 75% of its original value for the 2016-2017 plan year, to 50% for the 2017-2018 plan year, and will be 25% of the original value for the 2018-2019 plan year. The subsidy is scheduled to be fully eliminated after the 2018-2019 plan year. Attachments C and D reflect how the reduction to the VHP Classic Network subsidy will affect retiree monthly out-of-pocket costs.

On March 1, 2016, the Board authorized the addition of the VHP Preferred Network Plan for retirees beginning with the 2016-2017 plan year. The Preferred Network Plan is designed to be a lower cost option and operates on a narrower network than the County’s VHP Classic plan, focusing on providers from the Valley Medical Center and community clinics.  Effective July 2018, Verity Medical Foundation will be added to the Preferred Plan Network. As a result, the only difference in the medical groups available between the Classic Plan and Preferred Plan is the Palo Alto Medical Foundation (PAMF), which is only included in the Classic Plan. Currently, there are 199 Early Retirees and 304 Medicare Retirees enrolled in the Classic Plan. Currently, there are 100 Early Retirees and 193 Medicare Retirees enrolled in the Preferred Plan. ESA and VHP staff are planning a communication initiative during the upcoming open enrollment period to notify all current VHP retiree subscribers who are enrolled in the Classic Plan that they can reduce their out-of-pocket premium cost by switching to the Preferred Plan.

In August 2015, to comply with the Employer Mandate provision of the Affordable Care Act, the County developed a “Health Insurance Coverage Policy for Non-Coded Employees” that offers eligible extra-help employees and dependent contractors medical coverage under the VHP Preferred Network plan.

Health Net Plan Renewal

Health Net’s proposed rate increases for the 2018-2019 plan year are as follows:

·        Select POS – Active Employees/Early Retirees (Under Age 65):  6.35% increase

·        Select POS – Retirees Age 65/Older (Medicare Supplement):  2.20% increase

·        Out of State PPO – Retirees Age 65/Older (Medicare Supplement):  2.20% increase

·        Flex Net – Retirees Age 65/Older (Medicare Supplement):  2.20% increase

·        Seniority Plus – Retirees Age 65/Older (Medicare):  No change

Overall utilization of the County’s Health Net Plan decreased for the current rating period. Inpatient admission utilization declined by 10%, outpatient utilization decreased by 6.4%, and ER utilization rates were flat. The number of high cost claimants decreased from 93 last period to 84 for the current period.  

The required increase is driven primarily by the rising cost of general medical inflation. Based upon the plan’s improved and downward trending Paid Loss Ratio (premiums remitted/claims paid), the County requested that Health Net provide a maximum rate cap for the 2019-2020 plan year in order to provide additional rate stability. Health Net agreed to this request with a guarantee that the County’s Health Net Select POS premium cost for active and early retirees will not increase by more than 6.5% in the 2019-2020 plan year.  It is rare for health plan providers to provide multiple year rate guarantees due to the volatility inherent in medical claims.  A rate-cap guarantee for the next plan year allows the County to take advantage of the current positive claim trend.

Delta Dental, Liberty Dental and Vision Service Plan

On May 23, 2017, the Board approved multi-year agreements with Delta Dental, Liberty Dental and Vision Service Plan (Item #42). These agreements were the result of a Request for Proposals (RFP) process, and each included flat rate guarantees through FY 2020. However, these agreements need to be amended to introduce slight rate decreases due to the moratorium on the Health Insurance Providers Fee.

CHILD IMPACT

Depending on the plan and the level of coverage in which the employee or retiree has enrolled and the bargaining group to which they belong, there may be some changes to the existing contribution requirements for the affected members and their dependent children.

SENIOR IMPACT

Depending on the plan and the level of coverage for which the employee or retiree has enrolled and the bargaining group to which they belong, there may be some changes to the existing contribution requirements for retirees and their dependents.

SUSTAINABILITY IMPLICATIONS

The recommended action will have no/neutral sustainability implications.

BACKGROUND

The County’s employee benefit plans and their current level of coverage for County employees and retirees have been previously negotiated with the County’s labor organizations.  The County’s benefit plan agreements are renewed annually and are subject to potential premium rate adjustments based on benefit utilization experience, general medical inflation (trend) and regulatory changes.

Each fiscal year, benefit plan providers submit premium renewal rates for the County’s medical plans, which are reviewed and analyzed by the Administration and the County’s benefits insurance broker/consultant to ensure rates are appropriate and reasonable given the actuarial assumptions and underwriting claim experience presented.

CONSEQUENCES OF NEGATIVE ACTION

If these preliminary renewal rates are not approved, the Administration will not be able to provide timely notification to employees and retirees of the upcoming rate changes and contribution requirements.

STEPS FOLLOWING APPROVAL

The Clerk of the Board of Supervisors is requested to notify Rey Guillen, ESA Employee Benefits Department.

Meeting History

Mar 20, 2018 9:30 AM Video Board of Supervisors Regular Meeting

Supervisor Cortese recused himself due to a financial interest resulting from a lease with Delta Dental.

RESULT:APPROVED [4 TO 0]
MOVER:Ken Yeager, Supervisor
SECONDER:Mike Wasserman, Supervisor
AYES:Mike Wasserman, Cindy Chavez, Ken Yeager, S. Joseph Simitian