Medical and Dental Benefits Discussion

1. Medical and Dental Benefits Discussion February 17, 2010

2. Presentation Overview Total Healthcare Costs Healthcare Premium Sharing Managing Future Costs a. Wellness Program b. Plan Design Changes c. Retiree Update

3. Scottsdale Medical and Dental Participation • Three self-insured medical plans 2,705* • Aetna EPO 86.2% 2,331 • Aetna High Level PPO 9.8% 264 • Aetna Basic PPO 4.0% 110 • Two dental plans 2,385 • Delta Dental, self-insured 79.5% 1,898 • Assurant, fully-insured 20.5% 487 • * Includes 276 retirees

4. National Healthcare Trends • Hewitt Associates • For third year, average health care premiums up 6% in 2010 • Phoenix market was lower-than-average at 3.8% in 2009 • Average total health care premium per employee for large companies = $9,120 • Mercer • With no changes, costs would rise an average of 9% in 2010 • Most employers plan to hold overall cost growth to 5.9% through plan changes • Average annual cost increase has been 6% since 2005

5. Scottsdale’s Healthcare Trends* Covered EEs 2,435 2,542 2,589 2,429 Covered REs 208 223 227 276 Cost Per EE/RE* $7,776 $8,303 $8,793 $9,000 Annual Trend 7% 6% 2% *Includes Medical, Dental, and RX Coverage

6. Medical Benefit Cost Overview • FY 2008/09 (Last Year) • Total costs were 2% below projection ($435,000) • FY 2009/10 (Current Year) • Total costs are ~5% below projection ($485,000 YTD) • Employees are helping manage costs through using benefits less than anticipated. This may also be affected by the economy. • Effective plan design, cost sharing features and wellness programs are also helping to hold the line on costs.

7. Policy Considerations for Premium Sharing • Adopt financial policy outlining strategy for premium sharing • Consider long-term viability and sustainability of plan • Consider impacts in consumer behavior due to rate changes, such as shifts in plans, etc. • Consider importance of competitive rates for recruitment, retention and employee morale

8. Current Medical Cost Sharing (Aetna EPO) • Notes: • Full-time employee contributions for Aetna EPO plan • 86% of eligible employees/retirees are in this plan • Employees pay full cost to buy up to Aetna High Level PPO • No Employee cost for high-deductible Aetna Basic PPO • Part-time employees receive 75% of full-time contribution

9. City rate comparison with other Valley cities • Notes: • Chart compares total premium and city contribution for Aetna EPO and comparable plans for full-time employees as of Jan. 1 with these Valley cities: Chandler, Gilbert, Glendale, Mesa, Peoria, Phoenix & Tempe • EE & CH and EE & SP only includes Chandler, Peoria, and Tempe with multi-tier structures

10. Employee rate comparison with other Valley cities • Note: • Chart compares total premium and full-time employee contribution for Aetna EPO and comparable plans for full-time employees as of Jan. 1 with same Valley cities

11. Current Cost Summary • EPO total premium currently less than other cities for similar plan. Total premiums are 17.7% lower for single and 9.1% lower for family • As a result, the City’s cost is also lower than other cities. Employer cost is 11.4% less for single, and is slightly higher (.7%) for family • Full time employees currently pay about 3.5% of EPO premium for single and about 10% in other tiers • Average Valley city employees currently pay about 10.5% of premium for single and about 19.5% in other tiers

12. FY 2010/11 Medical and Dental Premiums • Consider no change to medical premiums for FY 2010/11 • Total costs below projections the past two years, and • Sufficient reserves in the Loss Trust Fund • Balance has grown to $8.1 million, an increase of nearly $2 million in four years. Although total costs may increase in the area of 5%, the reserve is adequately funded to cover this shortfall • Consider no changes to dental premiums in FY 2010/11 • Self-insured dental PPO claims running as expected over past two years • Dental HMO is insured by Assurant, rates held constant for FY 2010/11

13. FY 2010/11 Aetna EPO City/Employee rates • Consider a two-year strategy to increase rates to 85%/15% • Annual City savings for FY 2010/11 estimated at ~$500 K. • Moves to a more consistent approach with a set ratio • Additional employees may migrate to no-cost basic PPO plan

14. FY 2010/11 City/Employee Rates • Additional Considerations • Employee rates for the Aetna High Level Plan (formerly MMSI) will increase by the same amount as the Aetna EPO Plan • Aetna Basic PPO Plan continues to be available at no monthly cost to full time employees • Part time employees continue to receive city contribution equal to 75% of full time employee contribution

15. Since 2004 – City-Paid Single Coverage

16. Since 2004 – Employee Share of Single Coverage

17. Aetna EPO Overview • Must use network providers for services • Self-referral to specialists • Basic care office visit - $20; specialist office visit $40 • Other co-pay amounts: Urgent Care $50; Emergency Room $150; Outpatient Surgery $150; and Inpatient $300 • Retail and Mail Order prescription drug benefits • Full time employee monthly rates increased from $12 to $32 for EE only, $59 to $77 for EE & Child, $77 to $95 for EE & Spouse and $118 to $140 for family. • Part time employee monthly rates increased from $96 to $111 for EE only, $202 to $216 for EE & Child, $246 to $260 for EE & Spouse and $358 to $375 for family.

18. Aetna High Level PPO Overview • In-network deductible: $500 individual & $1,000 family • Out-of-network: $2,000 individual & $4,000 family • PPO provider paid at 90% after deductible • Non-PPO paid at 70% • Only plan with access to Mayo network • Basic care office visit - $20; specialist office visit $40 • Retail and Mail Order prescription drug benefits • Full time employee monthly rates increased from $67 to $87 for EE only, $158 to $176 for EE & Child, $195 to $213 for EE & Spouse and $287 to $309 for family. • Part time employee monthly rates increased from $151 to $166 for EE only, $301 to $315 for EE & Child, $364 to $378 for EE & Spouse and $527 to $544 for family.

19. Aetna Basic PPO Overview • Aetna Basic PPO Plan • Separate deductibles for in-network and out-of-network • In-network: $1,750 individual & $3,500 family • Out-of-network: $3,500 individual & $7,000 family • PPO provider paid at 90% • Non-PPO paid at 70% • Retail and Mail Order prescription drug benefits • No monthly cost for full time employees – City pays full rate • Part time employee monthly rates will remain $71 for EE only, $121 for EE & Child $144 for EE & Spouse and $204 for family.

20. Managing Costs – “Live Life Well” Wellness Program • Unhealthy employees cost more than healthy employees • Improve employee health through helping them make lifestyle changes to stay well, and create informed consumers to help manage their costs • Strategies include: • Conducting annual biometric screening with health risk assessment • Providing no-cost preventative care, annual physical and immunizations • Wellness classes, including walking and weight loss programs, also fitness and health education classes.

21. Managing Costs – “Live Life Well” Wellness Program • Wellness Screenings • Employees gain specific information about their health status • City obtains aggregate information to help anticipate future claims costs and to identify specific program needs • Activity Oriented Projects • 2008-09 Weight Busters – 480 employees lost 1,470 pounds • 2009 Sneaker Club I – 600 employees and family members walked 178 million steps, 3.5 times around the world • Health Education and Fitness Classes • 40 employees recently completed medical self-care course

22. Consider $120 investment for HRA participation • Consider $120 investment for covered employees and spouses participating in biometric screening and health risk assessment. • Why invest in an incentive to encourage participation? • Research shows that incentives drive participation, participation drives trend changes, and trend changes drive costs • In 2008 with a $50 incentive, 40% participation; In 2009 with no incentive, 7% participation • At 50% participation, costs about $250,000 in incentives, plus cost for screening is $50,000. • Glendale and Mesa also incent employees through a similar premium discount to participate in screenings • Additional $25,000 per year would also be made available to encourage employee participation in other Live Life Well programs

23. Managing Costs – Change some co-pays in EPO Plan 1. Complex out-patient imaging procedures (cat-scans, MRI scans, etc) • Implement $50 co-pay ($40,000 savings) • Co-pays for chiropractor, physical, occupational therapy and home healthcare • Consider co-pay increase from $15 to $20 ($16,000 savings) • Changes are similar to changes made in prior years to improve efficiency of plans; no changes to the other plans

24. Managing Costs – Update on Retiree Eligibility • 2009 Change to retiree medical benefit eligibility – employees must retire prior to July 1, 2012 to remain on City plan. Savings are long-term, not short term • With implementation of Retirement Health Savings Plan – 14 retirees have opted out of plan