City of Lowell Adoption of Section 18A MGL Chapter 32B

1. City of LowellAdoption of Section 18A MGL Chapter 32B Public Hearing February 9, 2010

2. Overview • MGL 32B, Section 18A • What is Medicare? • Lowell Statistics & Health Costs • Retiree Health Insurance • Why Adopt Section 18A?

3. MGL 32B, Section 18A • MGL 32B governs municipal health insurance • Sections 18 & 18A: Acceptance requires transfer of all eligible retirees to Medicare Part B (physician insurance) • “18A” applies to future Medicare eligible retirees only • Emergency legislation – passed Nov ’08 • Local acceptance statute • Requires adoption by City Council

4. Springfield Worcester Billerica Burlington Chelsea Dedham Fall River Haverhill Needham Salem Framingham Arlington Waltham West Springfield Section 18 Communities 140+ municipalities have adopted Section 18 including:

5. Before Section 18A • Upon acceptance of Section 18: • City would be required to locate & enroll all Medicare eligible retirees • City would be required to pay the Medicare waiver fine to federal government for unenrolled • Upon acceptance Section 18A: • City enrolls only Medicare eligible who retire after provision adoption with no penalties due • No effect on current retirees

6. What is Medicare? • Federally provided medical insurance coverage for: • Retirees/Spouses 65+ years • Disabled < 65 years • End-stage Renal Disease • Part A-Hospital Insurance • Available premium-free if you are 65+, and you or spouse paid Medicare Tax for at least 10 years • Part B-Medical Insurance • Available to Part A holders for a current monthly premium of $110.50

7. Medicare Eligibility • Eligibility is determined by the Social Security Administration • Municipal Employees were not eligible for Medicare coverage until 1986, when the Federal Government required employees hired after April 1, 1986 and employers to contribute • 1.45% of salary with employer match of 1.45% • Not all city “retirees” qualify for Medicare: • “Early” retirees under age 65 • Retirees 65+ hired before 1986

8. Medicare Premiums • Non-Medicare Eligible retirees stay on active employee plans – pay no Medicare premium • Penalty paid by Medicare eligible retirees for late enrollment: 10% per year for each year not enrolled • No penalties for future retirees w/18A • Future Medicare eligible retirees accept Parts A & B through SSA upon reaching eligibility

9. Medicare Supplement Plans City of Lowell offers: • Medex & Carve-Out A & B • Supplements Medicare A & B to provide coverage that is actuarially equivilant to active employee indemnity plans • Monthly premium: $121.50/month • Managed Blue for Seniors (New) • Supplements Medicare A & B to provide equivalent coverage to Network Blue HMO • Preventative Care • Wellness Benefits • Monthly premium: $107/month (estimated)

10. How Will Section 18A Help? • Need to reduce costs where possible • Improves OPEB liability & bond rating • Provides for long term savings • NO IMPACT on existing retirees • NO IMPACT to future non-Medicare retirees • Non-Medicare eligible stay in active plan • NO PENALTIES to Retirees or City • Long-term strategy

11. Health Insurance Costs • Limited ability to control health costs • Unsustainable rate increases • MA has highest medical costs in US • Costs increase as revenues decrease • Impact employees, retirees & taxpayers • Affect hiring & delivery of public services • More $$ for benefits = Less $$ for salaries • Fewer laborers, firefighters, police, teachers

12. Health Insurance Costs FY01-10 Over the Last 10 years: • Annual costs: $13.1M to $39.3M (200%) • 5% of Operating Budget in FY01 • 13% of Operating budget in FY10

13. Health Insurance Statistics • $56 Million in claims per year • 8,300 members • 4,500 plans: 2,000 Retirees 2,500 Employees

14. Lowell’s Retiree Group • 2,000 Retirees in our group health Insurance: • 66% in Medicare supplements • 34% in Active/non-Medicare plans • 689 Retirees remain in Active Plans : • “Early” Retirees under age 65 • Spouses, Dependents, Survivors • Non-Medicare eligible 65+

15. Cost of Retiree Benefits • Cost of Post Employment Benefits • OPEB Liability is $433 Million • Impacts Bond Rating – effect of growing health care costs on City’s financial stability • Pension costs

16. Retirees in Medicare Plans • 1,300+ in Medicare Supplements • 91% voluntarily choose Part B already

17. New Option: Managed Blue for Seniors City proposes new Managed Care Supplement Plan for Medicare Retirees: • Preventative Care: Routine Physicals, Screenings, Vision/Hearing exams, $10 co-pay • Tiered prescription coverage • Wellness Benefits (Fitness, Weight Watchers) • Coverage available through Blue Cross Network • Monthly retiree premium estimated at $107

18. Financial Impact - City • Annually - Based on current/single plan coverage

19. Section 18A Impact on Retiree Benefits • No change in the current indemnity plan’s benefits for subscribers who enroll in Carve-Out A & B or Medex plans. • Must present Medicare card in addition to Blue Cross Blue Shield card to providers.

20. Adoption of 18A is the Fiscally Responsible Choice • Since 1986, the City and new employees each began contributing to Medicare taxes. We’ve been paying in but not receiving full benefit • Soon all employees will be Medicare eligible • Cost-shifting from City to the Federal Government • 80% of qualified medical claims will be paid by Medicare instead of the Health Trust • City can budget with guarantee that retirees will accept Part B when eligible

21. Adoption of 18A is the Fiscally Responsible Choice • Most Medicare Eligible retirees are already enrolled in Medicare – 91% • Medicare plus Medicare supplemental plans are equivalent to active employee plans • Prospective - NO impact on current retirees • No risk of future penalties for Retiree or City • Health cost control a necessity • Immediate reduction in OPEB liability