Health Care Insurance Committee

1. Health Care Insurance Committee Report to the Board of Selectmen FINAL November 15, 2005

2. Members of the Committee • Philip Curtis (Chair) • Josh Coburn • Christopher DeLorey • Martin Klein • Jeff Levin-Scherz • Rosario Sacco • Town Staff: • Diane Jenkins • Julie Silverman

3. Committee Charge • “Examine from the broadest perspective the challenge of controlling retiree and employee healthcare costs…and recommend short-term and long-term measures to control these costs…”

4. The Committee’s Working Principles • Consider and evaluate all options for cost savings (“no sacred cows”) • Quantify and consider impact of recommendations on employees and retirees • Maintain choice where it is not prohibitively expensive • Obtain savings through administrative means if possible. • Be fair and equitable

5. Health Insurance Increases Will Crowd Out Other Important Town Priorities Assumption: 13-15% health care premium increases in 07-09Source: Town of Belmont Budget Forecast, November 8, 2005

6. Belmont is not alone in facing a crisis of health insurance costs for employees and retirees In Massachusetts from 2001 to 2005: • 63 percent increase in tax-funded costs of health insurance for municipal employees. • Municipal health insurance costs increasing more than four times faster than local budgets. • Increases in health care costs consumed four out of five dollars in new taxes allowed under Proposition 2½. Source: Mass. Taxpayer’s Foundation

7. State laws play a role in cost of health insurance for Belmont • State law limits the town’s ability to unilaterally change health insurance.1 • Health insurance is included in collective bargaining, and changes must be negotiated with labor unions. • The Commonwealth exempts itself from many of its own regulations • Massachusetts has 34 state mandates – many more than most states.2 • PWC estimated that state and federal mandates represent 15 cents of every new health care dollar 3 • There are ~70 potential mandates before the current state legislature 2 • There is also current legislation that might give towns more leeway in setting health insurance contributions. Sources: (1) Mass Taxpayers Foundation (2) Mass Assoc of Health Plans, (3) Price Waterhouse Coopers, 2002

8. Current Statistics (August 2005) • Harvard Pilgrim Healthcare Subscribers EmployeesRetireesTotal • HMO Family Plan: 311 46 357 • HMO Individual: 240 66 306 • PPO Family: 26 32 58 • PPO Individual: 22 59 81 • First Seniority 70 70 • Medicare Supplement 266 266 Source: Town of Belmont, 2005

9. Current Annual Costs/Contributions Cost of health insurance premiumsTown $7.8 million Employees/retirees $1.5 million Total: $9.4 million

10. Similar Communities’ Contribution Levels Portion of Insurance Paid by Town * • In negotiations to reduce town participation • Nonunion is 80% on HMO contributionInformation current as of May, 2005. Collected by town staff *Active Employees and those not eligible for Medicare

11. Possible Ways to Reduce Belmont’s Health Insurance Costs • Increase percentage of premium paid by employees and retirees for health insurance • Change plan design • Increase copayments and deductibles • Use a narrower network of lower cost providers • Decrease utilization of services • Utilization management programs • Wellness programs • Decrease administrative costs

12. Recommended for Future Increase town infrastructure to manage health benefit Evaluate Self Insurance for 2007+ Consider competitive bidding for 2007+ Evaluate joining purchasing coalition Review Medicare Part D implications during 2006 Medical management programs and wellness programs for Town employees Promote cost-effective legislative actions Recommended Now Change benefit design to be consistent with market Same dollar contribution for PPO as HMO Reduce town contribution level from current 90% to 80% Options Considered by the Committee

13. Not Recommended Ever Differential treatment for retirees not eligible for Medicare compared to active employees Benefit cap Not Recommended At This Point Claims audit Narrower network Health Savings Account with High Deductible health plan Options Considered by the Committee

14. Current plan $5 office visit $5/10/20 pharmacy $50 ER copay No inpatient copay No ambulatory surgery copay Recommended plan $15 office visit $10/25/40 pharmacy $75 ER copay $250 inpatient copay $100 ambulatory surgery copay Recommendation One: Adopt HPHC Value $15 or similar plan Savings likely: $620,000Impact on employees: Lower premiums and higher payments for care.Will require bargaining.

15. Current plan Town pays 90% of the HMO and 80% of the PPO regardless of cost Recommended plan Town would fix its maximum dollar contribution at the less expensive health plan Recommendation Two: Set Town Contribution Based on Lower Cost Plan Savings likely: $460K savings from Option 2 alone; 1.1 million from Options 1 and 2 togetherImpact on employees: Higher premium deductions from paycheck if employee chooses a more expensive health planLikely to move some of the less healthy employees to the HMO, which could raise future HMO premiums.Will require bargainingIf town sets Medicare Enhanced contribution at First Seniority level, could have additional $300K savings – but we don’t recommend this.

16. HPHC enrollment by plan(2005)

17. Current plan 90% town contribution is among the highest of municipalities surveyed Recommended plan 80% town contribution is more consistent with current municipal practice Recommendation Three: Reduce Town Contribution to 80% Savings likely: $650,000 from Option 3 alone; $1.9 million from Recommendations One, Two and Three Impact on employees: Higher premium deductions from paychecks.Will require bargaining

18. Summary of Recommendations One to Three Option One: Increase copaymentsOption Two: Equivalent town contribution for PPOOption Three: Lower town contribution to 80%

19. Current Town has chosen to economize on health benefits consulting. Future Recommendation One:Increase Town Oversight of Health Insurance Recommended • Seek additional consulting assistance, including evaluation of self-funding, competitive bidding and regular claims monitoring Savings likely: Belmont will not be able to evaluate competitive bids or self-funding with its current administrative infrastructure.

20. Current plan We are asking for a renewal quote from HPHC in the fall, and not offering other health plans the opportunity to bid on our business Recommended plan Belmont will issue an RFP periodically and assess competing bids for the highest value to Belmont Future Recommendation Two: Competitively Bid Contract in 2007+ Savings likely: As much as 5% if we remain fully insured. In many instances, the threat of bidding lowers the price for existing carriers. Small incremental administrative costs are incurred.Impact on employees: If we change carrier, new cards will be issued and employees will have to contact a different carrier with questions regarding payment.

21. Current plan Belmont contracts with HPHC and agrees to a set premium – and HPHC is responsible for paying all bills for covered services Recommended plan Town is responsible for actual payments and contracts with a third party administrator (could be HPHC) to pay claims Town would purchase reinsurance Future Recommendation Three: Evaluate Self-Funded Option for 2007 and beyond Savings likely: 8-15%This would mean that any effort to improve employee health would benefit Belmont, rather than the insurer.

22. Current plan Belmont negotiates for its health coverage as a single town. Recommended plan Belmont would purchase insurance through a coalition of municipalities. Future Recommendation Four: Evaluate Joining a Purchasing Coalition Savings likely: Not possible to estimate at this point.Small incremental administrative costs are incurred.

23. Future Recommendation Five: Town-Specific Medical Management and Wellness Programs • What it is • Programs to help keep Belmont employees and their families healthy and reduce overall medical costs • Examples include disease management programs, nurse coaching, and educational programs to encourage healthy lifestyle, exercise, smoking cessation and weight loss • Why we recommend deferring until a future point • We are currently paying HPHC to perform these functions • If Belmont moves to self-insurance we should institute this type of program. Now, any savings would go to HPHC Savings likely: Small at outset, but actual changes in behavior could result in meaningful savings.

24. Current plan Belmont will continue to fund retiree prescription benefit in 2006 Recommended plan Obtain an actuarial analysis to determine if we should transition drug coverage to federal plan in subsequent years Future Recommendation Five: Review Medicare Part D implications after 2006 Savings likely: Not known Note that town currently pays 60-69% of retiree health care costs for retirees eligible for Medicare . An administrative effort to move eligible patients to Medicare saved an estimated $100,000.

25. Not Recommended At This Point:Claims Audit • What it is • A third party reviews HPHC’s claims payments to see if the health plan has overpaid providers. • Overpayments can often range to over 10% of total expense • Why we recommend against it now • HPHC would receive any recoveries as it is the insurer. Theoretically, we might get a break on future year’s costs • We would have to pay a fee to the auditor, and in general that fee is a portion of total recoveries (which will go to HPHC) • We should reevaluate this if the Town chooses self-funding in the future.

26. Not Recommended At This Point :Narrow Physician or Hospital Network • What it is • Belmont employees would be more limited as to what providers were available • Why we recommend against it now • The market does not have attractive narrow network products at this point • We are too small an account for a health plan to develop a select network for us

27. Not Recommended At This Point : High Deductible Health Plans with Health Savings Account • What it is • Health plan has a $1,000+ deductible, and Belmont would provide funds for a portable health care savings account to any employee who accepts such a health plan (which is substantially less expensive than our current plans) • Savings in part due to beneficiaries being more price-sensitive and insisting on more cost-effective care. • Why we recommend against it now • State regulations would not allow us to mandate that all employees move to this type of plan, and if only a small group of young, healthy employees moved, the costs for Belmont would likely rise. • This is far from the standard for municipalities at this point • These products are still relatively new, but we understand they are likely to become a larger market force and we should continue to evaluate this option for the future.

28. Not Recommended: Treating Retirees And Active Employees Differently • What it is • Belmont would pay a lesser share of health insurance premiums for retirees not eligible for Medicare • Why we recommend against it • We believe that this is not fair or equitable, and is not the community standard for municipalities

29. Not Recommended :Benefit Cap (Lifetime or Annual Maximum) • What it is • There would be a maximum “payout” (e.g. $1 million) for each insured Belmont employee or family member. • Why we recommend against it • Difficult for health plans to operationalize • Projected savings modest • Bad public policy to have individuals “at risk” for cost of catastrophic events • Individuals have little discretion in care at catastrophic level • Discriminates against those with devastating illness • Note that if we move to self-funding, reinsurance might impose such a limit

30. Recommended for Future Increase town infrastructure to manage health benefit Evaluate Self Insurance for 2007+ Consider competitive bidding for 2007+ Evaluate joining purchasing coalition Review Medicare Part D implications during 2006 Medical management programs and wellness programs for Town employees Promote cost-effective legislative actions Recommended Now Change benefit design to be consistent with market Same dollar contribution for PPO as HMO Reduce town contribution level from current 90% to 80% Options Considered by the Committee

31. Not Recommended Ever Differential treatment for retirees not eligible for Medicare compared to active employees Benefit cap Not Recommended At This Point Claims audit Narrower network Health Savings Account with High Deductible health plan Options Considered by the Committee

32. Appendix

33. Detail from Recommendation One: Current vs. Recommended Plan

34. Administrative actions already taken to reduce burden of health care cost • Movement of patients eligible for Medicare to Part B and “Medigap” plan • Belmont moved 30 eligible enrollees to Medicare in 2004-2005. • Savings to Belmont exceeded $100,000 in the first year, and ongoing savings are anticipated.