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Item G1BOARD OF COUNTY COMMISSIONERS AGENDA ITEM SUMMARY Meeting Date: June 15, 2011 Division: Employee Services Bulk Item: Yes No X Department: Employee Benefits Staff Contact Person/Phone #: Maria Gonzalez X4448 AGENDA ITEM WORDING: Approval to allow staff to begin negotiating contracts with Blue Cross Blue Shield of Florida in the area of Medical Plan Administration to include claims administration, utilization review, large case management, disease management, network management and wellness programs and with Envision in the area of Pharmacy Benefit Management. ITEM BACKGROUND: At the March, 2010 BOCC meeting, the Board directed staff to rebid for fully- insured and self - insured providers for the County's Health Insurance Program. On September 15, 2010, the BOCC approved to contract with Gallagher Benefit Service, Inc. (GBS) to provide Employee Consulting Services, analyze the county's current health insurance program and to assist with the solicitation and analysis of bid proposals for these services. On February 16, 2011, the BOCC approved the request to solicit proposals for services in medical plan administration on a self - funded or fully- insured basis including claims administration, utilization review, large case management, disease management, network management, pharmacy benefit management, wellness programs and/or stop loss insurance. The request for proposals was advertised on February 25, 2011 with a bid opening date of March 31, 2011. These proposals were evaluated and analyzed by GBS and the County's Selection Committee. On May 19, 2011 GBS reviewed their findings with the Selection Committee in a public meeting. A public meeting was held on May 20, 2011 in order for the Selection Committee to discuss the proposals and to submit their final rankings of the vendors. It is expected to have final contracts presented to the BOCC on the meeting of August, 17, 2011 with an implementation date of October 1, 2011. PREVIOUS RELEVANT BOCC ACTION: None. CONTRACT /AGREEMENT CHANGES: None. STAFF RECOMMENDATIONS: Approval TOTAL COST: JL INDIRECT COST: BUDGETED: Yes No DIFFERENTIAL OF LOCAL PREFERENCE: COST TO COUNTY: N/A SOURCE OF FUNDS: REVENUE PRODUCING: Yes _ N APPROVED BY: County Atty DOCUMENTATION: Included DISPOSITION: Revised 7/09 No X AMOUNT PER MONTH Year �B/Purchasing Risk Managemed(_Z�)_` — Not Required x AGENDA ITEM # ARMM MAY 2 7 2011 C OUNTY oMONROE KEY WEST FLORIDA 33040 (305) 294 -4641 Office of the Employee Services Division Director The Historic Cato Cigar Factory 1100 Simonton Street, Suite 268 Key West. FL 33040 (305) 292 -4458 — Phone (305) 292-4564 - Fax TO: Board of County Commissioners BOARD OE COUNTY COMMISSIONERS Mayor Heather Carruthers, District 3 Mayor Pro Tem David Rice, District 4 Kim Wigington, District 1 George Neugent, District 2 Sylvia 3. Murphy, District 5 FROM: Teresa E. Aguiar, Employee Services Director DATE: May 24, 2011 SUBJ: Approval to allow staff to begin negotiating contracts with Blue Cross Blue Shield of Florida in the area of Medical Plan Administration to include Claims Administration, Utilization Review, Large Case Management, Disease Management, Network Management and Wellness Programs and with Envision in the area of Pharmacy Benefit Management. On February 16, 2011, the BOCC approved the request to solicit proposals for services in Medical Plan Administration on a self - funded or fully insured basis including Claims Administration, Utilization Review, Large Case Management, Disease Management, Network Management, Pharmacy Benefit Management, Wellness Programs and/or Stop Loss Insurance. The request for proposals was advertised on February 25, 2011 with a bid opening date of March 31, 2011. There was no proposal offered for a fully insured medical plan. Vendors provided proposals in the following areas: Blue Cross Blue Shield Claims Administration, Medical Mgmt/Utilization Review/Disease (BCBSFL) Management, Network, Pharmacy Benefit Management (Prime Therapeutics), Wellness Managed Care Claims Administration, Medical Mgmt/Utilization Review/Disease Administrators Management, Network, Pharmacy Benefit Management (RD for RX), Wellness Wells Fargo Claims Administration, Medical Mgmt/Utilization Review/Disease Management, Network, Pharmacy Benefit Management (Caremark), Wellness (Viverae), and Stop Loss Insurance (HCC Insurance) Benecard Pharmacy Benefit Management Envision Pharmacy Benefit Management RxEDO Pharmacy Benefit Mana ement Walgreens Health Pharmacy Benefit Management Initiatives -- SyTetra StoD Loss Insurance Page 1 of 3 Page 2 May 24, 2011 RFP Group Insurance Program The proposals were evaluated and analyzed by the County's Benefit Consultant, Gallagher Benefit Services, Inc. (GBS), and the County's Selection Committee made up of Maria Gonzalez, Sr. Benefits Administrator, Mike Rice, Sheriff's Department, and me. The Selection Committee reviewed the proposals individually and a public meeting was held on May 19, 2011. At the May 19` meeting, GBS reviewed their analysis with the Selection Committee and discussed their assessments of the proposals. A public meeting was then held on May 20, 2011 in order for the Selection Committee to discuss the proposals and to submit their final rankings of the vendors. Stop Loss: Two Stop Loss vendors submitted proposals. The HCCI proposal was submitted with the Wells Fargo proposal and Symetra proposed independently and provided quotes for BCBSFL and Wells Fargo. The pricing is significantly different between HCCI and Symetra. With a specific deductible of $175,000: • Symetra (Wells Fargo): Annual premium year one: $1,403,000 (no lifetime maximum) • Symetra ( BCBSFL): Annual premium year one: $1,136,000 (no lifetime maximum) • HCC: Annual premium year one: $888,000 ($1 million annual maximum coverage) Using a specific deductible of $250,000, Symetra reduced their premiums by 32.4% and HCC reduced their premiums by 26.5 %. The Selection Committee and the Consultant agree that there is a legitimate question about whether stop loss coverage is necessary at this cost with one of the reasons being that the County has a healthy fund balance. It is the Selection Committee's recommendation to not accept the proposals submitted and to solicit proposals in the near future to include a higher specific deductible of $500,000. Once the proposals are received and reviewed, staff will then make a recommendation to the BOCC whether or not to recommend a carrier and purchase the insurance at that time. Below are the final average rankings of the Selection Committee in order of preference (1 being the top pick): Claims Administration & Network: Blue Cross Blue Shield: 1 Managed Care Administrators: 3 Wells Fargo: 2 Medical Mamt/Utilization Review/Disease Management: Blue Cross Blue Shield: 1 Managed Care Administrators: 3 Wells Fargo: 2 Wellness: Blue Cross Blue Shield: 1 Managed Care Administrators: 3 Wells Fargo: 2 Page 3 May 24, 2011 RFP Group Insurance Program Pharmacy Benefit Management Prime Therapeutics: 2 RD For RX: 4 Benecard: 5 Caremark, RXEDO; WHI: 3 (Tie) Envision: 1 Attached is a pricing summary that details the costs associated with staff's recommendation. It is expected to have final contracts presented to the BOCC at the meeting of August 17, 2011 with an implementation date of October 1, 2011. If you have any questions, please do not hesitate to contact me at X4458. PRICING SUMMARY RECOMMENDATION: BLUE CROSS/BLUE SHIELD Implementation 10/1/11 Estimated Annual Claims FY 10 /11 $13,040,949 Estimated Three Year Claims Estimated Three Year Claims FY 11/12 1 $10,589,972 FY 12/13 1 $11,701,919 FY 13/14 1 $12,930,621 Claims Administration FY 11/12 $885,066 FY 12/13 $885,066 FY 13/14 $911,521 Case Mgmt/Util Review Included $233,813 j $233,8131 Disease M mt Included FY 11/12 FY 12/13 FY 13/14 Wellness Wellness Included $26,260 $26,260 Network Administration Included FY 11/12 FY 12/13 FY 13/14 $53,493 Pharmacy (Envision) FY 11/12 FY 12/13 FY 13/14 $18,056,251 $19,835,058 $21,910,050 $2,906,586 $3,182,712 $3,485,070 Network Administration FY 11/12 FY 12/13 FY 13/14 TOTAL FY 11/12 FY 12/13 FY 13/14 FY 11/12 FY 12/13 FY 13/14 L. $14,381,624 _ 1$15,769,697 1 $17,327,212 WELLS FARGO Implementation 10/1/11 Estimated Annual Claims FY 10 /11 $13,040,949 Estimated Three Year Claims FY 11/12 FY 12/13 FY 13/14 Estimated Three Year Claims $14,410,249 1 $15,923,325 1 $17,595,274 Claims Administration (Wells Fargo) FY 11/12 FY 12/13 FY 13/14 Contract Expires 5/20/12 Case Mgmt/Util Review (KPHA) $233,813 j $233,8131 $233,813 Case Mgmt/Util Review (KPHA) FY 11/12 FY 12/13 FY 13/14 Wellness N/A $26,260 $26,260 $26,260 Disease Mgmt FY 11/12 FY 12/13 FY 13/14 FY 11/12 FY 12/13 FY 13/14 $53,493 $53,493 $53,493 Wellness (Viverae) FY 11/12 FY 12/13 FY 13/14 $18,056,251 $19,835,058 $21,910,050 $76,835 $76,835 $76,835 Network Administration FY 11/12 FY 12/13 FY 13/14 $53,493 j $53,493 $53,493 Pharmacy (Envision) FY 11/12 FY 12/13 FY 13/14 $2,906,586 $3,182,712 1 $3,485,070 TOTAL FY 11/12 FY 12/13 FY 13/14 $17,760,730 $19,549,932 1 $21,524,239 STATUS QUO Current Pro ram Estimated Annual Claims FY 10 /11 $13,040,949 Estimated Three Year Claims FY 11/12 FY 12/13 FY 13/14 $14,410,249 $15,923,325 1 $17,595,274 Claims Administration $205,997 Contract Expires 5/20/12 Case Mgmt/Util Review (KPHA) $26,260 Disease M t N/A Wellness N/A Network Administration $53,493 Contract Expires 5/20/12 Pharmacy (WHI) FY 11/12 FY 12/13 FY 13/14 Contract Expires 10 /1 /1 1 $3,360,252 $3,679,476 $4,029,026 TOTAL FY 11/12 FY 12/13 FY 13/14 $18,056,251 $19,835,058 $21,910,050 *Claim Estimates are assumed an increase at 10.5% per year for medical and 9.5% per year for pharmacy. * *Managed Care Administrators provided a proposal that was non- responsive in form and is therefore not included in the above comparison. E "° 2 f u , w ek'�k k 4 k 1 �Sk.t.� SL f k i f� k l '� - f∎ ,i& f 9 k .. , ,,. --------......---- ,, .._. ''''`' Executive Recommendations • After a thorough review of the County's Benefit Plans, including quantitative and qualitative has formulated the following evaluations, GBS g recommendations for the County: 1. The Monroe County BOCC Medical Plan should be put out for competitive bids. 2. Claim loss mitigation should be sought through competitive bids on Stop Loss Insurance. P P 3. The Pharmacy Benefit Management program should be P art of the medical RFP. 4. Copayments for the Preferred and Non - Preferred drug tiers should be increased by $5 each. 5. The Voluntary Medical Plan Review Committee recommended benefit changes to the Medical Plan, GBS concurs with the recommendations and recommends their implementation. 6. Opt out of the Federal Mental Health Parity requirements and institute Florida's requirements. 7. Reconsider offering employee term life insurance through your current group life insurance vendor - on an employee pay all basis. This coverage is frequently less expensive y g P for the employee to purchase on a basis to and costs the oun nothing. Gallagher Benefit Services, Inc. u ,' '''+'*".* a"r�+ # � a'E.+164'49 a9. +``. �y3 (�»� '1'� ¢b .. a ' A h r w "x y.. , « S i M onroe County Board of County Commissioners Plan Review, Benchmar and Recommendations November 30, 2010 Prepared by: Gallagher Benefit Services, Inc. Richard A. Capizzi, Area Assistant Vice President Glen Volk, Consulting Actuary Paul Hebert, Area Vice Pr Compliance Michae omas, P Th harmD Mary Kay Lantz, Account Manager & 1,1° s E v rs h ��, c '7`11:+1:' +Va ` a a+2sy fu✓` !d 4� "" Table of Contents • Overview Page 3 • Medical Review Page 4 - 6 • Pharmacy Review Page 7 • Compliance Review Page 8 & 9 • Committee Recommended Changes 8 • Federal Mental Health Parity 9 • Ancillary Benefit Benchmarking Page 10 • Appendix • Tab 1 Medical Plan Review • Tab 2 PBM Review • Tab 3 Grandfathered Status • Tab 4 Plan Benchmarking z Gallagher Benefit Services, Inc. i x: d k F a :1:1 Overview • Methodology: • Actuarial evaluation of medical expenses in comparison with a similar sized governmental entity in the same market. • Targeted evaluation by Pharmacist (PharmD) of current PBM against current trends in Pharmacy Benefit Management. • Compliance analysis by in -house attorney for the impact of changes to benefit design, HealthCare Reform and Mental Health Parity. • Standardized benchmark nng comparison using national survey to industry, size, and region. • The supporting material is included as an appendix to this summary report. • Considerations: • Governmental operating and budgeting limitations. • HealthCare Reform and other regulatory constrictions. • Employee relations. • Market restrictions and environment. • Conclusions: • Th County Benefits are in line with similar entities in Florida as well as those on a national and regional basis, although the medical plan is not quite as rich as many. • The County has the oppo rtun it y to achieve significant savings through an RFP process for the medical and pharmacy benefit. • A fully insured medical product is not likely to result in significant savings to the County, and it is possible that no vendors would submit a proposal for an insured product. • Additional recommendations are provided in subsequent sections. Gallagher Benefit Services, Inc. 3 i f f it i e :� uga�.tGe !:auG x s €t ,u e � s :�� a:E u ,i C v n s n C tl r 'fL „ " A4 !, ,. , ,p , :. 74+1 }a .4,Rt` $ t' 3 3 a M 14 ',. _ : 1 C ^� `i' .h:4 `i ,8 i 3'a i I " x �Ni Findings &Recommendations Medical Review: Benchmarking the MCBCC Medical Plan to published 2009 data yields the following findings: • Overall the County's plan is not as rich a the norm. • However, the deductible is lower • than the n orm. • The out of pocket maximum is much higher than the norm. • The employee coinsurance is also higher than the norm. • The addition of the 20 office copay last year did help to bring the County's benefit up to be more in line with the survey data. The Benchmarking surveys show a significant increase in employee cost sharing in recent years, so the between the County's plan and the benchmark data i s likely to be smaller by 2°11' Cost Review: • The average per capita cost f or the County is higher than the benchmarks at approximately $450 (excluding pharmacy) Per Member Per Month compared to $330 for the benchmarks. • This is despite having a benefit that is not as rich as the benchmarks. • A port ion of the higher per capita cost is related to high retiree participation in the plan. • A substantial portion of the higher claims p er capita is related to ne tw ork discounts. Gallagher Benefit Serv Inc. 4 {f f t m ss° ��s � 0 r ' { h. ° H '*1 ''1°'` ^e � t k ''' '? '' "� 3n, �' w ac w „ t t is { � ' kr { f � i i � 4 „ t f t �.�� ,i in !rigs & Rec�'rtions • „„„,„,,, Medical Review: Discount and Savings Review: • The provider discounts being passed on to the plan are approximately 26 %, based on the 12 months ending September 2010. • Based on our experience in this market, we believe there are networks available that would provide discounts of 5o% or more. At current claim levels, annual savings to the County would be $3 million assuming an average discount of 45 %. Every additional 5% improvement in discounts would yield an additional $800,000 in savings for MCBCC. • We believe that $3 to $4 million in annual savings is a realistic expectation. • We believe that additional savings are possible through more stringent and focused Disease and Case Management. • We believe that the size of the MCBCC health plan and the impact of HealthCare Reform strongly support the purchase of reinsurance to protect the County. Funding Mechanisms: • Fully insured plans are filed insurance products, subject to State Office of Insurance Regulation rules, with little flexibility in plan design. • Fully insured plans are subject to premium taxes on total premium averaging approximately 1.5 %. This cost is a d irect pass through to customers. Gallagher Benefit Services, Inc. 5 '� v Kcl ux #� r R u A i a ' Pw in g' ,9: s 3 ?.v . li 1 n gs :,,, , '' Medical Review: Funding Mechanisms (continued) : • Fully insured premiums contain retention which is held by the insurance company, rather than the client. • Retention includes claim reserves, pooling charges, risk charges and margin for the insurance company. • MCBCC has a high percentage of retirees in its program which may cause difficulty in obtaining bids for a fully insured program. • Self insured plans mean the client is responsible for claims payments and for funding a bank account for payment of claims. • The client determines how much to fund the plan, i.e. the client holds the reserves. • Self insured plans are not subject to premium taxes. • Claims risks can be mitigated by the purchase of Stop Loss insurance coverage. • Self insured plans are more flexible in design than fully insured plans. Recommendations: • Put the entire Medical plan out for competitive bids, including Pharmacy, Disease Management, Case Management, and Network Management. • Mitigate claim risks by including Stop Loss Insurance in RFP for services. • We do not believe it is necessary to seek fully insured quotes, however, we are not recommending against it. Gallagher Benefit Services, Inc. 6 k4 Ii I:I F tl 2 L's t k �t k �Ng ° r.,, 4t .,,, +i ., Findings &Recommendations Pharmacy Review: • The current MCBC Rx benefit compares favorably to 2009 data fr the nat survey. • 2 010 brand, m trends reflect hi gher co pays for preferred brand and non preferred mandatory generics, and the implementation of separate prescription deductibles to help control costs. rt • PBM ra tes have been going down over the past two years. The MCBCC contract was negotiated prior to the cou settlement outlining a new methodolo for calculating Average Wholesale Price, leaving money on the table. • Walgreens Health Initiative is up for sale, creating a potential instability in the administrative processes for MCBCC for this important benefit. Recommendations: • Put the PBM services out for competitive bidding. • Consider refining the current benefits as follows: • Increase the copayment b $ for both the Preferred and Non - Preferred drug tiers providin a copay s t r ucture of $io/ 3o/$75- Gallagher Benefit Se rvices , Inc. 3 E i a.� % 0 x s :``O 4 1 I� �apvpz 3 c u i �a 3i�h L €I 14, t<r. 0 �+T1.4q t'''''"' indings & Recom - - rations Compliance Review of Committee Recommended Changes: • A number of the recommended changes will cause the County's Medical Plan to lose its Grandfathered status under HealthCare Reform. • The 2010 change implementing a $2o copayment for office visits will cause the loss of Grandfathered status. • Changes to the AFLAC plan will not impact the medical plan's Grandfathered status. (The opportunity exists to rescind the 2010 change if the County wants to retain Grandfathered status.) Implications of Loss of Grandfathering: • Compliance necessary with first dollar coverage for preventive services - i.e. elimination of copays or deductibles for these services. • The estimated increase in claims cost for the loss of Grandfathered status is approximately $4o,000. • New claims and appeals process would be required including a binding external review process. • The County's plan already satisfies several other requirements for non - grandfathered plans. Recommendations: • Because the benefit change made in 2010 will cause the loss of Grandfathered status and your evaluation committee has recommended further changes to the plan, we recommend that you do not rescind the 2010 changes. 8 Gallagher Benefit Services, Inc. J .kk�e bid '�! '� '� ] df R k' � . k 'I6 k FJ k � us« s t :��� Findings R m men & eco Compliance Review of Fe deral Mental Health Parity • Federal rules allow self - fun governmenta plans to opt out of mental health parity requirements under Federal law. • Florida Statutes currently define Mental Health coverage requireme that are less complicated /costly than the new Federal requirements. Imp of Opting out of Federal MHP rules: • Process is simple to request from CMS and requires a notification to employees. • Allows the County to avoid complying with complicated Federal rules. • Avoids changes that might liberalize its current Mental Health benefits and create additional costs. • State statutes would allow the addition of limitations to Mental Health benefits, which could help to contain costs. Recommen C o mplete Prior to January 1, 2011 • Su a reques to Centers for Me and Medicare Services to opt out of the progra nt bene • Determine whether to modify currefits to apply a limit ations or keep benefits as they are. • Notify e mployees o change. Gallagher Benefit Se Inc. 9 R k k kA k y k k 6 .! J k r i ,.t' o 4 'r4R��� A ''i Ft�4Z' e;,+n V. ".mw'F 8` 'r� J5 s 5v f d °"` j - in d in s op. Reco io ns a , ' Dental Ben m arking • Three of the four Florida governmental clients offered a PPO with no employer contribution. This is consistent with MCBCC's offerin • Only one of the four clients contributed to the Dental, with an employer oar contribution of 85% of the employee cost across the bd. • All four offere a DHMO in addition to the PPO. Disability Insurance Benchmarking Three of the four governm clients offer no disability • insurance, consistent wi MCBCC. • One of the four offers a fully insured disability program with a Core LTD, paid with employe m oney and a voluntary L TD Buy up plan a nd a voluntary STD plan. Basic L Insurance Benchmar • There is no consistency in the offerings for basic life insurance across the four governmental entities. • Two of the four entities 'de a benefit that is greater than theao,000 offered by prov MCBCC • One of the four offers a lower base bene and provides an 8o% subsidy for the employee to purchase a higher level of benefit, u to X50,000. Recomm endations: • Consider offering the addition of optional group Life Insurance and Disability Insurance through payroll deduction, which offers protection for employees at no out of pocket cost to MCBCC. Gallagher Benefit Serv Inc. m Medical Plan Review Monroe County Board of County Commissioners Claim Cost Analysis The County provided historical experience data that we used to develop per capita claim costs, as well as information about the actual claim discounts by network. We were also given plan design information and a list of plan changes that are under consideration by the County. From this data, we did the following cost analysis (see Medical Exhibit A). • We developed per employee (PEPM) and per member per month (PMPM) claim costs for the 12 months ending September 30, 2010 for both the County and another large Monroe County government employer ( "Employer B ") plan for which we also serve as the consultant. The County has relatively low dependent participation, which keeps the PEPM cost down. On a PMPM basis, however, the County's cost is 27% higher than Employer B, and the difference is even higher on the medical claims (31 %). • To more accurately reflect the difference in the mix of enrollees by active employees, spouses, and children, and retirees and their spouses, we assigned weights to each of these categories to develop an overall demographic weight. This recognizes the fact that even when we work on a PMPM basis, not all members have the same risk characteristics. The County's risk factor is approximately 3% higher than the Employer B factor. • We then looked at the plan differences, based on the plans that were in effect over the experience period. The County's plan was marginally richer on average, and we valued the difference at 1.5 %. • Adjusting for all of these differences, the County plan is still 22% more costly on a PMPM basis, and 26% more costly for medical claims only, than Employer B. The pharmacy costs are comparable. From this exercise, we conclude that the County spends 22% more than a similarly situated employer, with appropriate adjustments for plan design and demographic differences. There are many factors that can cause this type of variance, including differences in utilization and disease management, census differences not reflected in our risk analysis, and large claim experience, which tends to be more random. In this case, however, we believe the biggest factor is the difference in networks used by the two employers. This is demonstrated by the second analysis we performed. Discount Analysis We used the discount reports we were given by the County to develop an estimate of the average discount being received on medical claims under the network. Because the discount reports 1 Eib Gallagher Benefit Services, Inc Medical Plan Review provided by the current vendor did not give us exactly the detail that we desired, we had to piece this analysis together. The method we used for this was as follows (Medical Exhibit B): • We were given the eligible charges and total discounts for the period and we used that as the starting point. • We subtracted the discounts from the charges to get the total allowed charges. • We assumed that the difference between the allowed charges and the amount paid by the plan represents member cost sharing and COB. This totaled 22.2% of the total plan costs. As at test, we ran the County plan design through our pricing software, we estimated the portion of total claim costs that are paid by employees. Our model suggests employees by just over 20% of the total cost. Given that the County plan has a higher Medicare frequency than our standard, we would expect the actual employee cost sharing plus COB to be higher than what our model produces, so this result is consistent with what we expected. • Once we were satisfied with the reasonableness of all the pieces, we calculated an average medical discount of 26.4% by dividing the discount dollars into the total allowed charges. This is not a surprising result for the Keys, where provider networks have typically had discounts ranging from as low as 15% for some providers to 35% to 40% for others. These discounts are also consistent with what Employer B, described above, attained when it used a similar network. From our work with Employer B, we believe there is at least one network available in Monroe County that will deliver much greater discounts. We prepared the illustrative claim impact, using 2009/10 data, of assuming discounts averaging from 45% to 55 %. At a 45% discount, we expect $3 million in annual savings to the plan (and close to $1 million more to plan participants in the form of lower out of pocket expenses). For each 5% increase in the assumed discount, the annual savings increase by $800,000 for the plan and $200,000 for the participants. These savings are based on 2009/10 claims, so to the extent starting claims are higher in 2011, as we would certainly expect, the savings will be larger. On the other hand, the administrative fees charged by networks delivering these types of discounts will be higher, and that will offset a small portion of the savings. Still, we believe savings of $3 million to $4 million, with no change in plan design, is a very realistic target. Plan Changes and Grandfathering We were also asked to evaluate a number of plan design changes that have been proposed and reviewed by County staff but have not yet been implemented. In the context of plan design changes, we also felt it was important to consider how each change would affect the County's 2 Gallagher Benefit Services, Inc. Medical Plan Review grandfathered status under health care reform. It is our belief that the introduction of the office visit copay in 2010 has already caused the plan to lose its grandfathered status because it will result in cases where individuals who had met their out of pocket limit and would therefore have 100% coverage under the prior plan would now continue to have to pay copays under the new plan. Assuming our understanding of the plan change is correct, the only way the County could preserve grandfathered status would be to eliminate the change and go back to the prior plan design. While we do not see this as a likely scenario, we still thought it would be helpful to comment on how the other changes would affect grandfathering in the event it was not already lost. The results are set out in Medical Exhibit C. In general, each of the 4 benefit changes that would reduce claims costs has very little impact on the total claims. In total, they might be expected to save $300,000, adjusted for medical trend. This represents a savings of just over 2% of claims. In addition to these benefit changes, there were a number of contribution changes. We do not have sufficient data to conduct an evaluation of these changes. The increase for retiree premiums would be the most significant, as it would have a major impact on the GASB 45 expense. We estimate the annual cost of the enhanced colonoscopy coverage will be approximately $180,000, although it would likely decrease in future years. We expect higher utilization at first, then a more spread out use in future years. We looked at the projected impact of opting out of the Federal Mental Health Parity Act and reverting the mental health and substance abuse limits to the limits allowed under Florida law. We expect an annual savings of $45,000 to $50,000 if this were implemented. Finally, we estimated the cost of losing grandfathered status. If the County plan is not grandfathered, you would have to offer first dollar coverage with no limits on certain preventive care benefits. We estimate the cost of the expanded preventive coverage to be approximately $40,000. In general, we think it makes sense to preserve the grandfathered status if it fits with your financial and philosophical parameters, but we don't believe it makes financial sense to go out of your way to preserve it. The cost of losing it is not that material. 3 00 Gallagher Benefit Services, Inc Monroe County Board of County Commissioners PBM Analysis In reviewing your covered plan participants for pharmacy, three issues became apparent. One, your covered plan cost for your employees tend to run on the high side. One of the reasons for this high claim cost is your benefit design. Retail Pharmacy levels co- payments tend to be in the $20/$40/$75 level as opposed to your current $10/$25/$70. There are a growing number of employers now implementing a coinsurance percentage with a dollar minimum, as opposed to a straight dollar copayment. Other employers go even further by implementing a separate prescription deductible, such as a $100 deductible and then a co pay after the deductible is satisfied. This has been in effect with a local employer in the Keys for several years now. Your 90 day retail and mail order are within the averages of acceptability. However a greater degree of savings could be realized if mandatory generic would be implemented, coupled with a higher copay of at least $5 under the preferred and non preferred brands. The second issue that would warrant a reason to take the county's plan to bid is the fact that Walgreens is selling the PBM part of their business. Walgreens Health Initiative is on the market and for sale. About two years ago WHI revised their entire unit and brought in a number of good people to improve the quality of the business and to increase the amount of PBM business to Walgreens. Speculation is that it may have been done to get to the point where they can sell the PBM business for a premium price in the marketplace. It is our understanding that Bank of America has been retained by Walgreens to sell the PBM business. It was reported first on Bloomberg on October 25. It was also reported that they are trying to get between $500 and $1 billion for the unit. It was stated that Express Scrips, Medco and CVS Caremark are all interested. WHI has about 2.6% of the PBM market and processes about 108 million claims per year. It is also believed that SXC, the company that owns the processing software that WHI uses, is also a bidder. Because of this uncertainty of who will buy the business, we believe that it is advisable to move your PBM carrier. Third and most importantly, the rates in the PBM marketplace have been going down over the past two years. Since this contract was amended in 2008 there has been a change in how AWP is calculated. The new calculated rates went into effect on September 26, 2009 after the AWP settlement was decided by the courts. In reviewing the rates in the contract we believe there are better rates and better deals available for MCBOCC. The rates listed are pre AWP settlement: Retail Current Brand (AWP — 15% - Dispensing fee $1.95) 1 410 Gallagher Benefit Services, Inc. Generic (AWP -15% with MAC. No gurantee listed but would estmate about 60% could be guaranteed. Dispensing fee $1.95) 90 day at Retail Current — Brand (AWP -15% - Dispensing fee of $1.95) Generic (AWP — 50% with a MAC. No guarantee was listed but would estimate about AWP - 60% could be guaranteed). Dispensing fee $1.95. Minimum charge $14.95 Mial OrderCurrent Brand (AWP — 22 %). Dispensing fee $0.00 Generic (AWP -55% with a MAC. No gurantee was listed but would estimate about AWP- 68% could be guaranteed). Dispensing fee$0.00 There is also a $0.25 per claim administrative fee. In review of the Florida arena the following are average rates for a self insured gropup of 500- 1,500 employees also in a pre AWP settlement figure Retail (Other Groups) Brand (AWP — 16.5%) Dispensing fee $1.65 Generic (AWP -64% with a MAC. No Guarantee but assume about AWP -65% could be guaranteed Dispensin fee of$ 1.80 90 Day at Retail (Other Groups) Brand (AWP - 21%) Dispensing fee $0.50 Generic (AWP -64% with a MAC) No guarantee but assume about AWP -65% could be guaranteed. Dispensing fee $0.50 Mail Order (Other Groups) Brand (AWP -24 %) Dispensing fee$0.00. Generic (AWP — 69% with a MAC). No guarantee listed but assume about AWP - % could be guaranteed. Dispensing fee $0.00 There is also a $0.00 per claim adminisrtative fee. 2 Gallagher Benefit Services, Inc This would indicate that, depending on Rx claims utilization, MCBOCC could expect a minimum of 5% estimated savings and as much as 10 %. Most of the clients the size of the County have seen about 7% reductions in costs when repricing is done using the new rates. In conclusion, it would be advisable for MCBOCC to bid their PBM services both from a price saving standpoint and to gain the assurance that their PBM vendor will in fact be there over the contract period specified. 3 Gallagher Benefit Services, Inc Monroe County Board of County Commissioners Grandfathered Status Discussion/Analysis Under Healthcare Reform, a "grandfathered" plan can avoid some, but not all, of the immediate plan design changes required under the legislation. A plan's "grandfathered" status will continue unless the plan is changed in certain ways. When considering plan design changes, the County must analyze two things: (1) what plan design changes proposed by the County will cause the County's plan to lose "grandfathered" status, and (2) does the financial benefit of the proposed plan changes exceed the cost of retaining grandfathered status. Following is a list of changes proposed by the County, and such proposal's impact on the plan's grandfathered status: Proposed Plan Change Impact on Grandfathered Alternative Proposal to (GF) Status as Proposed Retain GF Status Addition/Increase of Physician Will cause loss of GF status None. Any Copay would Copay* (of any amount) cause loss of GF status Increase Out -of- Network Will cause loss of GF status None. Any Coinsurance Penalty Increase would cause loss Increase ER Deductible to Will cause loss of GF status Could increase to $86.25 and $150 from $75 retain GF status Increase inpatient Deductible Will cause loss of GF status Could increase to $172.50 and from $200 to $150 retain GF status Surviving Spouse Benefit No impact on GF status NA Premium Increase for: Depends on amount of Retain GF Status if cost to - Spouse/Domestic Partner increase tier, as a percentage of total - Retiree premium, does not increase - Dependent by more than 5% from prior year AFLAC No impact on GF status NA Colonoscopy Coverage Change Uncertain Uncertain Increase Prescription Copay No impact on GF status NA *We understand that the County changed its plan provisions in 2010 to incorporate a copay for physician visits. We believe this change will cause the County's plan to lose its grandfathered status. However, we believe the County has the opportunity to rescind that change and retain its grandfathered status effective with the January 1, 2011 plan year. What a Loss of Grandfathered Status Means If the County's plan loses its grandfathered status, it would have to comply with the following: • Provide first dollar coverage for preventive services (such as well - child, well -woman and immunizations). That would mean the elimination of copays or deductibles on such services. 1 00 Gallagher Benefit Services, Inc. • Follow a new claims and appeals process including a binding external review process. The County's plan already satisfies the several other requirements for non - grandfathered plans. Mental Health Parity Opt Out As a self - funded governmental plan, the County may request an exemption from the mental health parity requirements under federal law. It's a simple process that involves a request to the Centers for Medicaid and Medicare Services and a Notice to Employees. Opting out would mean that, instead of complying with some complicated rules on the federal level that could require liberalizing the mental health and substance abuse benefits under the plan, the County's plan could continue offering its mental health and substance abuse benefits as it does today. With the opt out, the County could even consider adding the following restrictions to its mental health and substance abuse benefits which are permitted by Florida statute: • Inpatient benefits could be limited to 30 days per year • Outpatient benefits could be limited to $1,000 per year Even if the County does not make any changes, we recommend opting out to maintain the Plan's mental health and substance abuse benefits status quo. 2 w Gallagher Benefit Services, Inc. _ 2 - 4. f # ■ 0 § f § { & ) o. u k k k @ k& k �� • _ ©' E - sJ RI % 4. c °% 2 m c 0J c ad CO ca - s 9 § § E - 2 e [ $ § 2 F. 2 § § I § ; § e § E £© ¢ a o c 2 9 / tn £ ■ ) 0 Z. 0 f2 @ @ -, 2 0 ° © o o z z L. 2 @ 0 § 2 k 2 k § E u z e a, 0 % \ a. 2 E k 0 k z § % 0 2 % # = # Z L7 Q ... Q O 2 o 2 o _ 4 4 L 7 c� \ 0. / 2 7 C co U U \ \ \ E E @ < < § % - E - § % o z G k = 2§ §%\ = 2 E k u u d co u § e0 o m . 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