Item P05
Revised 2/95
BOARD OF COUNTY COMMISSIONERS
AGENDA ITEM SUMMARY
Meeting Date: February 21. 2001
Division:
County Administrator
Bulk Item: Yes
No~
Department: County Administrator
AGENDA ITEM WORDING:
Approval from Monroe County to support proposed legislation for small counties (under 100,000
population) to be eligible to participate in the State Group Health Insurance Program and State
Prescription and Drug Program.
ITEM BACKGROUND:
Monroe County is continually reviewing its group benefits program in an effort to control costs and
provide reasonable benefits. A special meeting has been scheduled for March 13,2001 specifically for
the purpose of reviewing the overall program and making adjustments. Although state legislation
would not provide an opportunity at this early date to join the state program, this option could be very
attractive in the near future. The County should support keeping this option open.
PREVIOUS REVELANT BOCC ACTION:
Establishment of Monroe County group benefits program.
STAFF RECOMMENDATIONS:
Approval.
TOTAL COST:
-0-
BUDGETED: Yes
No
COST TO COUNTY: -0-
REVENUE PRODUCING: Yes
No X
AMOUNT PER MONTH_ Year
APPROVED BY: County Atty_
OMB/Purchasing _Risk Management _
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James L. Roberts
DIVISION DIRECTOR APPROVAL:
DOCUMENTATION:
Included lL
To Follow
Not Required
AGENDA ITEM #1. J:lE)
DISPOSITION:
@berl7t:J..Gonesc&Associates
~~OVERNMENTAL RELA nONS
Mount Vernon Square. J 118 Thomosvi/le Rood. Suite B . Tallahassee. Florida 32303-6287. (8SO) 224-3180. FAX (8S0) 222-3663
Please Duplicate for School Board and County Commission Members
To: County Commission Offices in Small Counties
School Superintendent Offices in Small School Districts
From: Chris Doolin - Robert P. Jones & Associates - Consultants to the Small Count))/
Coalition and the Small School District Council Consortium
Re: Option for Local Governments to Participate in the State Group Health Insurance
Program.
Date: February 5, 2001
Actuarial Stud)' Finding - "The Local population, as a whole, does not appear to be
riskier than the State active enrollee population. While bringing Local
Entities into the State plan would be more costly in terms of absolute dollars,
it does not appear that it would be more costly on a per capita basis."
The Option for Local Governments in small counties to participate in the State Group
Health plan is something that small school districts, small counties, and small cities have
supported and it is something that could be done if structured to address the concerns
regarding cost and implementation. Legislation passed during the last legislative session
that expressed legislative intent to provide this option and authorized an actuarial study to
outline issues relating the financial impact of this option.
Senator Richard Mitchell and Representative Dwight Stansel will sponsor legislation to
provide this option. We would like each of you to review the material and call or write
your legislator to request that they contact Senator Mitchell or Representative Stansel to
co-sponsor the bill and to support it when it comes up. We would also encourage you to
send a letter to Governor Bush requesting that an option be set up to allow local
governments to participate in the State Group Health Insurance Program.
Included for your review are Sections I and V from the Act~wial Study. This study will
set the framework for the issues that the legislature. will address in legislation that will be
considered during the upcoming session.
We will advise you when we have a bill number for this legislation.
RECEIVED
FEB 9 20m
COUNTY ADMINISTRATOR
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I. Executive Summary
Earlier this year, the State of Florida Legislature passed Senate Bill No. 414 (SB 414). Among
other things. the legislation called for the Legislature to consider at the 2001 Regular Session to
expand the State Group Health Insurance Program and the State Pres...'7iption Drug Program (the
Program) to include participation by small municipalities, small counties, and district school
boards of small counties. For this repon, we \\ill refer to tbese three groups as the "Local
Entities." SB 414 defines a small county as a county that has a population of 100,000 or less and
a small municipality as an incorporated municipality that has a population of 12,500 or less.
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Participation in the plan is voluntary. An entity that electS to participate in the State plan will
terminate participation in its own program, and its employees \\ill be covered by the Group
Health Insurance and Prescription Drug Program offered to State employees.
A copy of SB 414 can be found in Appendix 1 of this repon..
Actuarial Study
SB 414 provided for" an actuarial study to detennine the cost of... such coverage to officers,
employees, dependents, and retirees of such entities." Tne legislation also directed the
Department of Management Services (DMS) to issue this smdy to the Governor, the President of
the Senate, and the Speaker of the House of Representatives by December 1,2000. \Villiam M.
Mercer, Incorporated (Mercer) was engaged by the DMS to conduct this actuarial study.
Specifically, Mercer was asked to explore:
· The financial impact to the State and these entities;
· The administrative impact to the State;
· The legal impact of this legislation; and
· Implementation issues.
Findings
· The Local population, as a whole~' does not appear to be riskier (i.e., unhealthy) than the State
active enrollee population. While bringing Local Entities into the State plan would be more
costly in terms of absolute dollars, it does not appear that it would be any more costly on a per
capita basis. This conclusion is based on an analysis of the premium and claims data provided
bv the Local respondents, as well as an age/sex demographic analysis of the total Local
E;'rines iiicomparison with the State enrollee population. .-\5 a result. the estimated costs per
enrollee per month for ~ocal Entities should be within 1 % of those for State enrollees before
the inclusion of the charge for additional administrative expens..."'S.
William M. Mercer. Incorporated
State of Aorida
Department of Management Services
~
· The inclusion of the Local Entities in 2002 would increase the total cost (including additional
administrative costs) of the State's Program by approximately $52 million, assuming 25%
participation of Local Entities.
. - -. · Employees of the Local Entities can not elect to purchase health coverage on a pre-tax basis
under the State's Cafeteria Plan because they are not State employees and do not receive
compensation from the State. If pre-tax treatment is important for these employees, then each
employee of a Local entity must execute a salary reduction agreement with their employer
(Local entity) and each employer must establish its own Cafeteria Plan.
· The current vendor contracts the State has with its third party administrators did not
contemplate that the vendors' duties and responsibilities would be performed for or on behalf
of groups such as the Local Entities.
· If the State legislature extends the opportunity to purchase health coverage under the Program
to Local Entities, the Program could be treated as a Multiple Employer Welfare Arrangement
(.MEW A) under Florida Law. Since the Program self-insures health benefits, the Program
would be forced to obtain a certificate of authority and comply with other statutory
requirements that apply to .MEW.-\s.
· The State will need to take on the additional responsibility of ensuring that COBRA rights are
extended, and IDP AA certificates of coverage are issued to employees of the Local Entities.
· Panicipation in the State's Program would mean the elimination of commissions and the
agentlbroker relationship by Participating Local Entities, which could have a positive financial
impact on the Local Entities, but may be viewed negatively by the entities, the broker/agent
and, possibly, community leaders.
· Since it is likely that including the Local Entities in the State's Program will be more costly for
the Local Entities than their current plans, these Local Entities will have to find the revenue to
pay for the more costly benefits.
· V\'. e believe that if the Local Entities can enroll 70% of their employees, the possibility of an
"adverse selection spiral" would be small. This participation target means that, on average,
70% of the employees in each local entity will enroll. We also believe that at least 1,250 to
1,500 enrollees are needed to create a self-funded plan that can be rated on its owp experience.
If at least 1.250 to 1,500 enrollees do not participate, then the Local Entities would likely be
faced with volatile claims experience and adverse selection, which would lead to unpredictable
and difficult to budget claims costs. , . ,
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Recommendations.
....".;. .
The DMS asked Mercer to document all relevant facts on the issues raised by the legislation and
to provide recommendations foi- funher action. Mercer's recommendations are summarized as
follows:
· Five full-time employees (FTEs) should be added to internal staff at DMS to handle the
anticipated workload that will occur by including the Local Entities, based on the assumption
of a 25% participation of the Local Entities.
William M. Mercer, Incorporated
2
State of Florida
Department of Management Services
.,.
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'7
· The State should consider establishing a dedicated process with its vendors to identify, review,
and discuss the potential administrative and contractual implications of extending Program
health benefits to Local Entities.
· If the State legislature determines that the State's Program-as expanded to include Local
Entities-should be exempted from the Florida MEW A requirements, then the State legislature
should amend the Florida Nonprofit Multiple-Employer Welfare Arrangement Act to create an
appropriate exemption for the expanded Program. The State should seek such an exemption if
and when health coverage under the Program is offered to non-State employers (Local
Entities).
· The.state should consider administrative safeguards to ensure that COBRA/HIP AA
compliance responsibilities can be properly managed if and when health coverage is extended
to Local Entities.
· In order to assure a build-up of adequate reserves and cash flow under the State's PPO, Local
Entities who choose to join the State's PPO should "seed" three months of premiums,
including additional administrative expenses into the fund when they initially join.
· Local Entities should have their claims experience accounted for separately from the State's
experience. Together Local Entities would form a separate rating pool in which their
premiums would always be a function of their own experience and demographics.
· Local Entities should be charged $2.61 per enrollee per month to cover additional
administrative expenses associated with the Local Entities joining the State's Program.
· The percentage of total premium funded by Local Entities should be the same as that funded
by the State in order to prevent adverse selection in the plan.
· Based on the experience we have to date, we estimate that the Local Entities be charged the
following total premium rate for FYE 2002, including a charge for additional administrative
expenses:
PPO
HMO
Active-Single
Active-Family
Retirees ~ 65
$301.33
$535.02
$419.12
$251.30
$566.74
$211.37
..;
~ ...;
William M. Mercer. Incorporated
3
State of Florida
Department of Management Services
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v. Financial Impact
1bis section provides an analysis of the financial impact to the State Group Health Insurance
Pro!rram if Local Entities voluntarily choose to participate. This analysis describes the impact on
the total cost of the plan with the addition of Local Entities, focusing on the impact on the actual
administrative cost of the benefits provided. The additional expenses that would be borne by the
Local Entities to administer an expanded plan are addressed in the "Administrative Issues"
section of this report.
1bis financial analysis has been performed under one important assumption: Local Entities are
not required to join the State plan, but may do so voluntarily. Any deviation from this
assumption would materially change the outcome of our analysis.
Adverse Selection
Eligibility and contribution provisions for the State's plan mitigate the likelihood of adverse
selection. Because the benefits are competitive and the State funds a significant portion of the
total cost, there is a high participation level. Some Local Entities do not subsidize any portion of
health care cost - enrollees must pay the entire premium. Other Local Entities contribute toward
medical coverage while requiring employees to bear the full cost of prescription drug coverage.
These practices encourage riskier individuals to enroll and healthier individuals to forego
coverage, which results in "adverse selection" to the health care plan. If not enough healthy
individuals enroll to "spread" the health care risk, costs will be high initially and will escalate as
many more individuals - and fewer healthy individuals - remain in the plan.
Our estimates do not take into account the possibility of widespread "adverse selection" by
Local participants.
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Affect on Per Enrollee Per Month Costs
.";. ~ ,
The net impact on per enrollee per month costs lst::xpected to be negligible. The following table
compares costs per enrollee per month under the State' plan with estimated per enrollee per
month costs for Local Entities:
~ ,;. .
.....
William M. Mercer, Incorporated
13
State of Florida
Department of Management Services
:r
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TABLE 4 - Costs Per Enrollee Per Month
State Local Entities
PPO HMO PPO HMO
Active-Single{l) $295.15 $248.38 $298.72 $248.69
Active- F amily(2) $531.74 $563.82 $532.42 $564.13
Retiree?: 65(3)(4) $414.15 $211.92 $416.52 $208.76
(l)Includes COBRA and retirees under 65
(2)Includes COBRA and retirees under 65
(3)Includes Medicare I, Medicare II, and Medicare III
(4)Medicare I - The State plan is the secondary payer for individual coverage
Medicare II - The State plan is the secondary payer for one participant and the
primary payer for the other participant
Medicare ill - The State plan is the secondary payer for both participants
Cost Impact
One important element that will ultimately affect the fmancial impact of adding the Local
Entities is the number of Local Entities that would enroll in the State plan. Based on enrollment
analysis of the Local entity survey respondents, as well as the current State employee enrollment,
it is expected that 25% of the eligible population in the plans of Local Entities would enroll in
the State plan. However, we have provided estimates under four participation assumptions
reflecting the cost sensitivity to changes in participation levels.
The estimated cost to the Local Entities for fiscal year ending 2002 for joining the State Program
. .'
IS:
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TABLE 5 - Estimated Additional Cost ofA'dding Local Entities
..:'.t'.;..
"0"
Annual Costs
(in millions)
~ "I";
100% Participation (40,162 enrollees) $210
75% Participation (30,122 enrollees) $157
50% Participation (20,081 enrollees) $105
25% Participation (10,041 enrollees) $ 52
WiIiam M. Mercer. Incorporated
14
State of Florida
Department of Management SeNices
z
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Below are some observations regarding the cost estimates:
· For every 25% change in the local participation rate, total Local entity costs are expected to
change $52 million, annually.
· The addition of active enrollees into the State plan seems to increase total costs solely because
of the nwnber of actives covered. The average age of active enrollees in the two groups
appears to be essentially identical.
· Cost savings could be found in the group of post-65 retirees from Local Entities who opt into
the HMO since their average age was younger than the average age of the State's post-65
retirees.
The Local population, as a whole, does not appear to be riskier (i.e., unhealthy) than the
State active enrollee population. While bringing Local Entities into the State plan would be
more costly in terms of absolute dollars, it does not appear that it would be an}' more costl}'
on a per capita basis. This conclusion is based on an analysis of the premium and claims
data provided by the Local respondents, as well as an age/sex demographic analysis of the
total Local Entities in comparison with the State enrollee population.
In addition to the participation assumptions previously addressed, other key factors that could
affect the variability of the cost estimates are:
Age of Enrollees. If older employees enroll in greater proponions than assumed, costs could be
higher than estimated.
Urban Penetration. If employees living in urban areas enroll in greater proponions than
assumed, costs could be higher than estimated.
Managed Care Enrollment. If employees enroll in managed care plans (e.g., HMOs) in lesser
propomons than has been assumed, costs generally could be higher than the stated estimates.
Minimum Enrollee Participation. We believe that if the Local Entities can enroll 70% of their
employees, the possibility of an "adverse selection spiral" would be small. This participation
target means that, on average, 70% of the employees in each Local entity enroll. . We also
believe that at least 1,250 to 1,500 enrollees are needed to create a self-funded plan that can be
So:" rated on its ov.n experience. If at least 1,250 to 1,500 enrollees do not participate, then the Local
Entities would likely be faced with volatile cJai~~ experience 'and adverse selection, which
would lead to unpredictable and difficult to budget claims costs.
...
Funding
.. ,,;
Bringing the Local Entities into the State's Program will require a decision as to how the Local
Entities should best fund the required contributions and additional administrative costs discussed
previously, in order to assure that no State supponed subsidy would be required at any time.
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Since SB 414 specifically requires the Local Entities to be responsible for funding the claims and
administrative costs of joining the plans, we recommend that the Local Entities be accounted for
separately from the State's experience. In this way, the Local Entities would together form a
William M. Mercer. Incorporated 15 State of Florida
Department of Management Services
separate rating pool in which their premiwns would always be a function of their own claims
experience and demographic makeup.
In order to assure a build-up of adequate reserves and cash flow under the State's PPO. which is
a self-funded plan, we recommend that Local Entities who choose to join "seed" three months of
premiums, including the additional administration charge, into the fund when they first join.
This should help assure that ail reserves, including IBNR reserves, are adequately funded for
those Local Entities that opt-out of the PPO at a later date.
Since the HMO plans are fully insured plans, v.ith reserves built-in to the calculation of
premiums, no "seeding" of premiums would be necessary.
'1:"
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VViUiam M. Mercer, Incorporated
16
State of Florida
Department of Management Services
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