December 1, 2004 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Cont e nt s 1. Executive Summary .......................................................................................................1 ̇ Study Description.....................................................................................................1 ̇ Keeping Pre-Medicare Retirees with their former Employers ................................4 ̇ Retiree Contribution Rate to Defray Health Insurance Premium Expenses ............5 ̇ Review Contribution Rates and Benefits Under Arizona’s Retirement System Compared to National Average and other State Retirement Systems .....................6 ̇ Federal or State Legal Restrictions on any of the Recommendations .....................7 ̇ Conclusion ...............................................................................................................8 2. Introduction....................................................................................................................9 ̇ State of the Current Retiree Health Care System for Arizona’s Public Employees 9 ̇ System Complexity..................................................................................................9 ̇ Premium Benefit ....................................................................................................10 ̇ Rural Retirees.........................................................................................................11 3. Summary of Contents and Exhibits .............................................................................12 4. Key Issues and Considerations ....................................................................................14 ̇ Option One: Allow Retired and Disabled Members of ASRS, PSPRS, CORP, and EORP to Participate in ADOA Health Insurance Program ...................................14 ̇ Option Two: Establish a Single Health Insurance Program For All Employees of These Groups .........................................................................................................17 ̇ Option Three: Require Public Employers to Allow Retirees Under Age 65 (i.e. Pre-Medicare Retirees) to Remain in Their Active Health Insurance Plans .........19 ̇ Option Four: Dedicating an Existing Part of the Retirement Contribution Rate or a Portion of an Increased Contribution Rate to Defray Part of the Cost of Health Insurance Premium Payments................................................................................22 ̇ Review of Contribution Rates and Benefits Under Arizona’s Retirement System Compared to National Average and other State Retirement Systems ...................24 5. Conclusion ...................................................................................................................27 ̇ Advantages of the Proposed Options.....................................................................27 ̇ Disadvantages of the Proposed Options ................................................................27 ̇ Conclusion .............................................................................................................28 Mercer Human Resource Consulting c:\runzone\gd1wppdf01v_slot-01_email1_email1_4ceb3dfa-380a-4470-b526-5582de33da23\azretiree health ins study120104.doc i Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council 1 Ex e c ut ive Sum m a ry Study Description Mercer Human Resource Consulting (Mercer) was retained by the Arizona Legislative Council to conduct a study with recommendations relating to health insurance for retired and disabled members of the Arizona State Retirement System (ASRS), the Public Safety Personnel Retirement System (PSPRS), the Corrections Officer Retirement Plan (CORP), and the Elected Officials’ Retirement Plan (EORP). The options we have been asked to study are as follows: 1. The feasibility and cost impact to Arizona and all state employees and political subdivisions of allowing all retired and disabled members and their dependents of the ASRS, the PSPRS, the CORP, and the EORP to participate in the health insurance program that is administered by the State of Arizona Department of Administration (ADOA) for State employees. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. 2. The feasibility and cost impact to the State and retirees of establishing a single health insurance program for all retirees of these groups. The study shall provide information, including costs and benefits, from at least five other states that administer a single retiree health insurance plan. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. 3. The feasibility and cost impact to this State and its public employers of requiring all public employers to allow their retirees who are under sixty-five years of age to remain in the same health insurance plan as their active employees. The study shall provide cost data from at least ten public employers in this State representing a range of size, geographic locations, and political jurisdictions. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. Mercer Human Resource Consulting 1 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council 4. The feasibility of dedicating an existing part of the retirement contribution rate or a portion of an increased contribution rate to defray part of the cost of health insurance premium payments, including a recommendation for the amount that should be dedicated. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. 5. A review of the contribution rates and benefits under the State’s retirement system compared with the national average and other state retirement systems. 6. An analysis of any federal or state legal restrictions on any of the recommendations. It is important for readers of this study to understand that the complexities involved with each of these options do not allow for a quick study to be done in which the issues are fully explored to the extent necessary to implement any of these options. The requirements of this legislatively mandated study requested only that various options be analyzed and to identify the considerations that would surface in implementing any of these options. Mercer encourages the readers of this study to use it as a tool to narrow down and further refine the options. Once a more focused approach or approaches are identified, further analysis should be undertaken to understand the potential impacts and to assess and answer the questions and issues mentioned in this study. It is also important to point out that none of the options proposed for study under this legislation addresses the root causes of escalating retiree health care costs. The cost savings achievable under some of these options are through benefit plan reductions and potential administrative efficiencies gained through consolidation. Consolidation of Retiree Health Plans and Administrators Options One and Two offer consolidation of health plan alternatives and the potential consolidation of plan administrators. Advantages to these options include: ̇ ̇ ̇ ̇ ̇ consolidation of administration; efficiencies of staffing, systems, accounting, and participant communication; potential for substantial simplification of the currently extremely fragmented retiree health care environment, making it easier for retirees to understand and compare the health care options available to them; consolidation of the retiree risk pool for greater leverage in the setting of provider reimbursement rates, fees, and other plan expenses; and elimination of duplicative second tier service providers (i.e., brokers, consultants, third-party-administrators, and insurance companies). The primary difference between options one and two is whether or not the retiree group is aggregated with active employees. Aggregation with active employees, even if the risk pools are not blended for rate-setting purposes, will provide the State with an added advantage of allowing for a fully insured option since carriers are more likely to insure Mercer Human Resource Consulting 2 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council the group on a favorable basis because of the profit opportunity presented by the active population. A consideration under Option One involves State Statute ARS 38-651.01J. The effect of this statute prohibits providing benefits to classes of employees or retirees who would normally not benefit under the ADOA’s retirement programs, such as retirees of municipalities or school districts. Specifically, the benefit of blending active and retiree premiums would give non-ADOA retirees a prohibited benefit. Therefore, implementation of Option One would need to take this into consideration. It appears a separate rate structure would need to be implemented for non-ADOA retirees to avoid violation of this statute. Most states do some form of blending of the premiums for their actives and retirees and this was borne out by the survey completed for this study. All six of the states surveyed in this study (Montana, Oregon, Utah, Washington, Georgia, and Alabama) currently blend, to some extent, the active and retiree health insurance premiums for pre-Medicare retirees. Another key consideration under Option One, and possibly under Option Two, is what the ultimate plan design will be for retirees. Currently, Mercer estimates that the ADOA retiree health care plans provides approximately 26 percent more value in terms of overall benefits than the health care plans offered by ASRS. Moving the public employer retirees onto a much more valuable plan will significantly increase costs. Key areas the State will need to resolve in order to implement this type of option successfully include: ̇ ̇ ̇ ̇ ̇ ̇ ̇ implementation strategy and eligibility – prospective-implement only for future retirees going forward or – retroactive-include both current and future retirees or – voluntary-allowing retirees to participate vs. mandatory-requiring retirees to participate; whether or not to include active populations; whether or not to blend active and retiree rates (an implicit subsidy) in addition to the explicit premium benefit subsidy; whether to insure or self-fund the new plan; how to handle benefit changes or contractual impairments; revision of the appropriate state statutes to allow for changes in the operation of the affected retiree plans; and selection of the appropriate administrative entity (ADOA, ASRS, or some third entity). The immediate costs associated with these consolidation options would include appropriate staffing of the selected administrative entity, and communications to all affected retirees and public employer entities. Other costs would include funding for appropriate technology and systems to effectively administer the consolidated retiree Mercer Human Resource Consulting 3 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council health care plan. Since it is not clear whether an existing agency or a completely new agency would be administering this new plan, Mercer cannot easily estimate these “startup” costs. Future costs depend on several factors such as the comparative value of the new retiree health plans versus the plans in which retirees are currently enrolled and the administrative efficiencies gained. Plan funding decisions, whether to fully or partially insure or self-fund and the financial arrangements made with carriers and service providers will also have significant impact on the future costs associated with these consolidation options. Keeping Pre-Medicare Retirees With Their Former Employers Option Three of this study, requiring employers to keep their pre-65 retirees (non-Medicare eligible retirees) on the active plans, is an option that many states employ. For purposes of our analysis, Mercer has assumed that all pre-Medicare retirees currently enrolled in ASRS would move back to their employer plans effective in 2005, and that the decision would be retroactive. Implementing this option retroactively would have the greatest impact to the employer plans which might not be what the Legislature intended. However, it is the cleanest way to calculate the option’s impact. Currently, 293 of the 514 employers with retirees eligible for the ASRS health plans allow their retirees to remain on their employer’s plan indefinitely. The Governmental Accounting Standards Board (GASB) Statements 43 and 45 will play a key role in how governmental employers are able to account for this retiree health care liability. GASB will require governmental employers to recognize and disclose unfunded accrued liability for retiree health plans, just as they must do for their pension plans today. These new reporting and disclosure requirements will go into effect for fiscal years beginning after December 15, 2006 for governments with revenues over $100 million; fiscal years beginning after December 15, 2007 for governments with $10 to $100 million; and fiscal years beginning after December 15, 2008 for governments with revenues less than $10 million. A major disadvantage of this option is that, with GASB looming, many governmental entities may be driven to shed their retiree health plans altogether. Because of the potential costs associated with retaining their retirees, the unintended consequence of implementing this option for Arizona retirees could be that some employers will actually cut back retiree health benefits severely, compared to current options available under the ASRS or ADOA, and render this option not only a futile effort but also an ill-conceived approach. Mercer Human Resource Consulting 4 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Key issues the State and/or former employers would need to resolve to implement this option include: ̇ ̇ ̇ ̇ whether the requirement would be voluntary (could remain with active employer plan) or mandatory (must remain with active employer plan); whether to offer any exceptions to smaller public entities, either in the form of direct subsidizations and/or changed Department of Insurance statues; whether to blend the rates of actives and pre-Medicare retirees; and whether or not to require public employers to offer a minimum level of benefits to pre-Medicare retirees. The immediate costs associated with keeping non-Medicare retirees with their employer health plans include communications to all affected retirees and public employer entities. Other costs include public employer funding for appropriate technology and systems and possibly additional staff to effectively administer the health care plan that includes retirees. Other cost impacts to public employers include the cost of additional time from employer staffs to successfully enroll pre-Medicare retirees in their plans and the revision of contractual arrangements with carriers to allow coverage for this group. The ASRS plan would experience future cost savings due to the loss of this high-risk, high-cost group. Future costs depend on the comparative value of the employer’s retiree health plans versus the ASRS plans in which retirees are currently enrolled. As mentioned, there would be no administrative savings gained since all administrative agencies existing prior to the change would continue to exist. There would continue to be a multiplicity of plan funding arrangements, plan designs, and second tier service providers, such as brokers, consultants, third party plan administrator, and insurance carriers, involved the administration of the public employer retiree health plans. Retiree Contribution Rate to Defray Health Insurance Premium Expenses Mercer has analyzed the national data pertaining to other state retirement systems regarding system or state-provided retiree premium contributions. The options range from states that are extremely generous, offering to pay most if not all of the retiree premium, to those states offering only the blended rate between actives and retirees as a benefit, to those who offer no premium assistance at all. In June of 2003, the combined pension and premium benefit contribution for employees and employers participating under ASRS was 2.0 percent. In July of 2003, that increased to 5.2 percent. In July of 2005, this contribution is set to increase to 7.75 percent, inclusive of the 1.1 percent premium benefit 401(h) contribution. Introducing another incremental increase on top of the already scheduled increase will probably not be met with enthusiasm. Mercer Human Resource Consulting 5 Arizona Legislative Council Arizona Re t ire e H e a lt h I nsura nc e St udy Because employee contributions to a 401(h) account are not allowed under the Internal Revenue Code, the options to increase the funding level, and thereby the premium benefit amount, include: ̇ ̇ ̇ increase the employer 401(h) contribution; decrease the employer 401(a) contribution and increase the 401(h) contribution so that the total employer contribution remains the same; and increase the employee 401(a) contribution, decrease the employer 401(a) contribution, and then increase the employer 401(h) contribution. Mercer was asked to recommend a dedicated contribution amount to defray part of the cost of health insurance premium payments. This dedicated contribution amount is driven by what level of premium benefit the State would make to its retirees. In order to make this recommendation, Mercer took into consideration the data from item number five on page two of the requested study: the review of contribution rates and benefits of Arizona’s retirement systems compared with the national average. For Arizona to provide a premium benefit that is roughly equal to the average of those 34 states that provide financial assistance to public employer retirees, the 401(h) contribution would need to increase from 1.1 percent to 1.6 to 1.8 percent. This meets the subordination limit rules which restrict the amount of 401(h) contributions to 25 percent of the total employer contributions to the pension fund, exclusive of past service contributions. Review Contribution Rates and Benefits Under Arizona’s Retirement System Compared to National Average and other State Retirement Systems Mercer conducted a brief survey of six other states’ retirement systems, the benefits under those systems, and the contributions rates, both from the system and from the retirees for those benefits. Exhibit 4 charts the results of the survey. Below is a summary of the net costs for the retirees and systems for the states that were able to provide these numbers: Arizona ASRS M ont a na Utah Ge orgia Ala ba m a Avg. PEPM Pre-Medicare Retiree $342.96 $461.25 $50.84 Avg. PEPM Pre-Medicare State $187.80 $0.00 $763.06 Avg. PEPM Medicare Retiree $139.57 $277.89 $0.00 $63.00 $0.00 Avg. PEPM Medicare State $133.85 $0.00 $348.64 $231.00 $243.00 Mercer Human Resource Consulting $63.00 $231.0 $138.00 $366.00 6 Arizona Legislative Council Arizona Re t ire e H e a lt h I nsura nc e St udy In addition, Mercer utilized the data from Watson Wyatt’s Premium Benefit Supplement Survey dated December 3, 2003. It is important to note that while the Watson Wyatt survey discloses the state or agency premium contributions, some states provide these contributions on top of the inherent subsidy provided by blending active and retiree premiums, and some provide premium relief without premium blending. This makes the true value of these benefits elusive without knowing the actual claims experience of the retirees in these states, which is beyond the parameters of this study. Of course, many states do not provide any premium relief at all. According to the recently released results of the Mercer 2004 National Survey of Employer Sponsored Health Plans, for governmental employers 16 percent of state retiree health plans pay the entire pre-Medicare retiree premium, 38 percent share the cost, and 46 percent require retirees to pay the full premium. The results are similar for Medicare retirees with 19 percent of states paying the full premium, 32 percent sharing the cost, and 49 percent requiring full payment by the retiree. The survey result for government retirees is included in Exhibit 6. Mercer’s illustration with respect to a possible premium benefit for Arizona retirees lengthens the service requirement for full benefits (for those retirees subject to a vesting schedule), increases the full benefit, ties the benefit to the lowest cost plan, and, by nature of the link to the local low-cost plan, offers an inherent subsidy to rural retirees. Below is an illustrative schedule for this sample Premium Benefit (see page 24 for a full discussion of this benefit). N on-M e dic a re Pre m ium Be ne fit — a s a Pe rc e nt of Low e st -Cost Pla n Pre m ium M e dic a re Pre m ium Be ne fit — a s a Pe rc e nt of Low e st -Cost Pla n Pre m ium 0-4 0% 0% 5-7 18 % 30 % 8 - 10 26 % 43 % 11 - 13 34 % 56 % 14 - 16 42 % 69 % Over 17 50 % 82 % Y e a rs of Se rvic e Federal or State Legal Restrictions on any of the Recommendations Mercer conducted a review of the appropriate state statutes, tax law, and federal statutes that might influence any of the options or recommendations. These legal impacts are included in the discussions of the Key Issues and Considerations section as well as Exhibit 2, Arizona Legislative Council Considerations. Mercer Human Resource Consulting 7 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Conclusion This study was intended to be an initial review of several proposed options for increasing the viability and benefits of the Arizona public employer retiree health plans. Once a directional decision has been made, more work needs to be done to delve into the contingencies and results of that particular path or paths. Mercer encourages all readers of this report to proceed carefully with the next steps and keep in mind all known implications and also keep in mind that any changes to a system as complex as the Arizona public employer retiree health care system will undoubtedly has unintended consequences and unanticipated ripple effects. Only through public deliberations, statewide discussions, and careful study can these consequences and effects be potentially minimized. Mercer Human Resource Consulting 8 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council 2 I nt roduc t ion State of the Current Retiree Health Care System for Arizona’s Public Employees The objective of providing health care to the State’s eligible retired and disabled members and their dependents in a cost-effective and efficient manner becomes more challenging as health care costs rise, the population ages, and available public funds become more scarce or restricted. There are several issues resulting from Arizona’s current system that have been highlighted over the past several years. System Complexity The responsibilities for the negotiation, purchase, administration, communication, eligibility verification, and funding of the current structure is divided between many political subdivisions. A large percentage of the approximately 65,000 retirees eligible for the ASRS participate in its health care plans. Approximately 23,587 or thirty six percent were enrolled in ASRS’ health care plans as of April 1, 2004.1 Another 15,2451 participate in employer-sponsored plans, with approximately 8,754 of those under the ADOA health care plans. Another 4,855 participate through the PSPRS, the EORP, or the CORP in an employer plan, ASRS, or the ADOA plan. Of those eligible for ASRS, over 21,000 are not tracked. This means they do not participate in an employer-sponsored plan or the ASRS plan. These retirees may be covered under a spouse’s plan, an individual plan, or Medicare without any supplemental coverage. It is unknown how many of the 21,000 non-enrolled retirees may not have elected any form of coverage and are currently uninsured. However, all ASRS retirees may enroll in the ASRS retiree health care program during any annual open enrollment or if they have a qualifying life event. This flexibility makes the offering of retiree health care even more complex. 1 Watson Wyatt, June 18, 2004 presentation to the Arizona State Retirement System Board Mercer Human Resource Consulting 9 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council ASRS Eligible Re t ire e s – Pla n Pa rt ic ipa t ion Total Retirees Eligible for ASRS 64,697 ASRS Plans 23,587 ADOA Plans 8,754 Other 6,491 PSPRS/EORP/CORP 4,855 Unknown 21,010 Of the 514 employers actively participating in the ASRS health care plans, 293 allow non-Medicare retirees to remain on their employer plan.2 Two-hundred and eleven employers give the eligible retiree under age 65 the option to continue COBRA (if available) and/or to join the ASRS plan. In addition, there are several public employers who do not participate with ASRS at all, such as the City of Phoenix, City of Tucson, or La Paz County. These systems have their own health care programs, contribution strategies, and administration. Exhibit 1 illustrates some of the complexities of Arizona’s current system. Adding to this complexity, each political subdivision provides multiple plan choices to the retiree. For example, under the ASRS, retirees generally have a choice of two plan options for pre-Medicare, two for Medicare, and four for mixed Medicare and non-Medicare families. ADOA offers up to five options for non-Medicare, six for Medicare, and six for mixed Medicare and non-Medicare families. Premium Benefit The Premium Benefit is the employer premium contribution for eligible retirees under the ASRS, PSPRS, CORP, and EORP programs. Unfortunately, this aspect of the system is no less complex than the administration. For all four of these systems, the benefit varies depending on whether the retiree and/or dependents are eligible for Medicare. ASRS has a vesting schedule for the benefit based on years of service with a five-year requirement for the minimum benefit and ten years required for the full benefit. EORP’s service-based vesting schedule also has a five-year minimum with only eight years of service required for the maximum benefit. Both PSPRS and CORP provide the maximum benefit without a service requirement. 2 ASRS Memo from Anthony Guarino and Pat Klein to Health Insurance/Long Term Disability Committee Members adapted July 31, 2003 Mercer Human Resource Consulting 10 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Rural Retirees Retirees in limited service areas in the State of Arizona receive a rural subsidy that is scheduled to expire on June 30, 2005. These retirees currently do not have access to lower cost HMO plans, so their premiums and out-of-pocket costs for services are higher than costs for their urban counterparts. Some systems, like the ASRS, have blended their rates to bring the cost of the rural plans down. Most, like ADOA or the City of Phoenix, blend their active and retiree risk pools so that the younger, lower-cost active employees’ rates subsidize the retiree premium rates. For 2005, both the ASRS and the ADOA have used their buying influence to expand the service areas of managed care into new counties to assist rural retirees with these costs. Mercer Human Resource Consulting 11 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council 3 Sum m a ry of Cont e nt s a nd Ex hibit s It is clear from the Scope of Services description in the legislation enacting this study that the State is interested in finding a potential solution or series of potential solutions to the cost and complexity of the current system. Mercer has been retained to provide an objective review of the feasibility of various proposed solutions. Exhibit 1, the “Current Systems Chart,” is an at-a-glance illustration of the various administrative components of the current health care programs for State retirees. Note, unlike the ASRS, PSPRS, CORP, and EORP do not provide the health care benefits for their respective members. Members of these three organizations enroll in their employer plan, the ASRS plan, or the ADOA health care plan. The PSPRS administers all three of these programs in terms of member communication, premium benefit, eligibility and enrollment, and deduction of premium from pension payments. Members of these programs are still part of their employer, ASRS or ADOA plans. Think of these three as an “overlay” to the underlying programs. The options proposed as part of this study have been analyzed in terms of feasibility by categories, such as, administration, benefit plan design impacts, contractual issues, efficiencies, demographic risk, stakeholder opposition, and legal and regulatory issues. Exhibit 2, the “Considerations Chart,” outlines the four options proposed by the study request in summary format. A more extensive analysis of some of the key issues involved with each of these options is included with this study under the “Key Issues and Considerations” section. In addition, the Mercer estimated amount of additional contribution in order to increase the premium benefit to a sample amount and its associated impacts is included with this discussion, as is the comparison of Arizona’s contributions to other states’ contributions. Exhibit 7 provides a detailed chart of how other States’ premium benefit programs would look if applied to the current ASRS premium structure. Mercer Human Resource Consulting 12 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council An overview of the other surveyed states’ benefits is included in Exhibit 4. The government sector results summary data of the Mercer 2003 National Survey of Employer-Sponsored Health Plans is Exhibit 6. Exhibits 3 - 5 provide statistical data comparing the current structure to that of the new structure under each of the three proposed structural options. These charts track the shifting of participants, demographics, and costs from one entity to another. Finally, the study concludes with a summary of the major advantages and disadvantages of the proposed options. It is important for readers of this study to understand that the time and budget constraints on this study make it only a preliminary review of possible options. The requirements of this legislatively mandated study requested only that various options be analyzed and to identify the considerations that would surface in implementing any of these options. Once a more focused solution or series of solutions is identified, further analysis should be undertaken to understand the full impacts and to assess and answer the questions and issues mentioned in this study. Additionally, it is important for readers to understand that none of the options proposed for study under this legislation address the root causes of escalating retiree health care costs. These options only shuffle the funds and responsibilities around to different parties. The only true cost savings achievable under some of these options are through benefit plan reductions resulting from the changes and through any administrative efficiency gained through consolidation. Mercer Human Resource Consulting 13 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council 4 K e y I ssue s a nd Conside ra t ions This section of this study’s narrative explores some of the key considerations of the four options and the contribution and benefits review. Analysis of any Federal or State legal restrictions is incorporated into this section. For a more complete listing of considerations and policy decisions relating to these options, please see Exhibit 2. Option One: Allow Retired and Disabled Members of ASRS, PSPRS, CORP, and EORP to Participate in ADOA Health Insurance Program While on the surface this option may appear administratively simple, there are many complexities that need to be explored in order to make this a viable option. I m ple m e nt a t ion a nd Eligibilit y I ssue s Several questions arise upon reading the language of this option in H.B. 2542. First, by “allowing” retirees and disabled members into ADOA, does this mean all participants in the other programs would be moved into the ADOA insurance plan, or would it be a voluntary choice for the participant? If it is all or nothing, when will the state “flip the switch?” Would it affect all current enrollees or just future retirees after a certain date? For purposes of Mercer’s analysis, we have assumed that this would be a mandated re-enrollment of all members of ASRS, PSPRS, CORP, and EORP out of their current plans and into the ADOA insurance plan. We have also assumed that it would occur in 2005 and that it would apply to current and future retirees. If this were not so, then multiple systems would continue to exist which would diminish the administrative efficiency to be gained from this option. Of course, assuming full and immediate transfer of these groups into ADOA would have a full and immediate impact on the ADOA plan and its ability to administer this new, much larger group of participants. Mercer Human Resource Consulting 14 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council The ADOA is currently not sufficiently staffed to handle the huge influx of retirees and disabled participants that would convert to their plan. Additionally, ADOA staff would suddenly have a number of retiree health plan customers about whom they knew nothing in terms of prior history, prior benefits, and prior employment. The transfer of data and information would be a substantial task. I nsure d Pool Adding the retiree populations of the other groups - ASRS, PSPRS, EORP, and CORP would significantly alter the size and demographics of the ADOA risk pool. The new group would consolidate the two largest retiree health insurance pools for the State. However, the other groups are coming from a fully insured environment into a self-funded plan. The State will need to carefully consider whether moving a volatile risk pool of retirees into a self-funded plan is a cash-flow risk it is willing to take undertake. Ac t ive Em ploye e Subsidy One of the perceived advantages of moving the retirees onto the ADOA plan would be to blend them with ADOA’s active employees for rate-setting purposes. Currently, this practice would be proscribed due to a State Statute ARS 38-651.01J that states “Public funds shall not be expended to pay all or any part of the premium of insurance pursuant to this section except for monies authorized to be paid for any insured from the retirement plan from which the insured is receiving benefits.” The effect of this statute prohibits providing benefits to classes of employees or retirees who would normally not benefit under the ADOA’s benefit programs, such as retirees of municipalities or school districts, if the benefits provided by ADOA are not made available to all State citizens. Because of the subsidy to retirees inherent in the blending of active with retiree premiums, non-ADOA retirees would receive this financial advantage. Therefore, barring changes to the statute, there would either need to be two premium structures (one for active and one for retirees), or there could be a separate subsidy provided to retirees by the state for ADOA retirees only, possibly accompanied by a separate subsidy for the non-ADOA employees paid for by their participating employers. Funding Moving the ASRS, PSPRS, CORP, and EORP retirees onto the ADOA plan would increase costs to ADOA in that the ADOA would become the provider of the Premium Benefit for these retirees. The ADOA would not be able to take on these new expense obligations without receiving funding from the plans from which these retirees originated. The ADOA would therefore need to bill participating public employers for their share of these costs. Establishing a new contribution structure would be complex and would need to be implemented carefully. Mercer Human Resource Consulting 15 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Be ne fit Re duc t ions a nd Cont ra c t ua l I m pa irm e nt I ssue s A review of all current health plan arrangements for the PSPRS, EORP, and CORP retirees would need to be made to evaluate whether moving them to the ADOA plan would result in any benefit reductions. If any retirees under these plans have contractually protected health benefits, these benefit levels would need to be “grandfathered” under the new arrangement. Another option, which would be administratively easier, but more costly, would be to raise the new ADOA retiree plan up to these contractually protected levels for all retirees. Even if no contractual protections were found, retirees would negatively perceive any resulting benefit reductions. Ec onom ie s a nd Effic ie nc ie s of Sc a le /Se c ond T ie r Se rvic e s Moving the PSPRS, EORP, and CORP retirees onto the ADOA plan would result in greater administrative efficiency. The PSPRS and ASRS staff would no longer handle retiree health care enrollment and communication and ASRS would no longer be the plan provider, handling insurance renewals and the like. This would also limit the second tier services such as brokers, consultants, advisors, and carriers, resulting in additional administrative savings. However, administrative staff would need to be added to the Department of Administration to handle the larger, more complex group. The new group would have greater leverage with regard to handling negotiations for Medicare reimbursement as well as provider fees. This would most likely result in lower cost overall for the retired group. Additionally, this option would provide for consistency of benefits for all participating groups. St a t e St a t ut e s ASRS sections 38-782, 783, 817, 857, 651, 906, and §15-628 would need to be amended to allow for changes in the operation of the affected retiree plans. I m m e dia t e a nd Fut ure Cost s The immediate costs associated with this option would include adding additional staff to the Department of Administration, communications to all affected retirees and public employer entities. Other costs would include funding for appropriate technology and systems to effectively administer the consolidated retiree health care plan. Since it is not clear whether an existing agency or a completely new agency would be administering this new plan, Mercer cannot easily estimate these “start-up” costs. An accurate estimation of these start-up costs would need to include an assessment of ADOA’s current staffing levels and technology. Mercer Human Resource Consulting 16 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Future costs depend on several factors: the comparative richness of the ADOA retiree health plans versus the plans in which retirees are currently enrolled and the administrative efficiencies gained; and, possible savings gained by utilizing a self-funded health plan. Currently, Mercer estimates that the ADOA retiree health care plans are about 26 percent richer in terms of overall benefits than the health care plans offered by the ASRS. Moving the public employer retirees onto a much richer plan will significantly increase costs. Exhibit 3 charts the current system’s statistics and costs as well as the immediate and future plan costs of implementing this option. Option Two: Establish a Single Health Insurance Program For All Employees of These Groups This option requests that a single health insurance program be established for all retirees of the ASRS, ADOA, PSPRS, CORP, and EORP. Mercer was asked to provide costs and benefits from at least five other states that administer a single retiree health plan. It is important to note that all eight states Mercer approached for participation in this survey allow their retirees to continue in their active plans in addition to offering a plan for retirees. Utah only allows pre-Medicare retirees to participate in its Public Employee Health Program (PEHP) benefits if the participating employer has adopted such a program in the employer contract with PEHP. Oregon offers a PPO and an HMO for their retirees that are also offered to their part-time work force. Benefit information about Colorado’s retiree health plans was included because it is a state that administers a single retiree health plan. However, Colorado did not respond to our data request. I m ple m e nt a t ion a nd Eligibilit y I ssue s Similar to Option One, Option Two raises questions as to whether the new single plan would require all retirees to re-enroll, or whether retirees would be allowed to continue under their current arrangement with the single plan as an additional option. Another policy decision would be whether to require all new retirees to enroll in the single plan as of a certain cut-off date. In addition, would retirees who are currently not enrolled be able to enroll in this new plan and for how long? What would the new plan’s benefits be? Would the plan look like the current ASRS plans? Who would be the new administrator for this plan? For purposes of Mercer’s analysis, we have assumed that this would be a mandated re-enrollment of all members of ASRS, PSPRS, CORP, and EORP out of their current plans and into the new single insurance plan. We have assumed that it would occur in 2005 and that it would apply to current and future retirees. Mercer has also assumed the new plan design would have the same benefit values as the current ASRS plans. Mercer Human Resource Consulting 17 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council I nsure d Pool Moving all of these groups into one retiree plan would result in a new plan with the following enrollment: Pre-Medicare Retirees: 23,405 Medicare Retirees: 30,769 Total: 54,174 Other active plans, such as ADOA, would lose retirees that would benefit their demographic risk. For example, the average age of these active plans would decrease and premiums would likely go down. Conversely, the new plan could inherit a higher risk demographic, and its premiums could be higher. Ac t ive Em ploye e Subsidy To the extent that retirees of these groups are currently participating in plans that blend active and retiree premiums, this inherent subsidy would be lost. If the new plan was optional and retirees could choose to remain under their active health care plans until Medicare eligibility, it is likely that many would choose the plan with the lower out-of-pocket premium and benefit costs. If the new plan was not cost-competitive, it would only capture those retirees whose employers did not provide retiree health coverage. Eligibility, enrollment, and pre-existing conditions exclusion provisions would need to be carefully designed to avoid adverse impact to the new plan. Funding Depending on the entity responsible for establishing a single retiree health insurance program, the State might need to make a funding decision about whether to insure this new plan, or self-fund. Insurance carriers would require a profitable relationship with the plan in order to take on this high-risk group. Be ne fit Re duc t ions a nd Cont ra c t ua l I m pa irm e nt I ssue s Similar to Option One, a review of all current health plan arrangements for the ADOA, PSPRS, EORP, and CORP retirees would need to be made to evaluate whether moving them to the ASRS plan would result in any benefit reductions or contractual impairment. If certain benefit promises have been made via a benefit contract or union agreement, the move to a single health plan would have to be examined carefully to make sure these agreements were intact after the move. Grandfathering of these special arrangements would be a possible, though complicated, way to avoid contractual impairment issues. Mercer Human Resource Consulting 18 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Ec onom ie s a nd Effic ie nc ie s of Sc a le /Se c ond T ie r Se rvic e Provide rs Like Option One, this option would result in administrative efficiency and reduction in second tier service providers and processes such as negotiations for insurance contracts, brokers, consultants, third party administrators, and insurance carriers. This new group would have the greatest leverage with regard to handling negotiations for Medicare reimbursement as well as provider fees. The new plan could be structured to integrate with Medicare that would most like result in lower cost overall for the Medicare eligible retired group. Additionally, this option would provide the most consistency of benefits for all participating groups. St a t e St a t ut e s ASRS sections 38-782, 783, 817, 857, 651, 906, and §15-628 would need to be amended to allow for changes in the operation of the affected retiree plans. I m m e dia t e a nd Fut ure Cost s The immediate costs associated with this option would include appropriate staffing of the selected administrative entity, and communications to all affected retirees and public employer entities. Other costs would include funding for appropriate technology and systems to effectively administer the consolidated retiree health care plan. Since it is not clear whether an existing entity or a completely new entity would be administering this new plan, Mercer cannot easily estimate these “start-up” costs. Future costs depend on several factors: the comparative richness of the new retiree health plans versus the plans in which retirees are currently enrolled and the administrative efficiencies gained. Plan funding decisions, whether to fully or partially insure or self-fund, and the financial arrangements made with carriers and service providers will also have significant impact on the future costs associated with this option. Exhibit 4 charts the current system’s statistics and costs as well as the immediate and future plan costs of implementing this option. Option Three: Require Public Employers to Allow Retirees Under Age 65 (i.e. Pre-Medicare Retirees) to Remain in Their Active Health Insurance Plans A key question under this option would be whether pre-Medicare retirees would have to stay in their employer health care plans for active employees, or whether this would be a choice in addition to their current options. If retirees had to stay in their employer plans, would this be retroactive or prospective? For purposes of our analysis, Mercer has assumed that all pre-Medicare retirees currently enrolled with the ASRS would move back to their employer plans effective in 2005, and Mercer Human Resource Consulting 19 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council that the decision would be retroactive. The implementation of this option, in order to be viable, would need to be on a prospective basis. Clearly, implementing this option retroactively would have the greatest impact to the employer plans, which might not be what the Legislature intended. I m ple m e nt a t ion a nd Eligibilit y I ssue s The impact on the employer plan would depend on the employer’s overall employee population, the capacity of its benefits staff, and the number of retirees returning to its plan. As mentioned in the Introduction, 293 of the 514 employers actively participating in the ASRS system allow non-Medicare retirees to remain on their employer plan. I nsure d Pool The flow of pre-Medicare retirees away from ASRS would decrease its overall pool of covered lives, but would also decrease its demographic risk. The pre-65 group is the most medically expensive group statistically. However, if the election to enroll or stay in the employer plan was optional, many pre-65 retirees might choose to remain covered under the ASRS because of out-of-area or out-of-state service needs. These would be the highest cost retirees as their ability to participate in managed care contracts would be restricted. Employer plans would inherit high-risk retirees as well and the demographic risk would most likely increase costs to their plans. Another possibility to consider is that retirees who previously did not have access to their employer plans, and did not choose the ASRS plans, might “come out of the woodwork” to enroll in their employer plans if this option is implemented. It is not possible to accurately quantify the possible costs of this “woodwork” effect. Ac t ive Em ploye e Subsidy An advantage of moving pre-Medicare retirees back to their employer plans is the opportunity to blend the rates of actives and retirees. Would the legislation enacted under this option require premium blending? If not, employers could charge retirees their actual cost, which would most likely be significantly higher than that of active employees. Mercer estimates that pre-65 retirees are usually about 1.65 times more expensive than the active, non-retired population. Mercer Human Resource Consulting 20 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Le ga l a nd Cont ra c t ua l I ssue s ARS §38-782 provides that group accident and health coverage be provided to “members who are receiving retirement benefits from ASRS or long-term disability benefits pursuant to section 38-651.03 or article 2.1 of this chapter and who elect not to obtain health and accident insurance through their former employer.” If the pre-Medicare coverage under the former employer were made mandatory, this statute would need to be revised. Additionally, the state statute provides an opportunity for continued health coverage for an insured member's dependent beneficiary or an insured surviving dependent in the event of the insured member’s death. The former employer plans may not provide this beyond the opportunity to elect COBRA. Employers under 20 employees would not have to offer COBRA to these surviving dependents. Some retirees might have reduced benefits under their former employer plans that would not be favorably received by these retiree groups. GASB The requirement for governmental employers to recognize and disclose unfunded accrued liability for retiree health plans may drive many of the employer plans to carve retirees out of their active plans and reduce their benefits. These new reporting and disclosure requirements will go into effect for fiscal years beginning after December 15, 2006 for governments with revenues over $100 million; fiscal years beginning after December 15, 2007 for governments with $10 to $100 million; and fiscal years beginning after December 15, 2008 for governments with revenues less than $10 million. Employers who currently do not have retiree health coverage will not want to take on this additional liability and, in the case of some small public employers or public employers with large returning retiree populations, this option may not be financially viable. Many governmental entities may be driven to shed their retiree health plans altogether. The effect of implementing this option for Arizona retirees could be that some employers will cut back retiree health benefits severely, compared to current options available under the ASRS or ADOA, and render this option not only a futile effort but an ill-conceived approach. I m m e dia t e a nd Fut ure Cost s The immediate costs associated with this option would include communications to all affected retirees and entities, and public employers. Also, employers would incur costs from additional staff time spent to successfully enroll pre-Medicare retirees in their plans and revise contractual arrangements with carriers to allow coverage for this group. The ASRS plan would experience future cost savings due to the loss of this high-risk, high-cost group. Future costs depend on the comparative richness of the employer’s retiree health plans versus the ASRS plans in which retirees are currently enrolled. Mercer Human Resource Consulting 21 Arizona Legislative Council Arizona Re t ire e H e a lt h I nsura nc e St udy There would be no administrative savings gained since all administrative entities existing prior to the change would continue to exist. There would continue to be a multiplicity of plan funding arrangements, plan designs, and second tier service providers, such as brokers, consultants, third party administrators, and insurance companies. Exhibit 5 charts the current system’s statistics and cost as well as the immediate and future plan costs associated with this option. Option Four: Dedicating an Existing Part of the Retirement Contribution Rate or a Portion of an Increased Contribution Rate to Defray Part of the Cost of Health Insurance Premium Payments Currently, participating employers in ASRS, PSPRS, CORP, and EORP contribute 1.1 percent to a 401(h) account to fund the current premium benefit. This premium benefit vests based on years of service with a minimum of 5 years and with the maximum benefit available at 10 years for ASRS members and 8 years for EORP members. PSPRS and CORP participants are fully vested in the maximum benefit without a service requirement. According to the government sector summary of the recently released results of the Mercer 2004 National Survey of Employer Sponsored Health Plans, 16 percent of the states pay all of the pre-Medicare retiree premium, 38 percent share the cost, and 46 percent require retirees to pay the full premium. The results are similar for Medicare retirees with 19 percent of states paying the full premium, 32 percent sharing the cost, and 49 percent requiring full payment by the retiree. The survey results for government sector retirees is included in Exhibit 6. In June of 2003, the combined pension and premium benefit contributions for employees and employers was 2.0 percent. In July of 2003, that increased to 5.2 percent. In July of 2005, this contribution is set to increase to 7.75 percent, inclusive of the 1.1 percent premium benefit 401(h) contribution. The allocation of employer and employee pension plan contributions is as follows: Curre nt Premium Pension Benefit 401(a) 401(h) Account Account J uly 2 0 0 5 Total Pension 401(a) Account Premium Benefit 401(h) Account Total Employee Contribution Rates 5.20% 0.00% 5.20% 7.75% 0.00% 7.75% Employer Contribution Rates 4.10% 1.10% 5.20% 6.65% 1.10% 7.75% Total Contribution Rates* 9.30% 1.10% 10.40% 14.40% 1.10% 15.50% * Contribution rates exclude the LTD contribution of .5 percent each from employee and employer. Mercer Human Resource Consulting 22 Arizona Legislative Council Arizona Re t ire e H e a lt h I nsura nc e St udy Introducing another incremental increase on top of the already scheduled increase will probably not be met with enthusiasm. Because employee contributions to a 401(h) account are not allowed under the Internal Revenue Code, the options to increase the funding level, and thereby the premium benefit amount, include: ̇ ̇ ̇ increase the employer 401(h) contribution; decrease the employer 401(a) contribution and increase the 401(h) contribution so that the total employer contribution remains the same; and increase the employee 401(a) contribution, decrease the employer 401(a) contribution, and then increase the employer 401(h) contribution. Mercer was asked to make a recommendation as to what the new subsidy amount should be. Based on a table provided by Watson Wyatt for the ASRS Presentation to ASRS Executive Management and Health Insurance/LTD Board Committee by Patrick Klein, Contracts Manager for ASRS, dated December 9, 2003, Mercer calculated premium benefits provided by other states to get a rough national average by different years of service. The full table is at the end of this section. Below is a summary of this data. The full chart can be found in Exhibit 7. For those states that provide a benefit as a percent of premium, Mercer used the Arizona Non-Medicare PacifiCare HMO rates and Medicare Advantage rates (the two lowest costs options) under the ASRS plan to calculate a dollar amount. In addition, Mercer used the ASRS PPO and Medicare Supplement rates to show the benefit for rural retirees under this system. N on-M e dic a re Re t ire e s Pre m ium Be ne fit 5 Years 10 Years 15 Years 20 Years Single Family Single Family Single Family Single Family Average $149.48 $253.73 $232.89 $402.53 $277.59 $484.77 $304.76 $533.74 Median $102.05 $201.90 $220.64 $403.79 $302.84 $514.00 $323.03 $565.31 Arizona $75.00 $130.00 $150.00 $260.00 $150.00 $260.00 $150.00 $260.00 M e dic a re Re t ire e s Pre m ium Be ne fit 5 Years Single 10 Years 15 Years 20 Years Family Single Family Single Family Single Family Average $80.11 $149.39 $111.02 $203.70 $132.41 $239.95 $146.57 $263.24 Median $50.00 $85.00 $102.35 $164.98 $109.98 $206.22 $129.00 $239.76 Arizona $50.00 $85.00 $100.00 $170.00 $100.00 $170.00 $100.00 $170.00 For Arizona to provide a premium benefit that is roughly equal to the average of those 34 states who provide financial assistance to public employer retirees, the 401(h) Mercer Human Resource Consulting 23 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council contribution would need to increase from 1.1 percent approximately to 1.6 to 1.8 percent. An illustrative premium benefit upon which this suggested amount is based is discussed in the next section. This 401(h) contribution meets the subordination limit rules which restrict the amount of 401(h) contributions to 25 percent of the total employer contributions to the pension fund, exclusive of past service contributions. Review of Contribution Rates and Benefits Under Arizona’s Retirement System Compared to National Average and other State Retirement Systems Reviewing the Contribution rates of retirees of other states nationally compared to Arizona’s retirement system retirees is complex and does not provide very meaningful data. Some states blend active and retiree rates producing an inherent subsidy for retirees that cannot be quantified without obtaining detailed claims data broken down by covered demographic — which many states do not even track. Additionally, the premium benefit schemes across the country combined with the multiplicity of plan designs make the resulting data apples-to-oranges and therefore, not very meaningful. In conducting the survey of the six states participating in this study, Mercer attempted to uniformly quantify the active subsidy and any other premium benefits to show the net per-retiree-per-month average cost. Only four of the states surveyed gave Mercer enough data to do this calculation. Their results are as follows: St a t e & Pla n N e t Pre -M e dic a re Re t ire e Pre m ium Cost s Aft e r Subsidie s/Be ne fit s N e t M e dic a re Re t ire e Pre m ium Cost s Aft e r Subsidie s/Be ne fit s Arizona ADOA $331.17 $316.27 Arizona ASRS $342.96 $139.57 Alabama $138.00 $0.00 Georgia $63.00 $63.00 Montana $461.25 $277.89 $50.84 $0.00 Utah A major offset to the retiree’s out-of-pocket cost for premium is any premium benefit the retiree receives from the State or public employer. There are several premium benefitsetting methods Arizona could adopt. While the benefit Arizona provides is not in the upper 50th percentile of the 34 states analyzed, the years of service requirement for the maximum benefit is relatively low (10 for ASRS and 8 for EORP). Generally, the higher the years of service required for the maximum benefit, the higher the maximum benefit. For example, Kentucky and West Virginia pay 100 percent of the lowest cost plan after 20 years of service. If the State of Arizona would like to get to the median or even average levels of benefit compared to the other 34 states that make these contributions, the service requirement should also be increased. Other benefit-setting methods include assigning a flat dollar amount per year of service like North Dakota and Virginia currently do. Mercer Human Resource Consulting 24 Arizona Legislative Council Arizona Re t ire e H e a lt h I nsura nc e St udy One way to set the premium benefit so that it continues to be relevant to the actual premium amount is to set the benefit as a percent of the lowest cost in-state plan available to the retiree. This percentage could always be revisited annually based on available funds. This methodology gives retirees an incentive to enroll in the lowest cost plan, while maintaining a sense of equity for those in rural areas where there is only one plan choice. The two tables below represent a possible structure based on years of service (for those retirees subject to a vesting schedule) and percent of lowest-cost plan. The benefit for Medicare eligibles, as a percent of premium, would be more generous, as it is under the current premium benefit structure. For purposes of this illustration, we have used a yearsof-service banding methodology. The state could always choose to associate an incremental percentage increase by year of service, if desired. N on-M e dic a re Pre m ium Be ne fit — a s a Pe rc e nt of Low e st -Cost Pla n Pre m ium Y e a rs of Se rvic e M e dic a re Pre m ium Be ne fit — a s a Pe rc e nt of Low e st -Cost Pla n Pre m ium 0-4 0% 0% 5-7 18 % 30 % 8 - 10 26 % 43 % 11 - 13 34 % 56 % 14 - 16 42 % 69 % Over 17 50 % 82 % Using the same assumptions as above, this would generate the following benefits. Arizona ASRS a nd EORP Re t ire e s Pre m ium Be ne fit 5 Years Single Family 10 Years Single Family 15 Years Single Family 20 Years Single Family Sample Method Non-Medicare HMO $72.68 $145.36 $104.99 $209.97 $169.59 $339.18 $201.90 $403.79 Sample Method Non-Medicare PPO * $129.60 $259.20 $187.20 $374.40 $302.40 $604.80 $360.00 $720.00 Current Non-Medicare $75.00 $130.00 $150.00 $260.00 $150.00 $260.00 $150.00 $260.00 Sample Method Medicare Advantage Plan $41.24 Sample Method Medicare Senior Supplement * $94.91 $189.81 $136.03 $272.06 $218.28 $436.56 $259.41 $518.81 Current Medicare $50.00 $82.49 $59.12 $118.23 $94.86 $189.72 $112.73 $225.47 $85.00 $100.00 $170.00 $100.00 $170.00 $100.00 $170.00 * These premium benefit levels would only be available where the HMO and Medicare Advantage plans were not available Mercer Human Resource Consulting 25 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council Under this new method, looking at the percentages applied to the HMO and Medicare Advantage plans, benefits stay relatively stable, decrease slightly for retirees with ten years of service, but become much more generous for greater lengths of service. It is important to note that this analysis is applied to 2005 ASRS premiums and any embedded subsidies should be revisited if the premium contribution change is implemented. The approximate incremental increase required to the 401(h) contribution would be approximately 0.5 to 0.6 percent for a total 401(h) contribution of 1.6 to 1.8 percent. This valuation assumes that PSPRS and CORP retirees would continue to be 100 percent vested in the premium benefit at retirement. This meets the subordination limit rules which restrict the amount of 401(h) contributions to 25 percent of the total employer contributions to the pension fund, exclusive of past service contributions. A much more detailed actuarial analysis would need to be conducted to know the exact 401(h) contribution required under this example. Mercer Human Resource Consulting 26 Arizona Re t ire e H e a lt h I nsura nc e St udy Arizona Legislative Council 5 Conc lusion Advantages of the Proposed Options Looking globally at the various options, there are several positive features of each. Unfortunately, no single option studied provides a perfect solution for Arizona’s public entity retirees. Some positive features include: ̇ ̇ ̇ ̇ ̇ ̇ ̇ blending of active and retiree premiums; consolidation and simplification of the administration of Arizona’s various retirement systems; elimination of duplicative second tier service providers; consolidation of the various risk pools to provide greater contracting and negotiating leverage across the State; simplification of the current premium benefit method; establishing an equitable contribution to retirees living in rural areas; and appropriate funding methodology for the premium benefit. The ultimate and best solution will incorporate these features into its design. Disadvantages of the Proposed Options Looking globally, again, at the options in this study, there are considerations and policy decisions which must be made in order for any of the options to be viable. In addition, there are some disadvantages which could be avoided in any future proposal. ̇ ̇ Administrative burden given to an unequipped agency — the ADOA or other public employers may not be able to take on the additional administration required of Options One, Two, or Three. Moving retirees to a far richer plan design. The impacts of this would only be higher costs. (i.e. the ADOA’s retiree plans are 26 percent richer than those of ASRS) Mercer Human Resource Consulting 27 Arizona Re t ire e H e a lt h I nsura nc e St udy ̇ ̇ Arizona Legislative Council Moving retirees to government employers who will cut retiree benefits when GASB sections 43 and 45 become effective. The Legislature will need to strike a balance between overly-rich and inadequate retiree plan benefits. Administration is made more complex, or does not simplify the system. For example, Options Three and Four do nothing to streamline the current Arizona retiree system. Also, Options One and Two, unless implemented retroactively, would not simplify the current system. As indicated earlier in this report, none of the proposed options truly addresses the root causes of the escalating costs of retiree health care. The United States is in a health care crisis with many causes. Americans eat too much and too many of the wrong kinds of food, smoke, exercise too little, work in sedentary jobs, for the most part, and have little incentive to change life styles. Our litigious society drives up malpractice insurance costs for medical providers. Technology saves our lives, but also continues to drive up our medical costs. There are certainly other causes, but the main point is that the Arizona State Legislature is not going to be able solve the health care crisis in Arizona alone. Ridding the system of administrative inefficiencies and controlling benefit provisions for retirees will help. But the next steps will need to include some focus on the actual health of public employees and retirees as well as the other drivers of health care cost increases. Conclusion This study was intended to be an initial review of several proposed options for increasing the viability and benefits of the Arizona public employer retiree health plans. Once a directional decision has been made, more work needs to be done to delve into the contingencies and results of that particular path or paths. Mercer encourages all readers of this report to proceed carefully with the next steps and keep in mind all known implications. Any changes to a system as complex as the Arizona public employer retiree health care system will undoubtedly have unintended consequences and unanticipated ripple effects. Only through public deliberations, statewide discussions, and careful study can these consequences and effects be potentially minimized. Mercer Human Resource Consulting 28 Mercer Human Resource Consulting, Inc. 3131 E. Camelback Road, Suite 300 Phoenix, AZ 85016-4536 602 522 6500 Arizona Le gisla t ive Counc il Re t ire e H e a lt h I nsura nc e St udy Assumptions: Assumptions for all entities: ̇ We are not adjusting for active employee share of Premium. This means that the entire amount the retiree receives from blending with Actives (subsidy 1) is counted as employer cost. ̇ We have used ratios of 1.0 for Active, 1.6 for Pre-Medicare and .85 for Medicare to value true cost where blended premiums were provided. This is based on data from the Mercer Human Resource Consulting Survey and other available data. Claims are adjusted up 6 percent for administrative fees to be comparable to entities where premiums only were provided. ̇ We rolled all disabled into non-Medicare retiree or assumed they were in non-Medicare retiree if not stated. ̇ The total rural and basic subsidy were spread across all retirees in the appropriate group. For example, 40 Medicare retirees might receive the rural premium, but if there are 60 retirees in the public entity, the total Medicare rural subsidy is averaged across all 60 Medicare retirees. ̇ When moving retirees to different plans, we assumed the plan cost that the retiree was moving to would be used, unless no cost previously existed. ̇ All subsidies were carried with the retiree when moving to a different plan. Subsidies were spread across the new retiree group. ̇ Option Three moved ASRS non-Medicare retirees and PSPRS, CORP, EORP or UORP non-Medicare retirees that were in an ASRS back to their respective employer. ̇ ASRS non-Medicare PEPM was used for the public entities that did not have non-Medicare retirees in their plans already. ̇ For ADOA, the premium information is based on enrollment as of October 29, 2004, projected revenues and expenditures. ̇ There may be some overlap in retiree data between the ADOA and ASRS systems. ̇ The PSPRS data had to be adjusted for errors. Some premiums in the main data set matched the subsidy amount when the correct premium was in the rural data set – used rural data set premium minus dental premium. ̇ The cost information was based on claims data from May 2003 to July 2004 with a 3 month lag for claims received for the City of Phoenix. ̇ Maricopa County does not blend active and retiree premiums. ̇ For future cost estimating, we assumed the rural subsidy, since it is a cross-applied subsidy, will continue to be an employer expense in some form. Mercer Human Resource Consulting 1 of 2 Assumptions.doc Arizona Le gisla t ive Counc il Re t ire e H e a lt h I nsura nc e St udy Claims and Premium Data The following are the sources for our analysis: ADOA 0 4 /0 5 Proje c t e d Pre m ium s ASRS 11/1/04 - Premiums PSPRS/EORP/CORP Current Enrollment - Premiums City of Phoenix 8/1/03-7/1/04 Claims City of Tucson 11/1/04 – Premiums Pima County 11/1/04 – Premiums Maricopa County 7/5/04 Premiums Coconino County 11/1/04 – Premiums Pinal County 7/4/03-7/4/04 Claims City of Douglas 1/1/03-1/1/04 Claims Apache County 1/1/03-1/1/04 Claims Graham County 1/1/03-1/1/04 Claims Greenlee County 1/1/03-1/1/04 Claims Gila County 1/1/03-1/1/04 Claims La Paz County 1/1/03-1/1/04 Claims Santa Cruz County 1/1/03-1/1/04 Claims Mercer Human Resource Consulting 2 of 2 Assumptions.doc Arizona Legislative Council Current Public Employer Retirement Plan Systems Name Description Health Care Plan Eligibility Health Care Plan Enrollment Health Care Plan Contribution Strategy Premium Benefit Rural Subsidy Health Plan Administrator ASRS: Arizona State Retirement System The Arizona State Retirement System now encompasses the Retirees of ASRS, PSPRS, EORP, CORP, or UORP can state, including all state agencies, the 3 state universities, all participate; a member who began LTD from ASRS and isn't 10 community colleges, 14 out of 15 counties (all except La enrolled in employer's health plan. Paz), most cities and towns, most school districts and charter schools, and other political subdivisions. ASRS, PSPRS, EORP, CORP, UORP, or previous employer if offered and eligible. The employer contributes to fund the Premium Benefit. Retired members pay the balance of premium after any premium benefit. The Premium Benefit is based on years of service. ASRS retirees must have 5 years of service for the minimum benefit and 10 years of service to receive the maximum premium benefit. PSPRS: Public Safety Personnel Retirement System Provides statewide retirement program for certain full-Retirees who were full-time paid firefighters or peace officers, time fire fighters and peace officers assigned to hazardous regularly assigned to hazardous duty of the type normally expected duty. of firefighters and peace officers, employed with a participating employer. Surviving spouses are also eligible for benefits. A) Employer might offer an extension of the insurance in which the member is enrolled, i.e.. City of Phoenix or Pima County. B) ASRS Retiree Group Insurance Program. C) Most state employees are eligible for ADOA; human resources verifies eligibility. The employer contributes to fund the Premium Benefit. Retired members pay the balance of premium after premium benefit. The Premium Benefit requires has no service Retired PSPRS members who participate in a qualified health care plan and who live in Employer, ADOA, or ASRS requirement.The maximum premium benefit is available to areas of Arizona where no managed care program is offered (i.e., non-service areas) are all eligible members. entitled to receive a temporary premium benefit (rural subsidy). This subsidy is due to expire on June 30, 2005. CORP: Corrections Officers' Retirement System Provides statewide retirement program for certain state and county full-time detention officers. A) Employer might offer an extension of the insurance in which the member is enrolled, i.e.. City of Phoenix or Pima County B) ASRS Retiree Group Insurance Program C) Most state employees are eligible for ADOA; human resources verifies eligibility The employer contributes to fund the Premium Benefit. Retired members pay the balance of premium after premium benefit. The Premium Benefit requires has no service Retired CORP members who participate in a qualified health care plan and who live in Employer — requirement.The maximum premium benefit is available to areas of Arizona where no managed care program is offered (i.e., non-service areas) are ADOA or ASRS all eligible members. entitled to receive a temporary premium benefit (rural subsidy). This subsidy is due to expire on June 30, 2005. Contribution and Premium Benefit — PSPRS EORP: Elected Officials Retirement Plan Provides retirement program for State elected officials. term All elected officials are members of the Plan, except that an elected officials can choose not to participate elected official who is subject to term limits may elect not to participate in the Plan for that specific term of office. An elected official means every elected official of this state, every elected official of each county of this state, every justice of the supreme court, every judge of the court of appeals, every judge of the superior court, every full-time superior court commissioner, the administrator of the fund manager if the administrator is a natural person and each elected official of an incorporated city or town whose employer has executed a proper joinder agreement for coverage of its elected officials. In order to qualify for payment pursuant to this subsection, the The employer contributes to fund the Premium Benefit. retired member or survivor shall elect single coverage and Retired members pay the balance of premium after must have elected to participate in the coverage provided in § premium benefit. 38-651.01 or 38-782 or any other health and accident insurance coverage provided or administered by a participating employer of the elected officials' retirement plan. The Premium Benefit is based on years of service. ASRS retirees must have 5 years of service for the minimum benefit and 8 years of service to receive the maximum premium benefit. Alternative to ASRS for University personnel — DC Plan. Employees appointed for 20 hours per week or more for 5 months or more. Generally, a member will be informed of eligibility to Retiree pays full premium. participate in the ORP at the time of initial employment. Eligibility is strictly determined by the job performed and is not based on years of service or salary level. The retirement plan participation defaults to the ASRS plan UNLESS the member chooses to participate in the ORP within 30 days of eligibility date/notice of eligibility. After the 30-day enrollment period, the retirement plan choice is irrevocable for the duration of employment with the Arizona University System. No benefit available. No subsidy available. A) State employees with 20 hours or more each week (not temporary, emergency, or clerical pool; patients or inmates employed in State agency institutions; non-State employee officers and enlisted personnel of the National Guard of Arizona as well as employees in positions established for rehabilitation purposes). B) Eligible retirees collecting a pension from a recognized State of Arizona retirement system or plan. C) Long-Term Disability (LTD) participants collecting benefits from VPA and/or Standard. D) Eligible former elected officials. E) Surviving spouses and qualified dependents provided they were covered at the time of the retiree’s death. All State employee who retire and are receiving income from a Retiree pays full premium, unless eligible for the premium recognized retirement program of this state and opt upon benefit under PSPRS, ASRS, CORP, or EORP. retirement to enroll or continue enrollment in the Benefit Options Program (group health plan for active employees) are eligible. Retirees must enroll no later than 30 days after retirement. If the member does not elect medical and/or dental coverage through ADOA at the time of retirement, or later disenrolls from medical and/or dental coverage through ADOA's Benefit Options Program, that member may not return to the ADOA plan for that type of coverage (medical and/or dental). No benefit available unless retiree is eligible under one of the other programs. Qualified retirees who are participating in a medical plan provided by ADOA and who live ADOA in areas of Arizona where no managed care program is offered (i.e., non-service areas) are entitled to receive a temporary premium benefit (rural subsidy). This subsidy is due to expire on June 30, 2005. Eligible retirees can enroll in the County's health plan for active employees. Eligible public safety employees can enroll in plans offered through PSPRS. Eligible retirees can enroll in the City's health plan for active Both the City and the Retiree contribute toward the employees. Eligible public safety employees can enroll in premium. plans offered through PSPRS. City contributes to medical premiums based on age and credited service. No subsidy available. UORP: University Optional Retirement Plan ADOA: Arizona Department of Arizona Benefit Options (AzBO) program designed by and designed for State employees. Administration A. For a county, a county detention officer, or a non-uniformed employee of a sheriff's department whose customary employment is at least forty hours per week and whose primary duties require direct inmate contact, if the county elects to join the Plan. B. For the State Department of Corrections, correctional service officers, state correctional program officers, and certain other designated positions within the department that are prescribed by statute and whose customary employment is for at least forty hours per week. C. For the State Department of Juvenile Corrections, youth corrections officers, youth program officers, and certain other designated positions within the department that are prescribed by statute and whose customary employment is for at least forty hours per week. D. For a city or town, a city or town detention officer whose customary employment is for at least forty hours per week, if the city or town elects to join the Plan. E. For an employer in the Public Safety Personnel Retirement System, full-time dispatchers whose customary employment is for at least forty hours per week, if the employer elects to join the Plan. Qualified retirees who are participating in a medical plan provided by ASRS and who live ASRS in areas of Arizona where no managed care program is offered (i.e., non-service areas) are entitled to receive a temporary premium benefit (rural subsidy). This subsidy is due to expire on June 30, 2005. Employer — ADOA or ASRS Contribution and Premium Benefit — PSPRS Employer, ADOA, or ASRS Other Public Employers (Examples) La Paz County La Paz County Health Plan County determines eligibility. COPERS: City of Phoenix Employee Retirement System City of Phoenix Health Plan City's benefits office determines eligibility. City of Tucson City of Tucson Health Plan City's benefits office determines eligibility. Mercer Human Resource Consulting Eligible retirees can enroll in the City's health plan for active employees. Eligible public safety employees can enroll in plans offered through PSPRS. Both the City and the Retiree contribute toward the premium. 1 of 1 The City of Tucson contributes 75% of full cost of premium. No subsidy available. City of Phoenix City of Tucson G:\WORK\AZLCO1\Project\Final_Deliverables\Current Retirement Plans.xls Arizona Legislative Council Current Public Employer Retirement Plans ASRS Participating Entities Public Schools Agua Fria UHS District 216 Aguila Elementary District 63 Ajo Unified District 15 Alhambra Elementary District 68 Alpine Elementary District 7 Altar Valley District 51 Amphitheater Unified District 10 Antelope UHS District 50 Apache Elementary District 42 Apache Junction Unified District 43 Arlington Elementary District 47 Ash Creek Elementary District 53 Ash Fork Unified District 31 Avondale Elementary District 44 Bagdad Unified District 20 Balsz Elementary District 31 Beaver Creek Elementary District 26 Benson Unified District 9 Bicentennial UHS District 76 Bisbee Unified District 2 Blue Elementary District 22 Blue Ridge Unified District 32 Bonita Elementary District 16 Bouse Elementary District 26 Bowie Unified District 14 Buckeye Elementary District 33 Buckeye UHS District 201 Bullhead City Elementary District 15 Camp Verde Unified District 28 Canon Elementary District 50 Cartwright Elementary District 83 Casa Grande Elementary District 4 Casa Grande UHS District 82 Catalina Foothills Unified District 16 Cave Creek Unified District 93 Cedar Unified District 25 Chandler Unified District 80 Chevelon Butte Elementary District 5 Chinle Unified District 24 Chino Valley Unified District 51 Chloride Elementary District 11 Clarkdale-Jerome Elementary District 3 Clifton Unified District 3 Cobre Valley Institute Cochise Elementary District 26 Cochise Technology District 01 Colorado City Unified District 14 Colorado River Union H.S. District 2 Concho Elementary District 6 Congress Elementary District 17 Continental Elementary District 39 Coolidge Unified District 21 Cottonwood Oak Creek Elementary District 6 Crane Elementary District 13 Creighton Elementary District 14 Crown King Elementary District 41 Dan Hinton School Deer Valley Unified District 97 Double Adobe Elementary District 45 Douglas Unified District 27 Duncan Unified District 2 Dysart Unified District 89 Eagle Elementary District 45 East Valley Institute of Technology Elfrida Elementary District 12 Eloy Elementary District 11 Esperanza Academy Accommodation School Ruth Fisher Elementary District 90 Flagstaff Arts and Leadership Academy Flagstaff Unified District 1 Florence Unified District 1 Flowing Wells Unified District 8 Ft. Huachuca Accom School Ft. Thomas Unified District 7 Mercer Human Resource Consulting Fountain Hills Unified District 98 Fowler Elementary District 45 Fredonia Moccasin Unified District 6 Gadsden Elementary District 32 Ganado Unified District 20 Gila Bend Unified District 24 Gila County Special Services Gila Institute for Technology Gilbert Unified District 41 Glendale Elementary District 40 Glendale UHS District 205 Globe Unified District 1 Grand Canyon Unified District 4 Greenlee Co Accommodation Sch Griffin Foundation Hackberry Elementary District 3 Hayden Winkelman Unified District 41 Heber Overgaard USD No. 6 Higley Elementary District 60 Hillside Elementary District 35 Holbrook Unified District 3 Hope Schools Humboldt Unified District 22 Hyder Elementary District No. 16 Indian Oasis Baboquivari 40 Isaac Elementary District 5 J.O. Combs Elementary District 44 Joseph City Unified District 2 Juniper Tree Academy Juvenile Justice System Sch Kayenta Unified District 27 Kingman Elementary District 4 Kirkland Elementary District 23 Klondyke School District 09 Kyrene Elementary District 28 Lake Havasu Unified District 1 Laveen Elementary District 59 Liberty Elementary District 25 Litchfield Elementary District 79 Littlefield Elementary District 9 Littleton Elementary District 65 Luz Academy of Tucson Madison Elementary District 38 Maine Cons. Elementary District 10 Mammoth San Manuel Unified District 8 Marana Unified District 6 Maricopa Unified District 20 Mary O'Brien Accommodation Sch Mayer Unified District 43 McNary Elementary District 23 McNeal Elementary District 55 Mesa Unified District 4 Miami Unified District 40 Mingus UHS District 4 Mobile Elementary District 86 Mohave Educational Svcs Coop Mohave UHS District 30 Mohave Valley Elementary District 16 Mohawk Valley Elementary District 17 Morenci Unified District 18 Morristown Elementary District 75 Murphy Elementary District 21 Naco Elementary District 23 Nadaburg Elementary District 81 Navajo County Accommodation Schools Nogales Unified District 1 Oracle Elementary District 2 Osborn Elementary District 8 Owens Whitney Elementary District 6 Page Unified District 8 Palo Verde Elementary District 49 Paloma Elementary District 94 Palominas Elementary District 49 Paradise Valley District 69 Parker Unified District 27 Patagonia Elementary District 6 Patagonia UHS District 20 Payson Unified District 10 Peach Springs Elementary District 8 Peach Springs High School 7 Pearce Elementary District 22 Pendergast Elementary District 92 Peoria Unified District 11 Phoenix Elementary District 1 Phoenix UHS District 210 Picacho Elementary District 33 Pima County Adult Education Pima Unified District 6 Pine Elementary District 12 Pinon Unified District 4 Pomerene Elementary District 64 Prescott Unified District 1 Quartzsite Elementary District 4 Queen Creek Unified District 95 Rainbow School Ray Unified District 3 Red Mesa Unified District 27 Red Rock Elementary District 5 Riverside Elementary District 2 Roosevelt Elementary District 66 Round Valley Unified District 10 Rural Education Alternative Program Sacaton Elementary District 18 Safford Unified District 1 Sahuarita Unified District 30 St. David Unified District 21 St. Johns Unified District 1 Salome Cons. Elementary District 30 San Carlos Unified District 20 San Fernando Elementary District 35 San Simon Unified District 18 Sanders Unified District 18 Santa Cruz Elementary District 28 Santa Cruz Valley District 35 Santa Cruz Valley UHS District 840 School To Work Programs Scottsdale Unified District 48 Sedona Oak Creek School District 9 Seligman Unified District 40 Sentinel Elementary District 71 Show Low Unified District 10 Sierra Vista Unified District 68 Skull Valley Elementary District 15 Small Schools Service Program Snowflake Unified District 5 Solomonville Elementary District 5 Somerton Elementary District 11 Sonoita Elementary District 25 Stanfield Elementary District 24 Sunnyside Unified District 12 Superior Unified District 15 Tanque Verde Unified District 13 Tempe Elementary District 3 Tempe UHS District 213 Thatcher Unified District 4 Tolleson Elementary District 17 Tolleson UHS District 214 Toltec Elementary District 22 Tombstone Unified District 1 Tonto Basin School District 33 Topock Elementary District 12 Tuba City Unified District 15 Tucson Unified District 1 Union Elementary District 62 Vail Elementary District 20 Valentine Elementary District 22 Valley UHS District 22 Vernon Elementary District 9 Villa Oasis Inter School Walnut Grove School District Washington Elementary District 6 Wellton Elementary District 24 Wenden Elementary District 19 Whiteriver Unified District 20 Wickenburg Unified District 9 Willcox Unified District 13 Williams Unified District 2 Williamson Valley Elementary District 2 Wilson Elementary District 7 Window Rock Unified District 8 Winslow Unified District 1 Yarnell Elementary District 52 Yavapai County Accommodation School District 99 YESS Small Schools Young Elementary District 5 Yuma County Accommodation School Yucca Elementary District 13 Yuma Elementary District 1 Yuma UHS District 70 Charter Schools Accelerated Learning Center Accelerated Learning Center Laboratory Acclaim Charter School Academy of Excellence, Inc Academy of Tucson Adalberto Guerrero Middle School Aha McCav High School American Heritage Academy Charter School Amerischools Arizona Career Academy Arizona Charter Academy Arizona Community Development Arizona Montessori Charter School Arizona School for the Arts Arizona Southwest Preparatory Academy AZ Agribusiness and Equine Center Charter School AZ Institute of Business and Technology (AIBT) Aztec Academy Aztlan Academy, Inc Ball Charter School Basis Middle School Benchmark Elementary Benjamin Franklin Charter School Burke Basic Charter School Canyon Rose Academy Career Pathways Academy Carmel Comm. Arts and Technology Charter School Carpe Diem Collegiate High School Charter Casey Country Day Charter School CAVIAT School Central Arizona Valley Inst of Technology Challenge School, Inc Charter Foundation, Inc Children Reaching for the Sky Chester Newton Charter and Montessori School Choice Education and Development Corp CI Wilson Academy Clearview Central Arizona Charter School Country Gardens Charter School Davis Education Center Desert Mosaic School Desert Technology High School Desert Rose Academy Desert Springs Academy Charter School Destiny Schools, Inc Discovery Academy of St. Johns Discovery Plus Academy Charter School Dobson Academy Dragonflye Charter School EAGLE Academy Charter School 1 of 2 Eagles Aerie Schools East Valley Academy Charter School Ecotech Agricultural Charter School Edge Charter School EDU Preneurship Charter School EDU-Prize Charter School Enterprise Academy Charter School Esperanza Montessori Academy Excalibur Charter School Excel Educations Centers Inc Entity Z Accounts Flagstaff Arts and Leadership Academy Flagstaff Jr. Academy Charter School Franklin Phonetic Primary School Future Development Corp Gan Yaladeem, the Looking Glass Genesis Academy Charter School Gila County Transition Charter School Gila Preparatory G.R.A.D.E. Charter School Great Expectation Charter School Happy Valley School, Inc Ha:San Preparatory and Leadership School Heritage Academy Inc Horizon Community Learning Center Humanities and Science Institute Inc Intelli-School Charter School International Commerce Institute Inc JWJ Academy James Sandoval Preparatory High School Juniper Tree Academy Khalsa Charter School Killip Dual Language Charter School Kingman Academy of Learning Lake Havasu Charter School Lake Powell Academy Inc Learning Crossroads Basic Academy Learning Institute Life Skills Center of Arizona Masada Charter School, Inc Metropolitan Arts Institute Mexicayotl Academy Mingus Mountain Academy Mingus Springs Charter School Mohave Accelerate Learning Center Mountainaire Academy Mountain Rose Academy, Inc Mountain Oak School Charter School, Inc Multi-Dimensional Literacy Corp New School for the Arts Middle School New West Charter School Noah Webster Basic School Northern Arizona Voc. Institute of Technology Northland Preparatory Academy North Point Prepatory North Star Charter School Painted Pony Ranch Charter School Paradise Education Center Paramount Academy Park View Middle School Pathfinder Academy Pathways Charter Schools, Inc Paulden Elementary School PCAE-Edge Pinnacle Education Schools Peak School, Inc Phoenix Academy of Performing Arts South Phoenix School of Academic Excellence Pima Prevention Partnership Pimeria Alta Learning Center Pine Forest Charter School Point Educational Services Presidio High School Project YES Middle School, LLC Redwood Education Academy Renaissance Education Consort, Inc Rolling Hills Charter Salt River Pima-Maricopa Indian Charter Sch Scholars' Academy Charter School Scottsdale Educational Enrichment School Scottsdale Institute for the Arts Sedona Charter School Self Development Charter School Sequoia Charter School Sequoia Choice School, LLLP Sequoia School LLC Charter School Sequoia Ranch School Sequoia School for the Deaf and Hard of Hearing Sequoia Village School Sierra Oaks Schools Skyline Technical High School Skyview Charter School Sonoran Desert School Southern AZ Community Academy Charter School Southside Community School Stepping Stones Academy Sunnyside Charter and Montessori School Superior School Tag Elementary Inc Tolani Lake Elementary Sch Academy Telesis Center for Learning, Inc Tertulia Charter School Tolchi' Kooh Charter School Inc Tri-City Prep High School Tri-City Vo-Tech High School Tucson Country Day School Tucson Preparatory School Triumphant Learning Center Valley Academy Inc Valley Academy for Career and Technology Ed Ventana Academic School Visions Unlimited Academy Inc Westmark High Schools Westwind Academy Wilson High School Young Scholars Academy Charter School Corp Colleges and Universities Arizona Western College Central Arizona College Cochise College Coconino County Community College Eastern Arizona College Maricopa County Community Colleges Mohave Community College Northland Pioneer College Pima Community College Yavapai College Arizona State University Northern Arizona University University of Arizona Cities and Towns City of Apache Junction City of Avondale City of Benson City of Bisbee City of Camp Verde City of Carefree City of Casa Grande City of Chandler City of Coolidge City of Cottonwood City of Douglas City of Eagar City of El Mirage City of Eloy City of Flagstaff City of Glendale City of Globe City of Goodyear City of Holbrook City of Kingman City of Lake Havasu City of Litchfield Park City of Mesa City of Nogales City of Oro Valley City of Peoria City of Prescott City of Safford City of San Luis City of Scottsdale City of Show Low City of Sierra Vista City of Somerton City of South Tucson City of Surprise City of Tempe City of Tolleson City of Tombstone City of Willcox City of Williams City of Winslow City of Yuma Town of Buckeye Town of Camp Verde Town of Carefree Town of Chino Valley Town of Clarkdale Town of Clifton Town of Duncan Town of Eager Town of Florence Town of Fredonia Town of Gila Bend Town of Gilbert Town of Guadalupe Town of Hayden Town of Kearny Town of Miami Town of ParadiseValley Town of Parker Town of Patagonia Town of Pima Town of Queen Creek Town of Sahuarita Town of Snowflake Town of Springerville Town of Superior Town of Taylor Town of Thatcher Town of Wellton Town of Wickenburg Town of Youngtown Counties Apache County Cochise County Coconino County Gila County Graham County Greenlee County Maricopa County Mohave County Navajo County Pima County Pinal County Santa Cruz County Yavapai County Yuma County Miscellaneous Apache Jct. Fire District Arizona Association of Counties Arizona City Sanitary District Arizona Counties Insurance Pool Arizona Interscholastic Association Arizona Prosecuting Attorney Advisory Council Avra Valley Fire District Buckeye Valley Fire District Buckeye Water Conservation and Drainage District Bullhead City Fire District Central Arizona Project Central Yavapai Fire District Chino Valley Fire District Christopher Kohls Fire District City of Eloy Housing Authority City of Yuma Housing Authority Colorado River Sewage System County Supervisors Association of Arizona Crown King Fire District Diamond Star Fire District Drexel Heights Fire District El Frida Fire District Fire District of Sun City West Flagstaff Housing Authority Fort Mojave Mesa Fire Department Gila Resources Grand Canyon Airport Authority Green Valley Domestic Water Golder Ranch Fire District Harquahala Valley Irrigation District Heber-Overgaard Fire District Kino Community Hospital Lakeside Fire District Marana Domestic Water Impr District Maricopa Integrated Health System Maricopa Water District Metropolitan Domestic Water Impr Dist Montezuma-Rimrock Fire District New Magma Irrigation and Drainage District Northern Apache Co. Special Healthcare Northwest Fire District Picture Rock Fire District Pima Home Health Pinewood Fire District Pinewood Sanitary District Pinewood Volunteer Fire District Ponderosa Domestic Water Impr District Posada del sol Health Puerco Valley Fire District Queen Valley Domestic Water Impr District Queen Valley Sanitary District Roosevelt Irrigation District San Carlos Irrigation and Drain Sedona-Oakcreek Airport Authority, Inc State of Arizona Sun City Fire District Sun Lakes Fire District Summit Fire District Superstition Mtn Community Facilities Dist Tourism and Sports Authority Tucson Airport Authority Tusayan Fire District Verde Valley Fire District Water Utilities Community District Western Arizona Council of Governments Whetstone Fire District Williams Gateway Airport Authority Yuma County Airport Authority Yuma Mesa Irrigation District G:\WORK\AZLCO1\Project\Final_Deliverables\Current Retirement Plans.xls Arizona Legislative Council Current Public Employer Retirement Plans PSPRS Participating Entities Gilbert Fire CORP Participating Entities EORP Participating Entities UORP Participating Entities State Government Arizona State University Campus Police Gilbert Police Glendale Fire Tribal Government Fort McDowell Tribal Fire State Government Glendale Police Globe Fire Fort McDowell Tribal Police Gila River Fire DEPARTMENT OF CORRECTIONS DEPARTMENT OF JUVENILE CORRECTIONS State Government STATE OF ARIZONA Arizona State University Arizona State Attorney General Arizona State Capitol Police Department of Emergency and Military Affairs Globe Police Gila River Police Goodyear Fire Goodyear Police Guadalupe Fire Hayden Police Holbrook Police Salt River Pima-Maricopa Fire Salt River Pima-Maricopa Police County Government APACHE COUNTY COCHISE COUNTY COCONINO COUNTY GILA COUNTY GRAHAM COUNTY Tucson Airport Authority Police University of Arizona Campus Police Kearny Police Kingman Fire Kingman Police Lake Havasu Fire Lake Havasu Police Fire Districts Avra Valley Fire District Buckskin Fire District Central Yavapai Fire District Daisy Mountain Fire District Drexel Heights Fire District County Government APACHE COUNTY COCHISE COUNTY COCONINO COUNTY MARICOPA COUNTY MOHAVE COUNTY Northern Arizona University Department of Game & Fish Department of Public Safety Department of Liquor License and Control Northern Arizona University Campus Police Tucson Airport Authority Fire NAVAJO COUNTY PIMA COUNTY PINAL COUNTY PINAL COUNTY - DISPATCHERS SANTA CRUZ COUNTY GREENLEE COUNTY LA PAZ COUNTY MARICOPA COUNTY MOHAVE COUNTY NAVAJO COUNTY Mammoth Police Marana Marshals Mesa Fire Mesa Police Fort Mojave Mesa Fire District Fry Fire District Golden Valley Fire District Golder Ranch Fire District YAVAPAI COUNTY YUMA COUNTY PIMA COUNTY PINAL COUNTY SANTA CRUZ COUNTY YAVAPAI COUNTY Graham County Sheriffs Greenlee County Attorney Investigators Greenlee County Sheriffs Miami Police Nogales Fire Nogales Police Green Valley Fire District Hualapai Valley Fire District Lakeside Fire District La Paz County Attorney Investigators La Paz County Sheriffs Maricopa County Attorney Investigators Maricopa County Sheriffs Mohave County Sheriffs Navajo County Attorney Investigators Navajo County Sheriffs Pima County Attorney Investigators Pima County Community College Police Pima County Sheriffs Pinal County Sheriffs Santa Cruz County Deputies Yavapai County Attorney Investigators Yavapai County Sheriffs Yuma County Sheriffs Oro Valley Police Page Fire Page Police Paradise Valley Police Parker Police Patagonia Marshals Payson Fire Payson Police Peoria Fire Peoria Police Phoenix Fire Phoenix Police Pima Police Pinetop-Lakeside Police Prescott Fire Prescott Police Prescott Valley Police Quartzsite Marshals Safford Police Mayer Fire District Mohave Valley Fire District Northwest Fire District Picture Rocks Fire District Pine-Strawberry Fire District Pinetop Fire District Sun City Fire District Sun City West Fire District Sun Lakes Fire District Three Points Fire District Tubac Fire District County Government Apache County Sheriffs Cochise County Sheriffs Coconino County Sheriffs Gila County Sheriffs City Government Apache Junction Fire District Apache Junction Police Avondale Fire Avondale Police Benson Police Bisbee Fire Bisbee Police Buckeye Police Bullhead City Fire Bullhead City Police Camp Verde Marshals Casa Grande Fire Casa Grande Police Chandler Fire Chandler Police Chino Valley Fire Chino Valley Police Clarkdale Police Clifton Fire Clifton Police Coolidge Police Cottonwood Fire Cottonwood Police Douglas Fire Douglas Police Eager Police El Mirage Fire El Mirage Police Eloy Police Flagstaff Fire Flagstaff Police Florence Fire Florence Police Fountain Hills Marshals Fredonia Marshals Mercer Human Resource Consulting City Government TOWN OF ORO VALLEY The University of Arizona Arizona State University West Arizona Board of Regents YUMA COUNTY City Government CITY OF APACHE JUNCTION CITY OF AVONDALE CITY OF CHANDLER CITY OF FLAGSTAFF CITY OF GLENDALE CITY OF GLOBE CITY OF MESA CITY OF PEORIA CITY OF PHOENIX CITY OF SCOTTSDALE CITY OF SAFFORD CITY OF SOUTH TUCSON CITY OF TEMPE CITY OF TOLLESON CITY OF TUCSON CITY OF YUMA TOWN OF THATCHER Sahuarita Police San Luis Fire San Luis Police Scottsdale Police Sedona Fire District Sedona Police Showlow Fire Showlow Police Sierra Vista Fire Sierra Vista Police Snowflake Police Somerton Fire Somerton Police South Tucson Fire South Tucson Police Springerville Police St. Johns Police Superior Police Surprise Fire Surprise Police Tempe Fire Tempe Police Thatcher Police Tolleson Fire Tolleson Police Tombstone Police Tucson Fire Tucson Police Wellton Marshals Wickenburg Police Wilcox Police Williams Police Winslow Fire Winslow Police Youngtown Police Yuma Fire Yuma Police 2 of 2 G:\WORK\AZLCO1\Project\Final_Deliverables\Current Retirement Plans.xls Arizona Legislative Council Considerations Ca t e gory Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re Adm inist ra t ive Implementation Issues & questions • • • • • • Are retirees mandated into these plans, or would they be merely an option? Would this be retroactive or prospective? Would retirees previously opting for individual coverage or spouse plans be allowed in? Would retirees not enrolled be allowed to enroll at a specified date? If an option, numerous other systems still exist and complexity is not solved. Need to address complexity of gathering data from multiple entities to assess eligibility, premium benefit vesting, etc. • • Insured Pool • ADOA is self-funded. Pool would increase, but so would demographic risk (see below). • • • Mercer Human Resource Consulting Would this pool be retirees only, or actives blended with retirees? If this option is retroactive, pool would become the largest state retiree plan. Other pools would shrink (ADOA) or be replaced. (See Demographic Risk below.) 1 of 12 • • Would there be an exception for public employers under a certain size? Moderate-to-high effort to implement depending on employer size, and number of retirees enrolling in employer plan. Pool would increase, but so would demographic risk for employer plan (see below). ASRS would experience decreases in non-Medicare enrollees. Need to consider philosophy for premium benefit amount: – Service – Profession or risk exposure – Tie to lowest cost plan – % of premium • Pension and premium contributions have increased from 2% each employer/employee to 5.2% each on 7/1/2003 and go to 7.75% each on 7/1/2005. Introducing another increase on top of this will not be well received. • Current statutes require equal employer match of any employee contribution. Not Applicable • Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Comments in Red indicate policy decisions Opt ion # 1 Ca t e gory Funding All in ADOA • • Administration Opt ion # 2 • • Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 All Re t ire e s in One Currently, ADOA is selffunded. State would need to evaluate ongoing funding approach with new arrangement. Contributions from participating employers would need to be established to offset cost of their retirees. • ADOA is not currently staffed to administer influx of retirees ADOA staff focus would be divided between ADOA actives and retirees, and other public employer retirees. • • State would need to evaluate ongoing funding approach with new arrangement; i.e. self-funding vs. fullyinsured. Contributions from participating employers would need to be established to offset cost of their retirees. • State would need to select appropriate administrative entity & assure capacity. Would this be ASRS? • • Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re State would need to decide whether or how much of a premium benefit retirees would continue to receive. If left to the employer, retiree contributions could vary substantially. Some employers would most likely demand financial assistance from the State in paying for retiree health care. • Employers would take on additional administrative burden. • • A contribution of ____% to ____% would be needed to increase the average premium benefit for retirees under 65 to $____ for single and $____ for family; and for 65 and over to $ ___ single and $___ family. If this becomes an offset to the pension contribution rather than an addition contribution, this would increase the unfunded pension liability. Minimal additional administration issues. Be ne fit Pla n De sign I m pa c t s Benefit Design • Benefit Reductions • • Mercer Human Resource Consulting For ease of administration, number of benefit plan options would need to be consolidated. Employer retiree benefits plan design may need modification, depending on cost impact. Evaluation of any benefit reductions would have to be made to prevent impairment of any contractually protected health benefits. Even if no contractually protected benefit provisions exist, any reduction in benefits would have an adverse impact on retirees. • 2 of 12 Not Applicable Not Applicable Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory Benefit Enhancements • • Eligibility Changes • Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re State should evaluate any resulting benefit enhancements which would increase plan costs and reduce or eclipse expected cost savings or administrative savings. Unless contractual impairment issues are dealt with by grandfathering certain participants, the resulting plan design would be the highest level of contractually obligated plan designs. Additionally, there would be restrictions on future plan design changes. ADOA would be required • Participating entities • Employers would be to change eligibility rules would transfer eligibility required to change to allow participation of to the state plan for eligibility rules to allow employees of other retirees. participation of early entities. retirees. • • Only to the extent that the contribution for future health benefits curbs the necessity to reduce future health plan benefits. Not Applicable Cont ra c t I ssue s Employer Benefit Obligations • The nature of the current plans’ benefit promises should be reviewed to determine whether there are any contract rights that are protected from modification. If so, then steps will need to be taken to have the new plan designed to prevent the impairment of contractually protected retiree health benefits of active employees and retirees. Insurance contracts • ADOA would need to review any impact on contracts with health plan administrative services organizations, stop loss carriers, and pharmacy benefit managers. Mercer Human Resource Consulting • If the single health insurance program is for retirees only, some carriers may not want to take on the demographic risk unless they also insure actives under a separate insurance contract. 3 of 12 • • Employer insurance contracts would need to be revised to include retirees. Some contracts might not renew if demographic risk is too great. Evaluation must be made of pension funding obligations before any decision to convert any portion of the pension funding contribution to health plan contributions. NA Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Comments in Red indicate policy decisions Opt ion # 1 Ca t e gory Cost Shift Opt ion # 2 All in ADOA • • If active employees were included, state would need to decide whether to blend active and retiree rates. Changes to existing (legislation/state constitution) would need to be made to allow blending of non-state retirees with state active employees. All Re t ire e s in One • • • Mercer Human Resource Consulting Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Cost shift impact to new retirement system would be ____ unless participating entities make supporting contributions to the retiree health plan. Cost shift from other public employee retiree health systems varies by system. See Exhibit ( ). Loss of active employee subsidy raises average PEPM by ____. The cost shift to ADOA would be ____ unless participating entities make supporting contributions to the DOA. The cost shift impact to active ADOA employees is approximately _____ if premiums are blended. Cost shift from other public employee retiree health systems varies by system. See Exhibit ( ). • • • 4 of 12 Employers would need to decide whether to blend active and retiree rates. To the extent that employers were allowing early retirees to elect COBRA and were charged 102% of active premium, any reduction in retiree contributions would be an additional expense to the plan. Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re • In order to fund both current health plan obligations and future obligations, costs would be increased to employers and/or active employees. If retirees are blended with active employees, cost shifting could affect active employee contributions negatively. Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Comments in Red indicate policy decisions Opt ion # 1 Ca t e gory Economies and Efficiencies of Scale All in ADOA • • • Federal and State Tax Law Issues • • • • Funding Methodology Opt ion # 2 NA Mercer Human Resource Consulting ADOA health plan becomes larger with more leveraging power for pricing, etc. Greater benefit consistencies. If this is the only retirement health care plan, administration would be more efficient. All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re Larger plan, with • No administrative • No change to size or greater leverage. efficiencies achieved administration. since all current retiree • Greater benefit health care systems consistencies. continue. • Some insurers may be • No real leverage for hesitant to cover employers since retiree-only population. population only grows Premiums will be higher with less desirable risk. than for blended population. • Greater administrative efficiency. Retiree health insurance coverage provided by the new plan will need to be reviewed to make sure the taxation of such is acceptable under federal and State law. Federal law may limit the ability to transfer assets held in retiree health benefits trusts under the existing plans if such are established under IRC §501(c)(9) or §401(h). If an IRC §501(c)(9) trust is used for any of the existing plans, any amendment implementing this option may require federal filings to take place. If pre-tax employee contributions are desired as part of the option, legal counsel’s opinion and possibly and IRS ruling request should be considered before implementation. • NA NA 5 of 12 Contribution strategy & implications; pre or post-tax; pension actuarial funding issues. Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re Ot he r Ec onom ic I m pa c t s Demographic Risk Existing Purchasing Pools • This option increases the retiree-to-active ratio in the plan as well as the average participant age. Overall peremployee/retiree costs would increase to the extent that the demographic factors were affected. • Integration with Medicare offers an opportunity to lower premiums because of lower costs for Medicare-eligible retirees. • Other blended plans or purchasing collectives which include retirees would end up with a better demographic risk if all retirees were moved to the ADOA plan. To the extent that these existing blended plans had a better demographic risk profile than the resulting ADOA plan, costs would be shifted from these collectives/plans to the ADOA plan. • Mercer Human Resource Consulting • • • This option produces a plan with the highest risk group. Without any active employee subsidization, premiums would trend at a higher rate than those of plans which blend the actives and retirees. Other blended plans or purchasing collectives which include retirees would end up with a better demographic risk if all retirees were moved to the new plan. To the extent that these existing blended plans had a better demographic risk profile than the resulting new plan, costs would be shifted from these collectives/plans to the new plan. 6 of 12 This option increases the retiree-to-active ratio in the employer plans as well as the average participant age. Overall peremployee/retiree costs would increase to the extent that the demographic factors were affected. • Depending on whether this option was prospective or retrospective, the impact would be gradual or immediate. Not Applicable • Not Applicable Not Applicable Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory Second Tier Services • Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re These options would promote greater administrative efficiency by limiting the market for second-tier service providers such as brokers, consultants and advisors, plan administrators, and possibly even carriers. • The same number of plan administrators and options would continue to exist, having limited effect on second tier services. ADOA will most likely not want to take on the added demographic risk and administration required of this option. Most employers and administrative entities will probably agree to “let go” of their retiree population. However, some, with very paternalistic cultures, may resist. To the extent that premium or trend is reduced for non-ADOA entities, employees will benefit from lower out-of-pocket costs. If premiums are blended between retirees and ADOA employees, ADOA employees will resist higher premium contributions. St a k e holde r Opposit ion Employers • • Employees • • Mercer Human Resource Consulting • Most employers and administrative entities will probably agree to “let go” of their retiree population. However, some, with very paternalistic cultures, may resist. • Employers will have strong resistance to this option. • Employers will have strong resistance to higher contribution amounts. • To the extent that premium or trend is reduced for active employees, they will benefit from lower outof-pocket costs. • If premiums are blended between retirees and active employees, employees will resist higher premium contributions. • Employees will have strong resistance to higher contribution amounts. 7 of 12 Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory Retirees • • Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Change in current system will be a difficult adjustment. If premiums and benefits are enhanced or at least less costly, retirees should react favorably. Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 • • Retirement Systems • Consolidation of current public employee retiree health administration systems could occur (ASRS and PSPRS). • Remaining in the same system until 65, may be an easier adjustment than other options. If employer plans have to reduce benefits or increase premiums to afford retirees, there will be a negative impact to retirees. Current public employee retiree health administration systems would still be needed for the post-65 retirees. Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re • Funding future health plan benefits will help hold overall out-of-pocket costs down for retirees. • Limited impact to current retirement systems. Fe de ra l a nd St a t e Le ga l & Re gula t ory I ssue s Medicare Modernization Effective January 1, 2006, plan design implications for Medicare retirees are: 1. Fill in gaps (the “donut hole”) in Part D as defined by law. 2. Provide actuarially equivalent or richer Prescription Drug Plan. 3. Reduce plan benefits by amounts payable under Part D (whether or not retirees are enrolled in Part D). 4. Subsidize all, some, or none of Part D premium. Not Applicable There are possible plan savings consequences for 1 and 3. COBRA • • • Mercer Human Resource Consulting Allows qualified beneficiaries to continue health coverage because of certain “qualifying events” that would otherwise result in the loss of coverage Would need to resolve whether the new plan be required to take over responsibility of providing COBRA health insurance continuation coverage provided by the existing plans. If yes, would need to analyze whether the new plan would be required to match the prior COBRA benefits and premium levels offered by the existing plans. 8 of 12 Not Applicable Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory HIPAA • • • • • Federally Mandated Benefits • • • • Medicare secondary payer (MSP) rules • • • USERRA • Mercer Human Resource Consulting Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 If any of the existing plans are self-funded, have any of them exercised the opt-out election exempting them from compliance with the HIPAA requirements? How will the new plan handle HIPAA and related law coverage if such is different than that offered by the existing plans? Helps individuals moving from one employer to another to access and maintain health coverage; limits pre-existing condition limitations by new employers; and sets privacy and security obligations for protected health information. Applies to all insured programs and to State and local government self-funded plans unless the government entity exercised its “opt-out” election. The new plan will need to take steps to secure compliance with participant health data protected under federal privacy laws – particularly for the transition phase as the new plan is implemented. Public Health Services Act §2207: Coverage for pediatric vaccines may not be reduced below the coverage provided as of May 1, 1993 Mental Health Parity Act: (MHPA) Annual or lifetime dollar limits for medical/surgical benefits must also apply to mental health benefits. Women’s Health and Cancer Rights Act (WHCRA): Coverage for mastectomies to provide for required breast reconstruction benefits Newborns’ and Mothers’ Health Protection Act of 1996 (NMHPA): Establishes minimum hospital coverage benefits after childbirth. The new plan(s) will need to comply with these federal mandated benefit laws. Specifies when a group health plan may pay primary and when it may pay secondary when an individual is also covered Medicare. The MSP rules also limit the ability of a retiree medical plan to take into account an individual’s eligibility for end-state renal disease (ESRD) coverage under Medicare. The MSP rules will not generally apply to retired employees except for the ESRD coverage requirements. Uniformed Services Employment and Reemployment Rights Act (USERRA). Establishes rights of eligible veterans returning to covered employment to reinstatement to employer provided health insurance coverage. 9 of 12 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re Not Applicable Not Applicable Not Applicable • May require ability to make up contributions missed while serving. Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory ADEA • • • • • GASB • • • • • • Mercer Human Resource Consulting Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Age Discrimination in Employment Act (ADEA): Prohibits discrimination against individuals who are age 40 years or older. The Third Circuit in the Erie County Retirees Association v. County of Erie, Pennsylvania) has ruled that an employer may have violated the ADEA by coordinating its retiree health plans with Medicare, so that retirees over age 65 (and Medicareeligible) received inferior coverage than those under age 65. The EEOC has issued proposed regulations that would exempt plans from having to comply with the Erie County decision. However, the EEOC position is not yet final. If the EEOC exemption position does not become final, the new plan may need to be redesigned to comply with the Erie County decision. If required, how will the new plan comply with the Erie County decision for the Medicare eligible retirees coming from the existing plans? Requires that governmental employers measure their retiree medical liabilities, was issued in August 2004. The largest organizations will need to comply for accounting periods beginning after December 15, 2006 (or one year earlier if they prefund). Accrual of postretirement benefit cost during period of active employment. Disclosure of unfunded actuarial accrued liability in Required Supplementary Information (RSI) similar to reporting for pension benefits. Does not require funding, only expense accrual and disclosure. However, partial funding provides for advantageous discount rate. Liability for health care includes “implicit employer subsidies”: If retirees pay same premium rate as active employees, there is an implicit employer subsidy due to blending of claims experience. Will cause employers to now recognize the significant cost of current and future retiree medical. obligations. As a result, some employers may look to reduce post-retirement benefit obligations. 10 of 12 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re Not Applicable • • Under GASB, if a retiree plan is not funded, employer must use current earnings rate on employer general assets as discount rate in calculating liability. If the plan is funded with plan assets accumulated in a trust, employers can use a higher discount rate, up to the rate of return on plan assets for at least some of the liability. Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory State Statutes • • State Constitution Federal and State Tax Law Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One ARS Title 20 and related regulations: Establishes requirements for issuance and coverage for health insurance contracts in the State The new plan will need to comply with State insurance law and regulations. Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 This option requires employers to maintain coverage for under age 65 retirees. • Will State insurance laws need to be amended to help employers add retiree health coverage to the existing insurance contracts? Not Applicable • Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re Legal considerations analysis Not Applicable Not Applicable Current State constitutional provision prohibits giving non-state employees any benefit that is not available to all state residents. This would prohibit rate blending of public employer retiree premiums with active ADOA employees. Federal Internal Revenue Code (IRC) • IRC §§105 and 106 governs taxation of employer provided health insurance contributions and benefits • IRC §501(c)(9) tax-exempt employee benefits trusts • IRC §115 tax-exempt intergovernmental benefits trusts • IRC §401(h) pension plan retiree medical accounts • IRC §414(h) pre-tax employer pickup of employee contributions • IRC constructive receipt doctrine • ARS Title 43, Taxation of Income Taxation of employer and employee contributions to pay for retiree health benefits and coverage will be determined under federal and State income tax laws. Generally, employer provided health coverage and benefits are not taxable to the recipient. Mercer Human Resource Consulting 11 of 12 Arizona Legislative Council Considerations1.doc Arizona Legislative Council Considerations Ca t e gory Federal and State Tax Law (continued) Comments in Red indicate policy decisions Opt ion # 1 Opt ion # 2 All in ADOA All Re t ire e s in One Opt ion # 3 St a y in Em ploye r Pla n U nt il 6 5 Opt ion # 4 Cont ribut ion Ra t e t o H e a lt hc a re If retiree health care assets are held in trust under federal law [either IRC §501(c)(9), or §401(h) trusts], such may not be used for other purposes without affecting the tax protected status of the contributions. IRC §401(h) medical account requirements may affect the tax qualified status of the underlying pension plan of which it is a part. Federal rulings under standard IRC constructive receipt doctrine and with regard to IRC §414(h) pickup provisions may provide an opportunity for pre-tax payment of employee contributions to fund retiree health benefits. Related Arizona State retiree health plan laws: • ASRS • PSRS • CORP • EORP • Higher Education ORP • ADOA health plan Arizona State income tax laws will also affect the taxation of retiree health contributions and benefits • Retiree health insurance coverage provided by the new plan will need to be reviewed to make sure the taxation of such is acceptable under federal and State law. • Federal law may limit the ability to transfer assets held in retiree health benefits trusts under the existing plans if such are established under IRC §501(c)(9) or §401(h). • If an IRC §501(c) (9) trust is used for any of the existing plans, any amendment implementing this option may require federal filings to take place. • If pre-tax employee contributions are desired as part of the option, legal counsel’s opinion and possibly and IRS ruling request should be considered before implementation. ASRS • ARS §38-782, 783 EORP • ARS §38-817 PSRS • ARS §38-857 CORP • ARS §38-906 Higher Education ORP • ARS §15-628 ADOA Health Plan • ARS Article 4, §38-651 et seq. These existing State laws authorize and govern the operations of the existing retiree health benefit plans provided for their eligible retirees. For each existing plan there may exist trusts or other fund accounts that hold assets and liabilities relating to the benefits each is designed to provide. • These State laws may require amendment to allow implementation of the option. • What happens to current assets and liabilities held by the retiree health trust funds or accounts of the existing plans? • Will such funds be available to pay for benefits/premiums under the new plan? • If not, what happens to these separate retiree health care trust assets? Mercer Human Resource Consulting 12 of 12 Arizona Legislative Council Considerations1.doc Arizona Legislative Council Retiree Health Insurance Study 1. Feasibility and cost impact to Arizona and all state employees and political subdivisions of allowing all retired and disabled members and their dependents of the ASRS, the PSPRS, the CORP and the EORP to participate in the health insurance program that is administered by the ADOA for State employees. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. Active Participants Retired Non-Medicare Retired Medicare Active Average Age Retired Medicare Average Age Plan Designs*: Plan Design 1 Plan Design 2 Benefit Cost Ratio Blended Rate PEPM Active & All Retiree Average Cost Active PEPM Average Cost Retiree non-Medicare PEPM Average Cost Retiree Medicare PEPM Current Subsidies Subsidy 1 Non-Medicare Amount of active premium subsidizing retiree premium Subsidy 1 Medicare Amount of active premium subsidizing retiree premium Subsidy 2 Non-Medicare AZ Average Rural Subsidy Subsidy 2 Medicare AZ Average Rural Subsidy Subsidy 3 Non-Medicare Average Employer contribution toward retiree premium Subsidy 3 Medicare Average Employer contribution toward retiree premium Net avg. cost to Retiree non-Medicare PEPM Net avg. cost to Retiree Medicare PEPM Total Net cost to plan sponsor PEPM for Non-Medicare Total Net cost to plan sponsor PEPM for Medicare Total Annual Cost to Plan Sponsor Mercer Human Resource Consulting Current System ADOA 50,615 3,383 5,371 44.42 71.98 EPO EPO ASRS PSPRS/EORP/CORP 0 16,623 23,552 N/A 0 3,183 1,672 N/A 74.20 HMO HMO 100% $616.02 $601.90 $993.13 $511.61 79% $379.90 $0.00 $530.76 $273.42 72.51 PPO HMO Varies $465.51 $0.00 $558.82 $287.88 $429.73 N/A N/A $83.25 N/A N/A $66.76 $36.62 $41.65 $29.99 $31.56 $68.33 $165.47 $151.18 $183.28 $82.10 $331.17 $316.27 $661.96 $195.34 $39,462,981.84 $102.29 $342.96 $139.57 $187.80 $133.85 $75,290,815.20 $139.75 $333.89 $79.80 $224.93 $208.08 $12,766,343.40 1 12/6/2004 Arizona Legislative Council Retiree Health Insurance Study Proposed Plan: (Shifting to ADOA) ADOA 50,615 23,189 30,595 44.42 58.44 73.72 Active Participants Retired Non-Medicare Retired Medicare Active Average Age Retired Non Medicare Average Age Retired Medicare Average Age Plan Designs*: Plan Design 1 Plan Design 2 Benefit Cost Ratio Blended Rate PEPM Active & All Retiree Average Cost Active PEPM Average Cost Retiree non-Medicare PEPM Average Cost Retiree Medicare PEPM Current Subsidies Subsidy 1 Non-Medicare Amount of active premium subsidizing retiree premium Subsidy 1 Medicare Amount of active premium subsidizing retiree premium Subsidy 2 Non-Medicare AZ Average Rural Subsidy Subsidy 2 Medicare AZ Average Rural Subsidy Subsidy 3 Non-Medicare Average Employer contribution toward retiree premium Subsidy 3 Medicare Average Employer contribution toward retiree premium Net avg. cost to Retiree non-Medicare PEPM Net avg. cost to Retiree Medicare PEPM Total Net cost to plan sponsor PEPM for Non-Medicare Total Net cost to plan sponsor PEPM for Medicare Total Net cost shift from current PEPM for Non-Medicare Total Net cost shift from current PEPM for Medicare Total Annual Cost to Plan Sponsor EPO EPO PSPRS/EORP/CORP 0 0 0 0.00 0.00 0.00 HMO HMO 0 0 0 0.00 0.00 0.00 PPO HMO Varies 100% $662.34 $601.90 $993.13 $511.61 79% $0.00 $0.00 $0.00 $0.00 $62.69 $0.00 $0.00 $0.00 $0.00 $157.67 $0.00 $0.00 $100.79 $731.06 $362.91 $262.07 $148.70 $399.89 $46.64 $88,057,416.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 -$75,290,815.20 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 -$12,766,343.40 $0.00 $0.00 $0.00 $0.00 $14.62 $41.71 $33.29 Future Cost Impact: Retiree Health Care ADOA Total trended Plan Sponsor Cost for All Retirees per Year 2006 $146,122,311.25 2007 $161,410,017.78 2008 $176,697,724.31 Mercer Human Resource Consulting ASRS 2 ASRS PSPRS/EORP/CORP 12/6/2004 Arizona Legislative Council Retiree Health Insurance Study 2. The feasibility and cost impact to this state and retirees of establishing a single health insurance program for all retirees of these groups. The study shall provide information, including costs and benefits, from at least five other states that administer a single retire health insurance plan. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. Active Participants Retired Non-Medicare Retired Medicare Active Average Age Retired Non-Medicare Average Age Retired Medicare Average Age Plan Designs*: Plan Design 1 Plan Design 2 Benefit Cost Ratio Blended Rate PEPM Active & All Retiree Average Cost Active PEPM Average Cost Retiree non-Medicare PEPM Average Cost Retiree Medicare PEPM Current Subsidies Subsidy 1 Non-Medicare Amount of active premium subsidizing retiree premium Subsidy 1 Medicare Amount of active premium subsidizing retiree premium Subsidy 2 Non-Medicare AZ Average Rural Subsidy Subsidy 2 Medicare AZ Average Rural Subsidy Subsidy 3 Non-Medicare Average Employer contribution toward retiree premium Subsidy 3 Medicare Average Employer contribution toward retiree premium Net avg. cost to Retiree non-Medicare PEPM Net avg. cost to Retiree Medicare PEPM Total Net cost to plan sponsor PEPM for Non-Medicare Total Net cost to plan sponsor PEPM for Medicare Total Annual Cost to Plan Sponsor Mercer Human Resource Consulting Current System ADOA 50,615 3,383 5,371 44.42 58.79 71.98 ASRS PSPRS/EORP/CORP 16,623 23,552 N/A 3,183 1,672 N/A 58.93 74.20 EPO EPO HMO HMO 126% $616.02 $601.90 $993.13 $511.61 100% $379.90 55.51 72.51 PPO HMO Varies $465.51 $530.76 $273.42 $558.82 $287.88 $429.73 N/A N/A $83.25 N/A N/A $66.76 $36.62 $41.65 $29.99 $31.56 $68.33 $165.47 $151.18 $183.28 $82.10 $331.17 $316.27 $661.96 $195.34 $39,462,981.84 $102.29 $342.96 $139.57 $187.80 $133.85 $75,290,815.20 $139.75 $333.89 $79.80 224.93 208.08 12,766,343.40 1 12/6/2004 Arizona Legislative Council Retiree Health Insurance Study Active Participants Retired Non-Medicare Retired Medicare Active Average Age Retired Non-Medicare Average Age Retired Medicare Average Age Plan Designs*: Plan Design 1 Plan Design 2 Benefit Cost Ratio Blended Rate PEPM Active & All Retiree Average Cost Active PEPM Average Cost Retiree non-Medicare PEPM Average Cost Retiree Medicare PEPM Current Subsidies Subsidy 1 Non-Medicare Amount of active premium subsidizing retiree premium Subsidy 1 Medicare Amount of active premium subsidizing retiree premium Subsidy 2 Non-Medicare AZ Average Rural Subsidy Subsidy 2 Medicare AZ Average Rural Subsidy Subsidy 3 Non-Medicare Average Employer contribution toward retiree premium Subsidy 3 Medicare Average Employer contribution toward retiree premium Net avg. cost to Retiree non-Medicare PEPM Net avg. cost to Retiree Medicare PEPM Total Net cost to plan sponsor PEPM for Non-Medicare Total Net cost to plan sponsor PEPM for Medicare Total Net cost shift from current PEPM for Non-Medicare Total Net cost shift from current PEPM for Medicare Total Annual Cost to Plan Sponsor Proposed Plan: (Shifting to Single Plan) ADOA ASRS 50,615 0 0 44.42 0.00 0.00 EPO EPO 0 0 0.00 0.00 0.00 HMO HMO 0 0 0.00 0.00 0.00 PPO HMO Varies Single Retiree Plan N/A 23,189 30,595 N/A 58.44 73.72 HMO HMO 126% $0.00 $601.90 $0.00 $0.00 100% $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 N/A $0.00 $0.00 $0.00 N/A $0.00 $0.00 $0.00 $41.71 $0.00 $0.00 $0.00 $33.29 $0.00 $0.00 $0.00 $157.67 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 -$39,462,981.84 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 -$75,290,815.20 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 -$12,766,343.40 $100.79 $331.38 $139.33 $199.38 $134.09 $62.69 $14.61 $104,709,192.36 Future Cost Impact ADOA ASRS Total trended Plan Sponsor Cost for All Retirees per Year 2006 2007 2008 Mercer Human Resource Consulting PSPRS/EORP/CORP $0.00 $0.00 $0.00 $0.00 PSPRS/EORP/CORP $384.37 N/A $530.76 $273.42 Single Retiree Plan $130,532,879.22 $141,429,211.78 $155,590,309.68 2 12/6/2004 Arizona Legislative Council Colorado Colorado offers separate plans for their Pre Medicare and Medicare enrollees. Pre Medicare enrollees are offered three HMO plans with three different plan design options in each plan, a POS plan and two PPO plans with three different plan design options in each plan. Medicare enrollees are offered two HMO plans and three Medicare Supplement options. Mercer Human Resource Consulting Program Description Montana Montana allows their retirees to continue with their active plan, and offer a PPO and an HMO option. Oregon Utah Washington Oregon offers the same PPO and HMO health plans for their Pre Medicare and Medicare retirees and their parttime work force. The state statutes also require public employers to make their group insuance plans available to their retirees and dependents until the retiree or dependent is Medicare eligible. Utah offers two plans for their Pre-Medicare retirees a PPO and an HMO. Pre-Medicare retirees may continue to participate with the Public Employees Health Program (PEHP) until they reach 65 provided the employer has adopted such a program in the employer contract with PEHP. They offer a separate Medicare Supplement for PPO for their Medicare retirees. Washington allows their retirees to continue with their active plan and offers two PPOs and five HMO options. Two Medicare Supplement plans are also offered to Medicare eligibles. 1 Georgia Georgia allows their retirees to continue with their active plan and offer an indemnity plan, a PPO and four HMO options. A Medicare + Choice option is also offered to Medicare eligibles who reside in Atlanta. Alabama Alabama allows their retirees to continue with their active plan, and offers a PPO option. 12/6/2004 Arizona Legislative Council Pre Medicare State Survey - Pre Medicare Sample Plans from other States Plan Period for Data Reported Pre Medicare Retired Number of Eligibles Pre Medicare Retiree Average Age Colorado Montana Oregon Utah Washington Georgia Alabama 1/1/2003 - 12/31/2004 7/01/2003 - 6/30/2004 981 62 1/1/2003 - 12/31/2004 7/01/2003 - 6/30/2004 1,578 62 1/1/2004 - 12/31/2005 6,473 58 7/1/2004 - 6/30/2005 1,700 54 1/1/2003 - 12/31/2004 4,857 57 Plan Designs*: Plan Design 1 Type Physician copay Specialist copay Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care No HMO Offered No HMO Offered HMO $30 $30 $500 admit $30 $100 No Information HMO $20 $25 10% 5% $75 10% Per Individual: $1,500 Per Family: $3,000 No Limit Yes No Retail Gen: $10 PB: $25 NPB: Not Covered Mail Order Gen: $20 PB: $50 NPB: Not Covered Per Individual: $2,000 Per Family: $4,000 No Limit No No Retail Gen: 25% coins PB: 30% coins NPB: 50% coins Mail Order Gen: 25% coins PB: 30% coins NPB: 50% coins Skilled Nursing Facility Care OOP Max Lifetime Maximum Vision Dental Rx copays: Mercer Human Resource Consulting 2 HMO $10 $10 $200 per day ($600 max annual) $100 $75 $200 per day ($600 max annual) 150 days allowed Per Individual: $750 Per Family: $1,500 No Limit Yes No Retail Gen: $10 Brand: $30 Mail Order Gen: $20 Brand: $40 HMO $15 $20 $200 per stay $100 $50 0%, Covered for 45 days/year No HMO Offered N/A $2,000,000 No No Gen: $10 Brand: $25 NPB: $40 12/6/2004 Arizona Legislative Council Pre Medicare State Survey - Pre Medicare Sample Plans from other States Plan Design 1 Type Deductible In/Out Physician coins In/Out Specialist coins. In/Out Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care Skilled Nursing Facility Care OOP Max In/Out Lifetime Maximum In/Out Vision Dental Rx copays: Mercer Human Resource Consulting Colorado PPO Per Individual: $500/ $1,000 Per Family: $1,500/ $3,000 20% after ded./ 40% after ded. 20% after ded./ 40% after ded. 20% after ded./ 40% after ded. 20% after ded./ 40% after ded. 20% after deductible 20% after deductible (up to 100 days) / 40% after deductible (up to 100 days) Per Individual: $2,500 / $5,000 Per Family: $5,000 / $7,000 $2,000,000 combined No 20% after deductible (if result of accident) / 40% after deductible (if result of accident) Retail $150 deductible, then 50% covered $7 min and $50 max Mail Order Generic: $15 copay Brand: $50 copay not subject to deductible Montana Oregon Utah Washington Georgia Alabama See PPO Plan Design 2 PPO/Indemnity Per Individual: $500 Per Family: $1,650 25% 25% 20-35% 20-35% 20-35% 25% (20-35% if hospital-based) Per Individual: $2,500 Per Family: $5,000 $1,000,000 No No Retail Gen: 10% coins PB: 20% coins NPB: 30% coins If cost is < $10 Gen, < $18 PB, and < $26 NPB, member pays actual charge Mail Order Gen: $20 copay PB: $40 copay NPB: $60 3 12/6/2004 Arizona Legislative Council Pre Medicare State Survey - Pre Medicare Sample Plans from other States Plan Design 2 Type Colorado Montana Oregon Utah PPO Per Individual: $1,000 / $2,000 Per Family: $2,000 / $4,000 PPO Per Individual: $400 / $500 Per Family: $800 / $1,000 PPO No Information PPO None 20% after ded./ 40% after ded. $15 / 35% 20% / 50% 20% after ded./ 40% after ded. $15 / 35% 20% / 50% 20% after ded./ 40% after ded. 25% / 35% 20% / 50% $25 $40 (University Medical Group) $25 $40 (University Medical Group) 15% 20% after ded./ 40% after ded. 20% after deductible 25% / 35% $75 In-Network $75 Out-of-Network 20% / 50% 20% / 50% 20% after deductible (up to 100 days) / 40% after deductible (up to 100 days) Per Individual: $5,000 / $7,000 Per Family: $7,000 / $14,000 $2,000,000 combined No 20% after deductible (if result of accident) / 40% after deductible (if result of accident) Retail $250 deductible, then 50% covered $10 min and $60 max Mail Order Generic: $20 copay Brand: $60 copay not subject to deductible 25% / 35% Washington Georgia Alabama PPO Medical Per Individual: $200 Per Family: $600 Pharmacy Per Individual: $100 Per Family: $300 10% PPO Per Individual: $400 / $500 Per Family: $1,200 / $1,500 PPO First $100 of Major Medical expenses per member / 25% of charges $30 copay / 40% after deductible 10% $30 copay / 40% after deductible $200 per day ($600 max annual) Ded $250 and 10% / Ded $250 and 40% 15% $75 10% $75 copay and 10% 10% after deductible $100 and 10% $25 physician or $20 nurse practioner / 20% of cost $25 physician or $20 nurse practioner / 20% of cost InNetwork Ded $100 w/admission of cert Ded $500 w/o admission of cert $15 copay 2nd - 5th day Out of Network 25% of charges $25 to $100 copay $50 during normal business hours $25 any other time Not in comparison 15% $200 per day ($600 max annual) 150 days allowed Not Covered Not Covered Per Individual: $2,000 Per Family: $4,000 $1,000,000 No No Per Individual: $2,000 / $4,000 Per Family: $6,000 / $12,000 $2,000,000 No No Per Individual: $2,000 Per Family: $4,000 No Limit No No Per Individual: $1,125 Per Family: $2,250 No Information Yes No Per Individual: $1,000 / $2,000 Per Family: $2,000 / $4,000 $2,000,000 Yes Yes $400 plus Major Medical Retail Gen: $10 PB: 20% NPB: 30% Mail Gen: $20 PB: $40 NPB: $60 $1,000 OOP max Retail Gen: 25% coins, $5 min PB: 30% coins, $5 min, NPB: 50% coins, $5 min Mail Order Gen: 25% coins, $5 min, $50 max PB: 30% coins, $5 min, $50 max NPB: 50% coins, $5 min Retail Tier 1: 20% Tier 2: 30% Tier 3: 50% Mail Order Tier 1: $10 Tier 2: $40 Tier 3: $80 Retail Gen: $10 Brand: $25 NPB: $40 30 day Supply Tier 1: $10 Tier 2: $20 Tier 3: $50 60 day Supply Tier 1: $10 Tier 2: $25 Tier 3: $50 Any Subsidies Retail Gen: 10% coins PB: 20% coins NPB: 30% coins If cost is < $10 Gen, < $18 PB, and < $26 NPB, member pays actual charge Mail Order Gen: $20 copay PB: $40 copay NPB: $60 copay $461.25 None $813.90 Yes Yes $294.00 Yes $504.17 Yes Subsidy description Pre Medicare Rural Retiree Subsidy Average Pre Medicare Retiree Subsidy Average Net avg. cost to Retiree non-Medicare PEPM None None None $461.25 Employer contribution None $231.00 $63.00 Employer contribution None $366.17 $138.00 Deductible In/Out Physician coins In/Out Specialist coins. In/Out Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care Skilled Nursing Facility Care OOP Max In/Out Lifetime Maximum In/Out Vision Dental Rx copays: Average Cost Retiree non-Medicare PEPM Mercer Human Resource Consulting Employer contribution None $763.06 $50.84 4 Employer and active subsidy None No $1,000,000 Yes Yes 12/6/2004 Arizona Legislative Council Disabled State Survey - Disabled Sample Plans from other States Plan Period for Data Reported Disabled Retired Number of Eligibles Disabled Retiree Average Age Colorado Montana Oregon Utah Washington Georgia Alabama 1/1/2003 - 12/31/2004 7/01/2003 - 6/30/2004 N/A N/A 1/1/2003 - 12/31/2004 7/01/2003 - 6/30/2004 301 Unknown 1/1/2004 - 12/31/2005 N/A N/A 7/1/2004 - 6/30/2005 N/A N/A 1/1/2003 - 12/31/2004 N/A N/A Plan Designs*: Plan Design 1 Type Physician copay Specialist copay Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care No HMO Offered No HMO Offered HMO $30 $30 $500 admit $30 $100 No Information HMO $20 $25 10% 5% $75 10% Per Individual: $1,500 Per Family: $3,000 No Limit Yes No Retail Gen: $10 PB: $25 NPB: Not Covered Mail Order Gen: $20 PB: $50 NPB: Not Covered Per Individual: $2,000 Per Family: $4,000 No Limit No No Retail Gen: 25% coins PB: 30% coins NPB: 50% coins Mail Order Gen: 25%coins PB: 30% coins NPB: 50% coins Skilled Nursing Facility Care OOP Max Lifetime Maximum Vision Dental Rx copays: Mercer Human Resource Consulting 5 HMO $10 $10 $200 per day ($600 max annual) $100 $75 $200 per day ($600 max annual) 150 days allowed Per Individual: $750 Per Family: $1,500 No Limit Yes No Retail Gen: $10 Brand: $30 Mail Order Gen: $20 Brand: $40 HMO $15 $20 $200 per stay $100 $50 0%, Covered for 45 days / year No HMO Offered No information $2,000,000 No No Gen: $10 Brand: $25 NPB: $40 12/6/2004 Arizona Legislative Council Disabled State Survey - Disabled Sample Plans from other States Plan Design 1 Type Deductible In/Out Physician coins In/Out Specialist coins. In/Out Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care Skilled Nursing Facility Care OOP Max In/Out Lifetime Maximum In/Out Vision Dental Rx copays: Mercer Human Resource Consulting Colorado PPO Per Individual: $500/ $1,000 Per Family: $1,500/ $3,000 20% after ded./ 40% after ded. 20% after ded./ 40% after ded. 20% after ded./ 40% after ded. 20% after ded./ 40% after ded. 20% after deductible 20% after deductible (up to 100 days) / 40% after deductible (up to 100 days) Per Individual: $2,500 / $3,500 Per Family: $5,000 / $7,000 $2,000,000 combined No 20% after deductible (if result of accident) / 40% after deductible (if result of accident) Retail $150 deductible, then 50% covered $7 min and $50 max Mail Order Generic: $15 copay Brand: $50 copay not subject to deductible Montana Oregon Utah Washington Georgia Alabama PPO/Indemnity Per Individual: $500 Per Family: $1,650 25% 25% 20-35% 20-35% 20-35% 25% (20-35% if hospital-based) Per Individual: $2,500 Per Family: $5,000 $1,000,000 No No Retail Gen: 10% coins PB: 20% coins NPB: 30% coins If cost is < $10 Gen, < $18 PB, and < $26 NPB, member pays actual charge Mail Order Gen: $20 copay PB: $40 copay NPB: $60 6 12/6/2004 Arizona Legislative Council Disabled State Survey - Disabled Sample Plans from other States Plan Design 2 Type Colorado Montana Oregon Utah PPO Per Individual: $1,000 / $2,000 Per Family: $2,000 / $4,000 PPO Per Individual: $400 / $500 Per Family: $800 / $1,000 PPO No Information PPO None 20% after ded./ 40% after ded. $15 / 35% 15% / 30% 20% after ded./ 40% after ded. $15 / 35% 15% / 30% 20% after ded./ 40% after ded. 25% / 35% 15% / 30% $25 $40 (University Medical Group) $25 $40 (University Medical Group) 15% 20% after ded./ 40% after ded. 20% after deductible 25% / 35% $75 In-Network $75 Out-of-Network 15% / 30% 15% / 30% 20% after deductible (up to 100 days) / 40% after deductible (up to 100 days) Per Individual: $5,000 / $7,000 Per Family: $10,000 / $14,000 $2,000,000 combined No 20% after deductible (if result of accident) / 40% after deductible (if result of accident) Retail $250 deductible, then 50% covered $10 min and $60 max Mail Order Generic: $20 copay Brand: $60 copay not subject to deductible 25% / 35% Washington Georgia Alabama PPO Medical Per Individual: $200 Per Family: $600 Pharmacy Per Individual: $100 Per Family: $300 10% PPO Per Individual: $400 / $500 Per Family: $1,200 / $1,500 PPO First $100 of Major Medical expenses per member / 25% of charges $30 copay / 40% after deductible 10% $30 copay / 40% after deductible $200 per day ($600 max annual) Ded $250 and10% / Ded $250 and 40% 15% $75 10% $75 copay and 10% 10% after deductible $100 and 10% $25 physician or $20 nurse practioner / 20% of cost $25 physician or $20 nurse practioner / 20% of cost InNetwork Ded $100 w/admission of cert Ded $500 w/o admission of cert $15 copay 2nd - 5th day Out of Network 25% of charges $25 to $100 copay $50 during normal business hours $25 any other time Not in comparison 15% $200 per day ($600 max annual) 150 days allowed Not Covered Not Covered Per Individual: $2,000 Per Family: $4,000 $1,000,000 No No Per Individual$1,000 / $2,000 Per Family$3,000 / $6,000 $2,000,000 Yes No Per Individual: $2,000 Per Family: $4,000 No Limit No No Per Individual: $1,125 Per Family: $2,250 No Information No No Per Individual: $1,000 / $2,000 Per Family: $2,000 / $4,000 $2,000,000 Yes Yes $400 plus Major Medical Retail Gen: $10 PB: $15 NPB: 25 Retail Gen: 25% coins PB: 30% coins NPB: 50% coins Mail Order Gen: 25% coins PB: 30% coins NPB: 50% coins Retail Tier 1: 20% Tier 2: 30% Tier 3: 50% Mail Order Tier 1: $10 Tier 2: $40 Tier 3: $80 Retail Gen: $10 Brand: $25 NPB: $40 30 day Supply Tier 1: $10 Tier 2: $20 Tier 3: $50 60 day Supply Tier 1: $10 Tier 2: $25 Tier 3: $50 Any Subsidies Retail Gen: 10% coins PB: 20% coins NPB: 30% coins If cost is < $10 Gen, < $18 PB, and < $26 NPB, member pays actual charge Mail Order Gen: $20 copay PB: $40 copay NPB: $60 copay N/A N/A N/A $812.74 N/A Yes N/A N/A N/A N/A N/A N/A N/A N/A N/A Subsidy 1 description Disabled Rural Retiree Subsidy Average Disabled Retiree Subsidy Average Net avg. cost to Retiree non-Medicare PEPM N/A N/A N/A N/A Employer contibution None $762.71 $50.03 N/A N/A N/A N/A N/A N/A N/A N/A N/A None N/A N/A Deductible In/Out Physician coins In/Out Specialist coins. In/Out Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care Skilled Nursing Facility Care OOP Max In/Out Lifetime Maximum In/Out Vision Dental Rx copays: Average Cost Retiree non-Medicare PEPM COB with Medicare Mercer Human Resource Consulting 7 $1,000,000 Yes Yes 12/6/2004 Arizona Legislative Council Medicare State Survey - Medicare Sample Plans from other States Plan Period for Data Reported Medicare Retired Eligibles Medicare Retiree Average Age Colorado Montana Oregon Utah Washington Georgia Alabama 1/1/2003 - 12/31/2004 7/01/2003 - 6/30/2004 2,252 69 1/1/2003 - 12/31/2004 7/01/2003 - 6/30/2004 4,249 74 1/1/2004 - 12/31/2005 2,777 73 7/1/2004 - 6/30/2005 450 68 1/1/2003 - 12/31/2004 9,988 72 Plan Designs*: Plan Design 1 Type Physician copay Specialist copay Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care No HMO Offered No HMO Offered HMO $30 $30 $500 admit $30 $100 No Information No HMO Offered Skilled Nursing Facility Care OOP Max Lifetime Maximum Vision Dental Rx copays: Mercer Human Resource Consulting Per Individual: $1,500 Per Family: $3,000 No Limit Yes No Retail Gen: $10 PB: $25 NPB: Not Covered Mail Order Gen: $20 PB: $50 NPB: Not Covered 8 HMO $10 $10 $200 per day ($600 max annual) $100 $75 $200 per day ($600 max annual) 150 days allowed Per Individual: $750 Per Family: $1,500 No Information Yes No Retail Gen: $10 Brand: $30 Mail Order Gen: $20 Brand: $40 HMO $15 $20 $200 per stay $100 $50 0%, Covered for 45 days / year No HMO Offered N/A $2,000,000 No No Retail Gen: $10 Brand: $25 NPB: $40 12/6/2004 Arizona Legislative Council Medicare State Survey - Medicare Sample Plans from other States Plan Design 1 Type Deductible In/Out Physician coins In/Out Specialist coins. In/Out Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care Skilled Nursing Facility Care OOP Max In/Out Lifetime Maximum In/Out Vision Dental Rx copays: Mercer Human Resource Consulting Colorado Montana Oregon Utah PPO PPO/Indemnity PPO No Information Per Individual: $500 Per Family: $1,650 25% 25% 20-35% No Information 20% after 20% ded (up to ($1,000) 20% after 20% ded (up to ($1,000) 20% of Part A Deductible 0% after 60th day 20% after 20% ded (up to ($1,000) 20% after 20% ded (up to ($1,000) Days 1-20: 0% Coinsurance Days 21-100: 50% of all charges Not Covered by Medicare Days over 100: 100% of charges $1,000 for Part A and B participants $1,500 for Part B participants Lifetime Maximum No No Retail $150 deductible, then 50% covered $7 min and $50 max Mail Order Generic: $15 copay Brand: $50 copay 20-35% 20-35% 25% (20-35% if hospital-based) Washington Georgia Alabama 20% after $100 ded (Part B) 20% after $100 ded (Part B) Days 1-150: 0% 20% over 150 days (Part A) 20% after $100 ded (Part B) No Information Days 1-100: 0% Over 100 Days: all charges Per Individual: $2,500 Per Family: $5,000 None Listed $1,000,000 No No Retail Gen: 10% coins PB: 20% coins NPB: 30% coins If cost is < $10 Gen, < $18 PB, and < $26 NPB, member pays actual charge Mail Order Gen: $20 copay PB: $40 copay NPB: $60 No Information No No Retail (using discount card after $200 Deductible) Gen: greater of $5 min or 20% PB: greater of $5 min or 40% NPB: greater of $5 min or 50% Mail Gen or PB:greater of $5 min or 20% ($50 max) NPB: 50% 9 12/6/2004 Arizona Legislative Council Medicare State Survey - Medicare Sample Plans from other States Plan Design 2 Type Colorado Montana Oregon Utah PPO Supplement No Information PPO Per Individual: $400 / $500 Per Family: $800 / $1,000 PPO Per Individual: $1,000 / $2,000 Per Family: $3,000 / $6,000 PPO $100 50% ded, 10% of Medicare approved & any exces charges up to $2,000 50% ded, 10% of Medicare approved $100 copay per day up to $500 0% after 60th day $15 / 35% 15% / 30% Specialist coins. In/Out $15 / 35% Georgia PPO First $100 of Major Medical expenses per member / 25% of charges 20% after deductible $30 copay / 40% after deductible $25 physician or $20 nurse practioner / 20% of cost 15% / 30% 20% after deductible 10% $30 copay / 40% after deductible 25% / 35% 15% / 30% Days 1-150: 0% $200 per day ($600 max annual) Ded $250 and10% / Ded $250 and 40% 50% ded, 10% of Medicare approved & any exces charges up to $2,000 50% ded, 10% of Medicare approved & any exces charges up to $2,000 Days 1-20: 0% Days 20-100: 50% of all charges Not Covered by Medicare Days over 100: 100% of charges $2,000 for Part A and B participants $3,000 for Part B participants 25% / 35% 15% / 30% No Information 10% 10% after deductible $25 physician or $20 nurse practioner / 20% of cost InNetwork Ded $100 w/admission of cert Ded $500 w/o admission of cert $15 copay 2nd - 5th day Out of Network 25% of charges $25 to $100 copay $75 In-Network $75 Out-of-Network 15% / 30% No Information $75 copay and 10% $100 and 10% $50 during normal business hours $25 any other time 25% / 35% No Information Days 1-100: 0% Over 100 Days: all charges $200 per day ($600 max annual) 150 days allowed Not Covered Not Covered Per Individual: $2,000 Per Family: $4,000 Per Individual$1,000 / $2,000 Per Family$3,000 / $6,000 No Information Per Individual: $1,125 Per Family: $2,250 Per Individual: $1,000 / $2,000 Per Family: $2,000 / $4,000 $400 plus Major Medical Not Listed No No Retail $250 deductible, then 50% covered $10 min and $60 max Mail Order Generic: $20 copay Brand: $60 copay $1,000,000 No No Retail Gen: 10% coins PB: 20% coins NPB: 30% coins If cost is < $10 Gen, < $18 PB, and < $26 NPB, member pays actual charge Mail Order Gen: $20 copay PB: $40 copay NPB: $60 copay $277.89 $2,000,000 Yes No Retail Gen: $10 PB: $15 NPB: 25 None No No Just discount card No Information Yes No Retail Tier 1: 20% Tier 2: 30% Tier 3: 50% Mail Order Tier 1: $10 Tier 2: $40 Tier 3: $80 $2,000,000 Yes No Retail Gen: $10 Brand: $25 NPB: $40 $1,000,000 Yes Yes 30 day Supply Tier 1: $10 Tier 2: $20 Tier 3: $50 60 day Supply Tier 1: $10 Tier 2: $25 Tier 3: $50 Data Not Provided Data Not Complete Coordination of Benefits and Medicare Supplemental Yes $294.00 $243.00 Coordination of Benefits Yes Exclusion Yes Employer contribution None $116 Employer contribution None $231 $63.00 100% contribution None $243.00 $0.00 Inpatient Hospital Outpatient/Ambulatory Surgery Emergency Care Skilled Nursing Facility Care OOP Max In/Out Lifetime Maximum In/Out Vision Dental Rx copays: Average Cost Retiree Medicare PEPM Any Subsidies 100% coverage None $348.64 Coordination of Benefits and Medicare Supplemental 100% contribution Subsidy 1 description Medicare Rural Retiree Subsidy Average Medicare Retiree Subsidy Average Net avg. cost to Retiree Medicare PEPM None None None $277.89 None None $348.64 $0.00 Coordination with Medicare Mercer Human Resource Consulting Alabama PPO Per Individual: $400 / $500 Per Family: $1,200 / $1,500 Deductible In/Out Physician coins In/Out Washington PPO Medical Per Individual: $200 Per Family: $600 Pharmacy Per Individual: $100 Per Family: $300 10% 10 12/6/2004 Arizona Legislative Council Retiree Health Insurance Study 3. The Feasibility and cost impact to this state and its public employers of requiring all public employers to allow their retirees who are under sixty-five years of age to remain in the same health insurance plan as their active employees. The study shall provide cost data from at least ten public employers in this state representing a range of size, geographic locations and political jurisdictions. The cost impact shall consider immediate and future costs and cost shifting to all affected parties. Current System Active Participants Retired Non-Medicare Retired Medicare Active Average Age Retired Non-Medicare Average Age Retired Medicare Average Age Plan Designs*: Plan Design 1 Plan Design 2 Benefit Cost Ratio Blended Rate PEPM Active & All Retiree Average Cost Active PEPM Average Cost Retiree non-Medicare PEPM Average Cost Retiree Medicare PEPM Current Subsidies Subsidy 1 Non-Medicare Amount of active premium subsidizing retiree premium Subsidy 1 Medicare Amount of active premium subsidizing retiree premium Subsidy 2 Non-Medicare AZ Average Rural Subsidy Subsidy 2 Medicare AZ Average Rural Subsidy Subsidy 3 Non-Medicare Average Employer contribution toward retiree premium Subsidy 3 Medicare Average Employer contribution toward retiree premium Net avg. cost to Retiree non-Medicare PEPM Net avg. cost to Retiree Medicare PEPM Total Net cost to plan sponsor PEPM for Non-Medicare Total Net cost to plan sponsor PEPM for Medicare Total Annual Cost to Plan Sponsor Mercer Human Resource Consulting ADOA 50,615 3,383 5,371 44.42 58.79 71.98 EPO EPO PSPRS/EORP/ CORP ASRS 0 16,623 23,552 N/A N/A 58.93 74.2 55.51 72.51 100% 379.90 PPO HMO Varies $465.51 530.76 $273.42 $558.82 $287.88 HMO HMO 126% $616.02 $601.90 $993.13 $511.61 0 3,183 1,672 City of Phoenix 12,064 1,499 1,427 42.16 57.73 72.42 POS City of Tucson 4,851 861 668 43.52 56.49 63.23 HMO PPO Pima County 5,645 663 359 44.37 57.62 71.55 Maricopa County 13,053 105 241 42.16 59.26 72.72 POS HMO 117% No Blending $529.49 $481.45 $250.08 124% $734.36 $698.91 $1,153.21 $594.08 111% $524.85 $489.60 $807.83 $416.16 HMO High HMO Low 114% $409.60 $387.68 $639.66 $329.52 Coconino County 919 44 0 42.89 57.53 0 PPO Pinal County 1,573 0 0 42.40 0 0 PPO City of Douglas 538 0 0 41.26 0 0 HMO Apache County 376 0 0 44.52 0 0 Graham County 225 0 0 42.21 0 0 Greenlee County Gila County 134 572 0 0 0 0 46.73 46.16 0 0 0 0 La Paz County 289 0 0 45.06 0 0 Santa Cruz County 351 0 0 39.56 0 0 PPO PPO PPO PPO PPO PPO 110% $532.16 $516.81 $852.73 $0.00 113% N/A $440.38 $0.00 $0.00 109% N/A $138.17 $0.00 $0.00 106% N/A $491.67 $0.00 $0.00 106% N/A $482.80 $0.00 $0.00 106% N/A $473.96 $0.00 $0.00 106% N/A $364.95 $0.00 $0.00 106% N/A $470.23 $0.00 $0.00 106% N/A $384.55 $0.00 $0.00 $429.73 N/A N/A $373.97 $295.26 $307.19 $0.00 $332.88 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $83.25 N/A N/A $125.25 $203.22 $66.64 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $66.76 $36.62 $41.65 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $29.99 $31.56 $68.33 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $165.47 $151.18 $183.28 $161.98 $340.13 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $82.10 $331.17 $316.27 $661.96 $195.34 $39,462,981.84 $102.29 $342.96 $139.57 $187.80 $133.85 $75,290,815.20 $139.75 $333.89 $79.80 $224.93 $208.08 $12,766,343.40 $218.91 $617.26 $249.92 $535.95 $344.16 $15,534,064.44 $0.00 $172.44 $212.94 $635.39 $203.22 $8,193,861.00 $0.00 $332.47 $262.88 $307.19 $66.64 $2,731,088.76 $0.00 $481.45 $250.08 $0.00 $0.00 $0.00 $0.00 $519.85 $0.00 $332.88 $0.00 $175,760.64 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 1 12/6/2004 Arizona Legislative Council Retiree Health Insurance Study Active Participants Retired Non-Medicare Retired Medicare Active Average Age Retired Non-Medicare Average Age Retired Medicare Average Age Plan Designs*: Plan Design 1 Plan Design 2 Benefit Cost Ratio Blended Rate PEPM Active & All Retiree Average Cost Active PEPM Average Cost Retiree non-Medicare PEPM Average Cost Retiree Medicare PEPM Current Subsidies Subsidy 1 Non-Medicare Amount of active premium subsidizing retiree premium Subsidy 1 Medicare Amount of active premium subsidizing retiree premium Subsidy 2 Non-Medicare AZ Average Rural Subsidy Subsidy 2 Medicare AZ Average Rural Subsidy Subsidy 3 Non-Medicare Average Employer contribution toward retiree premium Subsidy 3 Medicare Average Employer contribution toward retiree premium Net avg. cost to Retiree non-Medicare PEPM Net avg. cost to Retiree Medicare PEPM Total Net cost to plan sponsor PEPM for Non-Medicare Total Net cost to plan sponsor PEPM for Medicare Total Net cost shift from current PEPM for Non-Medicare Total Net cost shift from current PEPM for Medicare Total Annual Cost to Plan Sponsor ADOA 50,615 7,158 5,371 44.42 71.98 EPO EPO Mercer Human Resource Consulting ASRS 0 0 23,552 0.00 0.00 74.20 HMO HMO 0 2,830 1,672 0.00 55.24 72.51 City of Phoenix 12,064 1,554 1,427 42.16 57.78 72.42 PPO HMO Varies $455.60 $0.00 $558.82 $287.88 POS Proposed Plan: (Shifting to Public Employers to age 65) Maricopa Coconino City of Tucson Pima County County County 4,851 5,645 13,053 919 876 1,201 231 81 668 359 241 0 43.52 44.37 42.16 42.89 56.48 57.79 59.37 63.23 71.55 72.72 0.00 HMO PPO Greenlee County Gila County La Paz County 134 572 289 1 5 2 0 0 0 46.73 46.16 45.06 49.81 58.35 55.33 0.00 0.00 0.00 Santa Cruz County 351 3 0 39.56 58.53 0.00 Other Public Entities 0 12,391 0 0.00 58.98 0.00 PPO PPO PPO PPO PPO PPO 106% N/A $491.67 $530.76 $0.00 106% N/A $482.80 $530.76 $0.00 106% N/A $473.96 $530.76 $0.00 106% N/A $364.95 $530.76 $0.00 106% N/A $470.23 $530.76 $0.00 106% N/A $384.55 $530.76 $0.00 $0.00 $0.00 $530.76 $0.00 $377.72 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $66.64 No Blending $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $5.31 $62.77 $21.50 $50.00 $141.46 $82.68 $280.11 $54.49 $358.18 $70.40 $32.98 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $342.70 $71.24 $88.12 $80.01 $132.18 $178.53 $87.93 $177.50 $152.59 $169.62 $180.00 $214.53 $153.08 $0.00 $174.92 $212.94 $632.91 $203.22 -$2.48 $0.00 $88,272.00 $0.00 $398.74 $262.88 $240.92 $66.64 -$66.27 $0.00 $1,028,206.24 $0.00 $388.03 $250.08 $93.42 $0.00 $93.42 $0.00 $258,963.96 $0.00 $332.23 $0.00 $520.50 $0.00 $187.62 $0.00 $330,169.99 $0.00 $377.08 $0.00 $153.68 $0.00 $153.68 $0.00 $23,974.08 $0.00 $530.76 $0.00 $228.53 $0.00 $228.53 $0.00 $16,454.16 $0.00 $530.76 $0.00 $229.39 $0.00 $229.39 $0.00 $8,258.04 $0.00 $530.76 $0.00 $260.18 $0.00 $260.18 $0.00 $12,488.64 $0.00 $530.76 $0.00 $432.70 $0.00 $432.70 $0.00 $5,192.40 $0.00 $530.76 $0.00 $224.11 $0.00 $224.11 $0.00 $13,446.60 $0.00 $530.76 $0.00 $538.18 $0.00 $538.18 $0.00 $12,916.32 $0.00 $530.76 $0.00 $284.93 $0.00 $284.93 $0.00 $10,257.48 $0.00 $530.76 $0.00 $186.06 $0.00 $186.06 $0.00 $27,665,633.52 357.08 $290.20 $83.25 $0.00 $0.00 $125.25 $203.22 $61.36 $0.00 $38.14 $1.85 $0.00 $0.11 $29.99 $31.56 $68.33 $0.00 $0.00 $154.74 $0.00 $183.76 $163.39 $82.10 $573.93 $316.27 $419.20 $195.34 $242.76 $0.00 $9,134,903.52 $102.29 $0.00 $177.86 $0.00 $133.85 $0.00 $0.00 $0.00 $139.76 $336.92 $79.79 $221.90 $208.09 -$3.03 $0.01 -$1,055,501.64 $218.91 $630.89 $71.77 $522.32 $344.16 -$13.63 $0.00 $99,465.35 $14,517,396.86 $19,997,713.51 $15,700,882.47 $21,868,077.95 $17,323,951.97 $23,738,442.40 376 3 0 44.52 58.70 0.00 Graham County 225 4 0 42.21 56.22 0.00 $169.58 No Blending $0.00 $ $46,444,827.80 $50,752,630.50 $55,060,433.20 HMO Apache County 113% N/A $440.38 $530.76 $0.00 $0.00 $55,442,956.36 $61,310,116.97 $67,177,277.58 PPO City of Douglas 538 6 0 41.26 56.48 0.00 110% $525.75 $516.81 $852.73 $0.00 $203.10 PSPRS/EORP/COR P City of Phoenix PPO Pinal County 1,573 13 0 42.40 59.25 0.00 0 109% N/A $138.17 $530.76 $0.00 100% $311.71 $0.00 $0.00 $311.71 ASRS 124% $696.97 $698.91 $1,153.21 $594.08 HMO High POS HMO Low HMO 114% 117% $426.78 No Blending $387.68 $529.49 $639.66 $481.45 $329.52 $250.08 126% $638.57 $601.90 $993.13 $511.61 ADOA Total trended Plan Sponsor Cost for All Retirees per Year 2006 2007 2008 PSPRS/EORP/ CORP 111% $525.52 $489.60 $807.83 $416.16 City of Tucson $10,291,471.54 $11,102,091.43 $12,300,810.08 Future Cost Impact Maricopa Pima County County Coconino County $4,679,710.32 $5,038,645.19 $5,600,125.64 $630,516.05 $692,808.76 $755,101.47 2 $322,733.84 $354,618.77 $386,503.71 Pinal County $29,877.70 $32,829.51 $35,781.31 City of Douglas $22,531.92 $24,557.83 $26,583.75 Apache County $11,308.35 $12,325.12 $13,341.90 Graham County $17,101.63 $18,639.30 $20,176.96 Greenlee County $7,110.34 $7,749.66 $8,388.97 Gila County La Paz County $18,413.44 $20,069.05 $21,724.66 $17,687.29 $19,277.61 $20,867.93 Santa Cruz County $14,046.34 $15,309.29 $16,572.24 Other Public Entities $34,478,295.77 $37,077,712.59 $41,290,958.03 12/6/2004 Arizona Retiree Health Insurance Study Arizona Legislative Council Government Sector Results of the 2004 National Survey of Employer-Sponsored Health Plans Retiree Health Care Government 500+ Number of Employers Responding State 500+ Number of Employers Responding County 500+ Number of Employers Responding City 500+ National 500+ National All 82% 58% 33 32 94% 84% 107 106 79% 63% 93 90 86% 64% 28% 21% 6% 4% 25% 75% 23% 44% 33 45% 70% 36% 70% 93 19% 76% 26% 56% 84 23% 76% 24% 57% 29% 73% 21% 44% ID ID ID ID 37% 58% 20% 42% 30 53% 62% 34% 62% 74 30% 58% 22% 51% 67 31% 67% 15% 52% 44% 50% 11% 35% ID ID ID ID 20% 34% 46% 32 16% 38% 46% 89 19% 35% 46% 80 23% 41% 37% 13% 49% 38% ID ID ID 25% 26% 49% 31 19% 32% 49% 69 26% 31% 43% 62 24% 30% 46% 15% 47% 37% ID ID ID PRE-MEDICARE-ELIGIBLE RETIREES MEDICARE-ELIGIBLE RETIREES 64% 57% 31 27 68% 67% 86 66 67% 61% 80 61 60% 49% 50% 45% ID ID OFFER OUTPATIENT PRESCRIPTION DRUGS 94% 31 100% 88 97% 80 91% 94% ID 49% 44% 28 24 46% 42% 84 65 49% 40% 73 56 40% 30% 35% 31% ID ID OFFER RETIREE HEALTH COVERAGE TO: PRE-MEDICARE-ELIGIBLE RETIREES MEDICARE-ELIGIBLE RETIREES TYPE OF PLAN OFFERED TO PRE-MEDICARE-ELIGIBLE RETIREES INDEMNITY PPO POS HMO TYPE OF PLAN OFFERED TO MEDICARE-ELIGIBLE RETIREES INDEMNITY PPO POS HMO CONTRIBUTION REQUIREMENTS FOR RETIREE-ONLY COVERAGE, PREMEDICARE-ELIGIBLE EMPLOYER PAYS ALL COST IS SHARED RETIREE PAYS ALL CONTRIBUTION REQUIREMENTS FOR RETIREE-ONLY COVERAGE, MEDICAREELIGIBLE EMPLOYER PAYS ALL COST IS SHARED RETIREE PAYS ALL OFFER DENTAL COVERAGE TO: OFFER VISION COVERAGE TO: PRE-MEDICARE-ELIGIBLE RETIREES MEDICARE-ELIGIBLE RETIREES SHADED COLUMNS ARE PROJECTIABLE TO THE ENTIRE POPULATION. UNSHADED COLUMNS REPRESENT ONLY THE RESPONDENTS. 2003 MERCER NATIONAL SURVEY OF EMPLOYER-SPONSORED HEALTH PLANS ID = INSUFFICIENT DATA Mercer Human Resource Consulting 1 G:\WORK\AZLCO1\Project\Final_Deliverables\Mercer_National_Survey-Government.xls Arizona Retiree Health Insurance Study Arizona Legislative Council State Public Employee Health Plan Retiree Health Care Subsidies Non-Medicare Arizona Alabama Alaska Arkansas California Colorado Connecticut Delaware Florida Hawaii Illinois Kentucky Louisiana Maine Maryland Massachusetts Michigan Missouri North Carolina Nevada New Hampshire New Mexico New York Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Tennessee Texas Vermont Virginia West Virginia Washington Average Minimum 25th Percentile Median 5 Years Single Family $75.00 $130.00 $0.00 $0.00 $0.00 $0.00 $194.12 $531.76 $0.00 $0.00 $57.50 $57.50 $363.41 $726.82 $368.86 $757.22 $30.00 $30.00 $0.00 $0.00 $100.95 $201.90 $100.95 $201.90 $302.84 $605.69 $201.90 $403.79 $126.18 $252.35 $317.71 $761.50 $383.60 $383.60 $86.00 $171.00 $403.79 $285.92 $102.05 $205.85 $276.05 $552.10 $5.59 $13.24 $363.41 $605.69 $0.00 $0.00 $105.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $242.27 $484.55 $403.79 $403.79 $323.03 $646.06 $0.00 $0.00 $121.14 $242.27 $102.35 $102.35 $149.48 $253.73 $0.00 $0.00 $0.00 $0.00 $102.05 $201.90 10 Years Single Family $150.00 $260.00 $446.00 $446.00 $403.79 $807.58 $194.12 $531.76 $165.50 $390.00 $115.00 $115.00 $363.41 $726.82 $368.86 $757.22 $50.00 $50.00 $201.90 $403.79 $201.90 $403.79 $201.90 $403.79 $302.84 $605.69 $403.79 $807.58 $252.35 $504.71 $317.71 $761.50 $383.60 $383.60 $171.00 $342.00 $403.79 $285.92 $220.64 $324.44 $276.05 $552.10 $33.55 $79.44 $363.41 $605.69 $100.95 $201.90 $105.00 $105.00 $133.97 $133.97 $0.00 $0.00 $201.90 $403.79 $221.58 $431.60 $242.27 $484.55 $403.79 $403.79 $323.03 $646.06 $0.00 $0.00 $242.27 $484.55 $102.35 $102.35 $232.89 $402.53 $0.00 $0.00 $141.99 $230.95 $220.64 $403.79 Medicare 15 Years Single Family $150.00 $260.00 $446.00 $446.00 $403.79 $807.58 $194.12 $531.76 $248.25 $585.00 $172.50 $172.50 $363.41 $726.82 $368.86 $757.22 $75.00 $75.00 $302.84 $605.69 $302.84 $605.69 $302.84 $605.69 $302.84 $605.69 $403.79 $807.58 $378.53 $757.06 $317.71 $761.50 $383.60 $383.60 $257.00 $514.00 $403.79 $285.92 $339.24 $443.04 $276.05 $552.10 $61.50 $145.63 $363.41 $605.69 $227.13 $454.26 $105.00 $105.00 $156.30 $156.30 $403.79 $807.58 $201.90 $403.79 $221.58 $431.60 $242.27 $484.55 $403.79 $403.79 $323.03 $646.06 $60.00 $60.00 $323.03 $646.06 $102.35 $102.35 $277.59 $484.77 $60.00 $60.00 $198.01 $334.76 $302.84 $514.00 20 Years Single Family $150.00 $260.00 $446.00 $446.00 $403.79 $807.58 $194.12 $531.76 $331.00 $780.00 $230.00 $230.00 $363.41 $726.82 $368.86 $757.22 $100.00 $100.00 $302.84 $605.69 $403.79 $807.58 $403.79 $807.58 $302.84 $605.69 $403.79 $807.58 $403.79 $807.58 $317.71 $761.50 $383.60 $383.60 $342.00 $685.00 $403.79 $285.92 $457.84 $561.64 $276.05 $552.10 $89.46 $211.83 $363.41 $605.69 $302.84 $605.69 $105.00 $105.00 $178.63 $178.63 $403.79 $807.58 $282.65 $565.31 $221.58 $431.60 $282.65 $565.31 $403.79 $403.79 $323.03 $646.06 $60.00 $60.00 $403.79 $807.58 $102.35 $102.35 $304.76 $533.74 $60.00 $60.00 $225.79 $334.76 $323.03 $565.31 5 Years Single Family $50.00 $85.00 $0.00 $0.00 $0.00 $0.00 $60.52 $239.76 $0.00 $0.00 $28.75 $28.75 $123.73 $247.46 $368.86 $757.22 $30.00 $30.00 $0.00 $0.00 $34.37 $68.74 $34.37 $68.74 $103.11 $206.22 $68.74 $137.48 $42.96 $85.92 $272.43 $544.86 $130.61 $261.21 $40.00 $80.00 $217.66 $285.92 $68.40 $320.00 $174.09 $348.18 $3.65 $3.65 $123.73 $206.22 $0.00 $0.00 $105.00 $105.00 $60.00 $60.00 $0.00 $0.00 $0.00 $0.00 $221.58 $431.60 $20.00 $20.00 $137.48 $137.48 $109.98 $219.97 $0.00 $0.00 $41.24 $82.49 $102.35 $102.35 $80.11 $149.39 $0.00 $0.00 $11.83 $11.82 $50.00 $85.00 10 Years Single Family $100.00 $170.00 $129.00 $129.00 $137.48 $274.96 $60.52 $239.76 $165.50 $390.00 $57.50 $57.50 $123.73 $247.46 $368.86 $757.22 $50.00 $50.00 $68.74 $137.48 $68.74 $137.48 $68.74 $137.48 $103.11 $206.22 $137.48 $274.96 $85.92 $171.84 $272.43 $544.86 $130.61 $261.21 $80.00 $160.00 $217.66 $285.92 $186.99 $438.59 $174.09 $348.18 $21.90 $21.87 $123.73 $206.22 $34.37 $68.74 $105.00 $105.00 $60.00 $60.00 $0.00 $0.00 $68.74 $137.48 $221.58 $431.60 $20.00 $20.00 $137.48 $137.48 $109.98 $219.97 $0.00 $0.00 $82.49 $164.98 $102.35 $102.35 $111.02 $203.70 $0.00 $0.00 $64.63 $103.68 $102.35 $164.98 15 Years Single Family $100.00 $170.00 $129.00 $129.00 $137.48 $274.96 $60.52 $239.76 $248.25 $585.00 $86.25 $86.25 $123.73 $247.46 $368.86 $757.22 $75.00 $75.00 $103.11 $206.22 $103.11 $206.22 $103.11 $206.22 $103.11 $206.22 $137.48 $274.96 $128.88 $257.76 $272.43 $544.86 $130.61 $261.21 $120.00 $239.00 $217.66 $285.92 $305.59 $557.19 $174.09 $348.18 $40.15 $40.10 $123.73 $206.22 $77.33 $154.67 $105.00 $105.00 $60.00 $60.00 $137.48 $274.96 $68.74 $137.48 $221.58 $431.60 $20.00 $20.00 $137.48 $137.48 $109.98 $219.97 $60.00 $60.00 $109.98 $219.97 $102.35 $102.35 $132.41 $239.95 $20.00 $20.00 $93.13 $133.24 $109.98 $206.22 20 Years Single Family $100.00 $170.00 $129.00 $129.00 $137.48 $274.96 $60.52 $239.76 $331.00 $780.00 $115.00 $115.00 $123.73 $247.46 $368.86 $757.22 $100.00 $100.00 $103.11 $206.22 $137.48 $274.96 $137.48 $274.96 $103.11 $206.22 $137.48 $274.96 $137.48 $274.96 $272.43 $544.86 $130.61 $261.21 $160.00 $319.00 $217.66 $285.92 $424.19 $675.79 $174.09 $348.18 $58.40 $58.32 $123.73 $206.22 $103.11 $206.22 $105.00 $105.00 $60.00 $60.00 $137.48 $274.96 $96.24 $192.47 $221.58 $431.60 $30.00 $30.00 $137.48 $137.48 $109.98 $219.97 $60.00 $60.00 $137.48 $274.96 $102.35 $102.35 $146.57 $263.24 $30.00 $30.00 $102.73 $133.24 $129.00 $239.76 Note: For cases of percentage subsidies, the following premiums were used as baselines: Non-Medicare (ASRS PacifiCare HMO) - $403.79 single/$807.58 family; Medicare (ASRS PacifiCare Medicare Advantage) - $137.48 single/$274.96 family Data extracted from Watson Wyatt's Premium Benefit Supplement Survey dated December 3, 2003. Sample Premium Benefit Methodology Non-Medicare Arizona - Current Possible HMO & Medicare Advantage Plans Possible Method PPO 5 Years Single Family $75.00 $130.00 10 Years Single Family $150.00 $260.00 15 Years Single Family $150.00 $260.00 20 Years Single Family $150.00 $260.00 5 Years Single Family $50.00 $85.00 Medicare 10 Years 15 Years Single Family Single Family $100.00 $170.00 $100.00 $170.00 20 Years Single Family $100.00 $170.00 $72.68 $145.36 $104.99 $209.97 $169.59 $339.18 $201.90 $403.79 $41.24 $82.49 $59.12 $118.23 $94.86 $189.72 $112.73 $225.47 $129.60 $259.20 $187.20 $374.40 $302.40 $604.80 $360.00 $720.00 $94.91 $189.81 $136.03 $272.06 $218.28 $436.56 $259.41 $518.81 Non-Medicare 0-4 5-7 8 - 10 11 - 13 14 - 16 Over 17 Mercer Human Resource Consulting Medicare 0% 18% 26% 34% 42% 50% 0-4 5-7 8 - 10 11 - 13 14 - 16 Over 17 1 of 1 0% 30% 43% 56% 69% 82% G:\WORK\AZLCO1\Project\Final_Deliverables\ Subsidies - 11-29-04.xls |Subsidies| 12/6/2004 2:22 PM