City of LowellAdoption of Section 18A MGL Chapter 32B

Public Hearing

February 9, 2010

Overview

MGL 32B, Section 18A

What is Medicare?

Lowell Statistics & Health Costs

Retiree Health Insurance

Why Adopt Section 18A?

MGL 32B, Section 18A

MGL 32B governs municipal health insurance Sections 18 & 18A: Acceptance requires

transfer of all eligible retirees to Medicare Part B (physician insurance)

“18A” applies to future Medicare eligible retirees only Emergency legislation – passed Nov ’08 Local acceptance statute Requires adoption by City Council

Section 18 Communities

Springfield Worcester Billerica Burlington Chelsea Dedham Fall River

Haverhill Needham Salem Framingham Arlington Waltham West Springfield

140+ municipalities have adopted Section 18 including:

Before Section 18A

Upon acceptance of Section 18: City would be required to locate & enroll all

Medicare eligible retirees City would be required to pay the Medicare

waiver fine to federal government for unenrolled

Upon acceptance Section 18A: City enrolls only Medicare eligible who

retire after provision adoption with no penalties due

No effect on current retirees

What is Medicare?

Federally provided medical insurance coverage for: Retirees/Spouses 65+ years Disabled < 65 years End-stage Renal Disease

Part A-Hospital Insurance Available premium-free if you are 65+, and you or

spouse paid Medicare Tax for at least 10 years Part B-Medical Insurance

Available to Part A holders for a current monthly premium of $110.50

Medicare Eligibility

Eligibility is determined by the Social Security Administration

Municipal Employees were not eligible for Medicare coverage until 1986, when the Federal Government required employees hired after April 1, 1986 and employers to contribute 1.45% of salary with employer match of 1.45%

Not all city “retirees” qualify for Medicare: “Early” retirees under age 65 Retirees 65+ hired before 1986

Medicare Premiums

Non-Medicare Eligible retirees stay on active employee plans – pay no Medicare premium

Penalty paid by Medicare eligible retirees for late enrollment: 10% per year for each year not enrolled

No penalties for future retirees w/18A Future Medicare eligible retirees accept Parts A &

B through SSA upon reaching eligibility

Medicare Supplement Plans

City of Lowell offers: Medex & Carve-Out A & B

Supplements Medicare A & B to provide coverage that is actuarially equivilant to active employee indemnity plans

Monthly premium: $121.50/month Managed Blue for Seniors (New)

Supplements Medicare A & B to provide equivalent coverage to Network Blue HMO

Preventative Care Wellness Benefits Monthly premium: $107/month (estimated)

How Will Section 18A Help?

Need to reduce costs where possible Improves OPEB liability & bond rating Provides for long term savings NO IMPACT on existing retirees NO IMPACT to future non-Medicare retirees

Non-Medicare eligible stay in active plan NO PENALTIES to Retirees or City Long-term strategy

Health Insurance Costs

Limited ability to control health costs Unsustainable rate increases

MA has highest medical costs in US Costs increase as revenues decrease

Impact employees, retirees & taxpayers Affect hiring & delivery of public services

More $$ for benefits = Less $$ for salaries Fewer laborers, firefighters, police, teachers

Health Insurance Costs FY01-10

(RoundedIn millions) FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Health Expenses 13.1 18.4 21.9 25.6 23.5 31.4 3.16 30.8 34.9 39.3

Operating Budget 259 275 270 266 273 285 296 309 319 309

% of Operating Budget 5.1% 6.7% 8.1% 9.6% 8.6% 11% 10.7% 10% 11% 13%

Over the Last 10 years: Annual costs: $13.1M to $39.3M (200%) 5% of Operating Budget in FY01 13% of Operating budget in FY10

Health Insurance Statistics

$56 Million in claims per year 8,300 members 4,500 plans: 2,000 Retirees 2,500 Employees

45%Retirees (2,013) 55%

Employees(2,479)

Lowell’s Retiree Group

2,000 Retirees in our group health Insurance: 66% in Medicare supplements

34% in Active/non-Medicare plans

689 Retirees remain in Active Plans :

“Early” Retirees under age 65

Spouses, Dependents, Survivors

Non-Medicare eligible 65+

Cost of Retiree Benefits

Cost of Post Employment Benefits

OPEB Liability is $433 Million

Impacts Bond Rating – effect of growing health care costs on City’s financial stability

Pension costs

Retirees in Medicare Plans

1,300+ in Medicare Supplements 91% voluntarily choose Part B already

Medicare Eligible Retiree ContractsPart A Only - No Part B

91%Medex &

Carve-Out A & B (1,200)

9%Carve-Out A

Only(124)

New Option: Managed Blue for Seniors

City proposes new Managed Care Supplement Plan for Medicare Retirees:

Preventative Care: Routine Physicals, Screenings, Vision/Hearing exams, $10 co-pay

Tiered prescription coverage Wellness Benefits (Fitness, Weight Watchers) Coverage available through Blue Cross

Network Monthly retiree premium estimated at $107

Financial Impact - City

Annually - Based on current/single plan coverage

Plan Coverage:

Active Plans:

Master Medical

Blue Care Elect PPO

Network Blue HMO

Medicare Plans:

C/O A&B or Medex

Medicare Part A

Medicare Part B

Medicare A&B Total:

25%

Employee

Contribution

$2,497

$2,219

$2,046

$1,462

$0.00

$1,326

$2,788

75%

City

Contribution

$7,491

$6,657

$6,138

$4,386

-

-

$4,386

Premium

Savings To City

per Retiree

$3,105

$2,271

$1,752

Per

Medicare

Retiree

Section 18A Impact on Retiree Benefits

No change in the current indemnity plan’s benefits for subscribers who enroll in Carve-Out A & B or Medex plans.

Must present Medicare card in addition to Blue Cross Blue Shield card to providers.

Adoption of 18A is the Fiscally Responsible Choice

Since 1986, the City and new employees each began contributing to Medicare taxes. We’ve been paying in but not receiving full benefit

Soon all employees will be Medicare eligible

Cost-shifting from City to the Federal Government

80% of qualified medical claims will be paid by Medicare instead of the Health Trust

City can budget with guarantee that retirees will accept Part B when eligible

Adoption of 18A is the Fiscally Responsible Choice

Most Medicare Eligible retirees are already enrolled in Medicare – 91%

Medicare plus Medicare supplemental plans are equivalent to active employee plans

Prospective - NO impact on current retirees

No risk of future penalties for Retiree or City

Health cost control a necessity

Immediate reduction in OPEB liability