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Office of Group Benefits September 25, 2014
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OGB Since 2008
$500
$2,500
$4,500
$6,500
$8,500
$10,500
$12,500
$14,500
$16,500
$18,500
2008 2009 2010 2011 2012 2013 2014
National Average OGB Rates PPO Out-Of-Pocket Max PPO Deductible
Since 2008, OGB has passed along fewer costs to its members than the rest of the country
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Today
• OGB’s HMO plan has the richest benefits in the region
• Premiums are 15% lower than national average
• If no changes are made, claims will outpace revenue by $16 million each month
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HISTORY
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OGB Members
Retirees + dependents
34%
Active state employees + dependents
38%
Active school employees + dependents
28%
Over 5064%
Under 5036%
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How Did We Get Here?
In 2008, OGB eliminated its EPO plan in favor of a new HMO plan
Traditional HMO OGB HMO
Narrow network Nationwide network that covers 98.7% of providers used by OGB members
Care driven by primary care physician through referrals and prior authorizations
No prior authorization or referral requirements
Providers incentivized to control utilization and cost
Providers incentivized to increase volume
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Membership in HMO
The design of the OGB HMO incentivized members to join through large provider network, low co-pays and low premiums.
85,139
105,828 111,968 113,980
154,524162,564 166,670 169,802
79,676 79,186 73,384 69,04062,109 57,496 53,985 51,536
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
HMO/ASO PPO
Membership in the PPO declined by 35%Membership in the HMO increased by 99%
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Expenses 2008-2014
$0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
$700,000,000
$800,000,000
$900,000,000
$1,000,000,000
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Total Admin Costs Total Medical Claims Costs Total Pharmacy Claims Costs
+23.6%
+160%
+8%
2008 - 2013 total inflation 11.6%
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Medical Claims Breakdown
The biggest increase in expense has come from the HMO plan.
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
ASO/HMO CLAIMS EXPENDITURES PPO CLAIMS EXPENDITURES
CDHP CLAIMS EXPENDITURES TOTAL MEDICAL CLAIMS EXPENDITURES
Unit cost decrease + 99%
-10%
+23%HMO Growth
2008: 8%
2009: 16%
2010: 11%
2011: 25%
2012: 10%
2013: 2%
2014: 10%
PPO Growth
2008: 2%
2009: 2%
2010: 2%
2011: -9%
2012: -6%
2013: -13%
2014: 8%
Unit cost decrease
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Utilization vs. Unit Cost
There are two factors that determine claims expenses: unit cost and utilization
$130.00
$126.37 $125.74
$128.08
$123.00
$126.00
$129.00
$132.00
2011 2012 2013 8M/14
HMO Unit Cost
29,441 31,404 33,33837,427
0
10,000
20,000
30,000
40,000
2011 2012 2013 8M/14
HMO Utilization
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Utilization
$260 $270 $280 $290 $300 $310 $320 $330 $340 $350
Regional Industry PPO
2013 OGB
Total Medical Claims PMPM
$- $50 $100 $150 $200
Louisiana
2013 OGB
Total Pharmacy Claims PMPM
OGB’s total medical claim cost
per member per month is 17% higher than the regional benchmark.
OGB’s rate of pharmacy claims is
129% greater than the
Louisiana benchmark.
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OUTSOURCING
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Why Change?
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Administrative Expenses Peaked in 2012
PBM ADMINISTRATIVEEXPENSES
MEDICAL TPAADMINISTRATIVE EXPENSES
BEHAVIORAL HEALTHADMINISTRATIVE EXPENSES
OGB ADMINISTRATIVEEXPENSES
TOTAL ADMINISTRATIVEEXPENDITURES
Administrative costs peaked in 2012, but declined sharply in 2013 once we outsourced PPO administration to a TPA.
% of Total on Admin
6.35% 5.78% 5.54% 5.48% 6.29% 5.85% 5.51% 4.84%
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Third-Party AdministratorAfter a competitive bid process, Blue Cross and Blue Shield of La. was selected in 2011 to administer the HMO benefit plan, and PPO in 2013.
• Today Blue Cross serves as a Third Party Administrator (TPA) by providing a provider network, customer service, and processing claims.
• The TPA contract expressly prohibits Blue Cross from playing a role in benefit design.
• OGB is rebidding the TPA agreement in 2015 for a new agreement beginning 1/1/16.
• The new TPA will be required to provide TPA services, plus enhanced analytics and population health management.
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Savings
Blue Cross and Blue Shield took over claims administration for the PPO plan in January 2013.
$79.6M
$73.4M
$69.7M
FY 2012 FY 2013 FY 2014
Administrative Costs
$213 M
$189 M$204 M
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
FY 2012 FY 2013 FY 2014
Total PPO Medical Expenses
15
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2011 vs. Today
2011 2014
Medical Claims $851 million $974 million
Pharmacy Claims $262 million $368 million
Administrative Costs $67.8 million $69.7 million
Administrative % 5.5% of total expenses 4.8% of total expenses
Premiums for individual member in HMO
$139.30 $140.28
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CASH BALANCE
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Cash Balance
$182M
$341M
$503M
$548M
$595M $592M
$538M
$371M
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
Year-end Cash Balance
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What is the Cash Balance?
• Cash balance is all cash on hand
• Fund balance is all cash - IBNR
• IBNR is an estimate of incurred but not reported claims
IBNR
Fund Balance
CASH BALANCE
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Target Balance
$113 million(highest monthly disbursement
over last six months)
$226 million(two times the average
monthly disbursement over the last six months)
Based on best practices of funds maintained by other insurance entities and the National Association of Insurance Commissioner’s risk based capital standards for health insurance companies. The target balance falls between $113 and $226 million. .
OGB Fund
Balance
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Rate Decrease
In 2011, our year-end cash balance was $595.4 million and fund balance was $499.8 million. 326% above its current target.
• OGB’s actuary recommended lower rates.
• Most state employees had not received merit increases in several years.
• Lowering rates in 2012 and 2013 gave families enrolled in OGB plans an additional $500 each year.
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Where Did the Reserves Go?
Rate Reduction (School Boards & Others Employee & Employer Savings)
$29,000,475 7%
Rate Reduction (State Agency Employee Savings)
$13,244,312 3%
Rate Reduction (State Agency Employer Savings, State
General Fund)$18,392,467
5%
Rate Reduction (State Agency Employer Savings, Other Means of
Funding)$15,479,479
4%
Payment of Claims, $327,789,174 , 81%
At the same time, other revenues increased which offset the effect of premium decreases by $29M.
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What if these plans are not implemented?By the end of fiscal year 2015, OGB will have only $8 million in reserves. It will have two options:
Immediately raise premiums by 37% for all members
Immediately raise premiums by 25% for all members
Implement $145 million in plan changes. (For reference, the 2015
plan changes will save $130 million)
ORAND
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TODAY
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State by State Plan Comparison
Many states contribute one rate to the employee and the employee must “buy up” both plan and family members.
• Not all offer HMO plans
• Most are introducing CDHPs
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Plan RichnessPew Study - Only calculated plan contribution on premium and claims. OGB plans were just below the national average, but still would be considered a Platinum Plan on the healthcare exchange.
Buck Analysis - Analyzed plan designs and compared benefits to benefits for southern states. OGB HMO carries the highest Actuarial Value of any other plan in the south. PPO was average.
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The Move to Consumer-Driven Plans
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Today at OGB
OGB is in the same situation as other employers across the country:
• Health care costs rising at 6% a year
• The Affordable Care Act will cost $24 million a year starting in 2015
• The ACA includes the possibility of the “Cadillac Tax” of $31 million in 2018
• The cash balance is at its target level and can no longer be used to offset member costs
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Cost Management Options
1. Raise premium rates
2. Adjust benefits
3. Increase member cost share
4. Reduce administrative costs
5. Lower provider reimbursement
6. Improve health of members
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OGB Plan
• Rates went up for the first time in nearly three years in July. They will NOT go up again in January. Administrative savings are expected by reducing central office expenditures and by continuing to partner with a health plan
• New wellness program designed to help members focus on health and prevention
• Some benefit changes to HMO and PPO in January, along with new lower cost offerings
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STRATEGIC CHANGES
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Redesigned Strategic Direction
Old OGB New OGB
Acted like insurance company Employer who strategically manages employee benefit plan offerings
Processed claims Manages vendor partnerships
No big picture claims analytics Strategic utilization management
Excessive span of control Functional organization with technicalexpertise
Communication inefficiencies Improved communication and technology
Inefficient Efficient
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ReorganizationOGB’s new role and commitment is to manage benefit plans and to achieve maximum efficiency while considering best practices. In order to leverage vendor partnerships, OGB’s organization will be streamlined to allow for the blending of functions, the re-alignment of employee skills and the maximization of efficiency and productivity.
• Two positions have been created to focus on wellness -OGB plans to hire from within the organization.
• One position has been created in budget to allow for greater oversight of the budgetary process and actuarial analysis.
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PLAN CHANGES
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Where are we now?
July 1, 2014 January 1, 2015
Four plans for active employees, retirees without Medicare and retirees with Medicare (as secondary plans)
Six plans for active employees, retirees without Medicare and retirees with Medicare (as secondary plans)
Two co-pay plans, two deductible and co-insurance plans available
Three co-pay plans, three deductibleand co-insurance plans available
Routine vision include in two plans Routine vision included in one plan
Multiple Medicare Advantage plans as alternatives for Medicare eligible
Multiple Medicare Advantage plans as alternatives for Medicare eligible
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What’s really different?HMO Plan = Magnolia Local Plus
July 1, 2014 January 1, 2015
Primary care co-pay = $15Specialty care co-pay = $25
Primary care co-pay = $25Specialty care co-pay = $50
ER co-pay = $100 ER co-pay = $150
Out-of-network coverage available No out-of-network coverage available (Last year, 98.7% of providers were covered in-network)
Out-of-pocket max = $1000 Out-of pocket max - $3000
Deductible = $0 Deductible =$500
New Option – Magnolia Local
July 1, 2014 January 1, 2015
Not available Baton Rouge, New Orleans and Shreveport networks available
Not available Access to Blue Cross’s Blue Connect and Community Blue networks
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What’s really different?PPO Plan = Magnolia Open Access
July 1, 2014 January 1, 2015
Deductible = $500 (active employees)Deductible = $300 (retirees)
Deductible = $1000 (all individual plans)
Out-of-pocket max = $1500 Out-of pocket max - $3000
CDHP = Pelican HSA 775
July 1, 2014 January 1, 2015
Monthly premium = $115.28 Monthly premium = $56.99
New Option – Pelican HRA
July 1, 2014 January 1, 2015
Not available Monthly premium = $98
Not available $1,000 - $2,000 in employer funding that offsets half of the deductible
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What’s really different?15% of members account for 77% of claims expense
Average spend:
• Employee Only HMO: $250
• Employee + : $466
• Employee Only PPO: $664
• Employee + : $1,170
Does not mean all members will see an increase
Cost can decrease based on individual choice
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Member Outreach and Education
• Decisions guides mailed to homes
• Reminder postcards
• Extended customer service hours
• 43 statewide meetings
• 16 live webinars
• Recorded webinars
• Website
• HR reps
• Retirement associations
• Public service announcements
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APPENDIX
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The State of the IndustrySince 1999, the cost of health care has increased by 196%
$0
$4,000
$8,000
$12,000
$16,000
$20,000
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
+196%
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When is the HMO the Right Choice?
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OGB vs. LSU First
LSU First OGB
# of Options 26 (active employees)
5 (retirees)
# of High Deductible Options
22 (active employees)
1 (retirees)
# of HMO Options 0 3
Lowest DeductibleAvailable
$1,500 $500
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HMO Medical Expenses
$580,848,778
$650,279,394 $665,876,409
$739,494,508
$367,959,978
$481,771,264
$532,878,771
$592,450,420
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
BCBS HMO CLAIMS EXPENDITURES HUMANA/UNITED HMO/EPO CLAIMS EXPENDITURES
$580,848,778
By replacing Humana with BCBS as the administrator of the HMO Plan, and eliminating the EPO Plan, OGB saved $11.6 million in claims costs between FY10 to FY11. The EPO Plan was eliminated due to BCBS' nationwide network.
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PPO Medical Expenses
$231,682,384$237,394,541
$242,757,134$247,077,486
$225,835,731
$213,017,154
$115,690,237
$73,560,050
$204,597,106
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
OGB PPO CLAIMS EXPENDITURES BCBS PPO CLAIMS EXPENDITURES FY13 PPO EXPENDITURES (OGB + BCBS)
By outsourcing the administration of the PPO plan to BCBS, OGB saved $23.8 million in claims costs in FY13 over FY12.
$73,412,680
$115,690,237
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Timeline
• Oct 1 – Annual Enrollment Begins
• Oct 15 – Medicare Advantage Open Enrollment Begins
• Oct 31 – Annual Enrollment Ends
• Nov 14 – Deadline for agencies to enter all plan changes made during Annual Enrollment period
• Dec 7 – Medicare Advantage Open Enrollment Ends
• Jan 1 – 2015 plan year begins
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Comparing Apples to OrangesAlabama
SEHIPArkansas - Classic Miss - Select
LouisianaHMO
BCBSLA - High Ded Average
BCBSLA – PPO Average
BCBSLA – HMO Average
Plan Type PPO HMO PPO HMO PPO PPO HMO
Employee Risk Factor ? ? ? ? ? ? ?
State Cost Index ? ? ? ? ? ? ?
Employer Contribution 64%EE - 87%; Family
71%Legacy 95% EE.
65% Family75%
Premium EE contribution –Single
$46 $20/$38 $140 $321 $376 $443
Premium EE Contribution-Family
$306 $667/$685 $488
Deductible$300/person 3
max$1000S/ $2000F $1,000
$500 EE/$1500 Fam (non-copay)
$2,645 $1,119
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Today
Employers across the country are shifting to consumer-driven plans
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What if these plans are not implemented?
If the January 1 changes are not implemented and OGB builds its reserves up to 2011-2012 levels, it would take even more drastic increases.
$399 M
55% increase
$277 M
50% increase
$508 M
69% increase
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Scenario: Employee Only
Employee Only Scenario I: 1 wellness, 1 PCP, 1 SCP, 1 UCC, 1 Generic, 1 Tier II, plus employee premium
$2,468
$1,902
$1,544
$2,449 $2,528
$2,841
Current HMO HRA 100 HSA775 Local Local Plus Open Access
Difference between current HMO to Magnolia Local Plus is $60
$924
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Scenario: Employee Only 2
Employee Only Scenario II: 1 wellness, 2 PCP, 2 SCP, 2 UCC, 1 ER, 1 Generic, 1 Tier II, plus employee premium
Difference between current HMO to Magnolia Local Plus is $170
$2,633 $2,582 $2,308
$2,723 $2,803
$3,569
Current HMO HRA 100 HSA775 Local Local Plus Open Access
$325
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Scenario: Employee Only 3
Employee Only Scenario III: 1 Hospital Visit, 1 wellness, 2 PCP, 2 SCP, 2 UCC, 1 ER, 1 Generic, 1 Tier II, 1 Tier 3, plus employee premium
Current HMO to Magnolia Local Plus is $590* assumes all $500 deductible is applied for other services included in hospital stay
$3,893
$5,718 $5,469
$3,903 $4,483
$4,781
Current HMO HRA 100 HSA775 Local Local Plus Open Access
($1576)
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Scenario: Family
Family Scenario I: 4 wellness, 6 PCP, 6 SCP, 6 UCC, 4 Generic, 2 Tier II, plus employee premium
Difference between current HMO and Magnolia Local Plus is $259
$7,928
$5,734 $5,274
$7,911 $8,187
$9,821
Current HMO HRA 100 HSA775 Local Local Plus Open Access
$2654
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Scenario: Family 2
Family Scenario II: 4 wellness, 8 PCP, 8 SCP, 8 UCC, 1 ER Visit, 4 Generic, 2 Tier II, plus employee premium
Difference between current HMO and Magnolia Local Plus is $429
$8,858 $9,838 $9,378
$8,761 $9,537
$11,953
Current HMO HRA 100 HSA775 Local Local Plus Open Access
$1204
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Scenario: Family 3
Family Scenario III: 1 Hospital Visit, 4 wellness, 8 PCP, 8 SCP, 2 UCC, 2 ER, 4 Generic, 2 Tier II, plus employee premium
Difference between current HMO and Magnolia Local Plus is $979* assumes all $500 deductible is applied for other services included in hospital stay
$8,558
$9,838 $9,378 $8,761
$9,537
$11,953
Current HMO HRA 100 HSA775 Local Local Plus Open Access
($820)
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Frequently Asked Questions
Are plans changing because of the Blue Cross contract?
No. The reason costs are rising is a rise in utilization, not administrative costs or network changes. We have actually seen our administrative costs and unit cost (network) costs decrease since partnering with Blue Cross. That’s part of the reason we’ve been able to keep rates low for our members over the past few years.
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Frequently Asked Questions
Can we extend annual enrollment?
State employees pay their premiums one month in advance. So, in December state employees pay their January premiums out of their paychecks. Our annual enrollment period spans the month of October to allow our payroll departments time to process members selections and ensure accurate deductions in January. Extending the enrollment period would mean that members would pay their entire monthly premium out of one paycheck.
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Frequently Asked Questions
Can I still go to the same hospitals as last year?Yes. The network has not changed for the plans within the Blue Cross network. We offer one brand new option with a narrow network for people who choose to trade lower premiums for a smaller network. But, it is a new option and not a change to a current plan.
What does out-of-network mean?Out-of-network coverage is coverage outside of the plan’s covered network of providers. 98.7% of claims paid last year are within Blue Cross’s nationwide network.
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Frequently Asked Questions
What’s the difference between a deductible and an out-of-pocket maximum?
Deductibles are thresholds that must be met before a change in cost-share occurs. In the PPO plan, if your deductible is $1,000, you must spend $1,000 before your insurance will start paying 90% of your cost of care. In the HMO plan, the deductible only applies when the co-pay doesn’t. That means that physician visits will still require a co-pay, but you must meet the deductible before your insurance will pay the full cost of dialysis and other more specialized services.
An out-of-pocket maximum is the maximum amount you can pay out-of-pocket in one play year. It means that if the worst case scenario happens, you won’t be required to pay more than the maximum.
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Frequently Asked Questions
How would your cash balance have been affected if you hadn’t decreased rates in 2012 and 2013?
OGB would still have dipped into its reserves by $100 million and would still need to make changes today.
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Frequently Asked Questions
Is it true that your reserves will be depleted by the end of the year?
Not as long as these changes are implemented by January 1. OGB’s actuary predicts that OGB will have $243 million in cash on hand (including a $118 million fund balance) at the end of FY15. The LFO’s projections predict $119 million in the fund balance at the end of the year.
Those numbers are within OGB’s target range for a healthy balance.
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Frequently Asked Questions
Has money been taken from OGB’s reserves to balance the budget?
No. The money in the fund balance is only used to pay for health care claims and OGB administrative expenses. It has never been moved or used anywhere else.
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Frequently Asked Questions
How does the Affordable Care Act impact costs?
Some plan changes are required by ACA, including preventive services for women and covering pre-existing conditions. Additionally, fees and plan changes related to the ACA will cost OGB $24 million each year, requiring OGB to make changes that offset those costs. An additional $31 million “Cadillac Tax” could be necessary in 2018 if plans remain the same as they are today.