Behind the Scenes: 2006-07 Plan Renewals
LACERS provides health insurance for over 15,000 retirees and
their dependents. We currently offer four HMOs (Kaiser, Blue
Cross, SCAN, and Secure Horizons), one PPO (Blue Cross),
two dental plans (SafeGuard, Wellpoint), one vision plan for non-
Kaiser subscribers (Vision Service Provider), and a caregiver
program (Evercare – Solutions for Caregivers). Our contracts with
these health plans require annual renewals of premium rates and
reviews of plan designs in order to ensure that you are able to
receive quality cost-effective healthcare. LACERS’ health plans presented their proposed 2007 premium rates in July, at which
time LACERS staff and our Health and Welfare Consultant
reviewed the rates and analyzed the methodology used to
determine them.
The estimated cost for providing the overall healthcare (medical,
dental, and vision costs) to LACERS retirees for 2006 is $58.9
million in total premiums. Premium rates are determined by many
different factors, including use of facilities, numbers and types of
claims, and use of prescription drugs. Due to continued increases
in health care costs, the numbers of claims per subscriber, and the
number of large claims (claims over $200,000), the preliminary
premium rates for 2007 increased. For 2007, the medical
insurance premiums alone (not including dental and vision)
increased approximately 21% from $54.1 million to $65.4 million.
After several meetings with the plan providers and direction from
the LACERS Board’s Benefits Administration Committee, we were
able to reduce the 2007 medical insurance costs by over $1.5
million to $63.8 million. The overall cost of our health plans in 2007,
including dental and vision benefits, was $68.9 million. Although we
were able to reduce costs, the associated monthly premiums were
still high. In order to lower the premium rates, we needed to
consider plan design changes. Because we did not want to
sacrifice your benefit options to lower costs, the Benefits
Administration Committee decided to consider co-pay increases to
determine what their impact would be on your monthly premiums.
Co-pays for office visits have not increased in at least seven years
(with the exception of a Kaiser-mandated increase) and
prescription drug co-pays have not increased for at least four years.
Two levels of co-pay increases were reviewed. Although the costs
for office visits and prescription refills would be higher (co-pays for
generic medication will have minimal, if any, increase), your
monthly premium costs would be lower. After many discussions
with our Health and Welfare Consultant and meetings with the
Benefits Administration Committee, LACERS decided to
implement the first level of co-pay increases, which can be found inside your copy of the 2007 Health Benefits Guide. We anticipated that
our members would appreciate paying less of a premium on a monthly
basis in exchange for moderate increases when utilizing services.
Using Kaiser HMO as an example, the 2006 single member premium is $459. In 2007, without any co-pay increases, the premium would have been $506 per month, an increase of $47 per month or $564 per year. The co-pay increases reduced the 2007 monthly cost to $490 – a decrease of $16 a month or $192 per year. For Kaiser HMO members,
the average number of office visits per year is five. Therefore, the
increased cost of office visit co-pays would be $27.50 per year. The
average number of prescriptions is 10.9, but since generic prescription
drug costs are remaining the same, there will be no additional increase
for prescription drug co-pays in the Kaiser HMO plan as long as all prescriptions are generic. As a result of our new co-pay schedule, the
average Kaiser HMO member will experience a medical cost increase
of $517.50 per year versus the original $564 increase.
Adopting the new co-pays lowered LACERS’ overall health plan costs
for 2007 to $65.8 million, an 11.7% increase over last year. The cost of
just the medical plans under this plan design is $60.7 million, an
increase of 12.3% from last year.
These increases may still seem large, since during plan years 2005
and 2006, rates actually decreased. However, those decreases were
due to anticipated funding from the Medicare Part D options. MediPart D has since been in effect and the funding realized. Unfortunately,
the health plans did not receive the anticipated amounts of
reimbursement from Medicare Part D, so LACERS must pay the
balance from what was accounted for during the previous renewals.
This contributed to the increases in this year’s rates.
The rate increase we will experience in 2007 is not unusual to
LACERS. In fact, the final medical costs increased an average of about
9.7% over the last 6 years, and three of those years had increases of
at least 18%. In comparison, the 2007 increase of 12% is reasonable,
as shown by the chart below.
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