AGENDA STAFF REPORT

Agenda Item AGENDA STAFF REPORT ASR Control 22-000608
MEETING DATE:	07/19/22
legal entity taking action:	Board of Supervisors
board of supervisors district(s):	All Districts
SUBMITTING Agency/Department:	County Executive Office (Approved)
Department contact person(s):	Kim Derrick (714) 834-2564
	Barbara Gondo (714) 834-7072

Subject: 2023 Retiree Self-Funded PPO Health Plan Rates

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approved Agreement to Form

Discussion

3 Votes Board Majority

Budgeted: Yes

Current Year Cost: See Financial Impact Section

Annual Cost: See Financial Impact Section

Staffing Impact:

# of Positions:

Sole Source: N/A

Current Fiscal Year Revenue: N/A

Funding Source: ISF Fund 292: 100%	County Audit in last 3 years: No

Prior Board Action: 7/13/2021 #26, 7/14/2020 #30, 7/16/2019 #23

RECOMMENDED ACTION(S):

Adopt the 2023 Retiree PPO Health Plan Rates for the self-funded Wellwise Retiree and Sharewell Retiree Health Plans.

SUMMARY:

Adoption of the retiree health plan rates for 2023 will allow the County to continue to offer health benefits and the Retiree Medical Grant to eligible County of Orange retirees.

BACKGROUND INFORMATION:

Human Resource Services (HRS) administers two self-funded retiree PPO Health Plans: Wellwise Retiree and Sharewell Retiree. Attachment A contains the recommended rates for these retiree health plans for the 2023 plan year. The County’s health and welfare benefits consultant, Mercer Health and Benefits, LLC (Mercer), has provided the analysis and assumptions used in calculating the 2023 rates in Attachment B, the 2023 Self-Funded PPO Health Plan Rate Requirements for Retirees report.

Rate Development

In developing the 2023 retiree PPO rates, HRS, in coordination with Mercer, reviewed prior-year medical and prescription claims data taking into consideration plan enrollment and Medicare eligibility and reimbursement and adjusted it based on future projected claims applying medical and pharmacy trend factors of 7 percent and 10 percent, respectively. The current PPO fund reserves were evaluated as well. Pharmacy claims represent approximately 33 percent of total healthcare costs for these plans and the 10 percent trend factor reflects the rising industry costs for both traditional and specialty prescriptions.

The individual 2023 PPO retiree health plan rates reflected in Attachment A are recommended to fund projected future claims and expenses while working to meet your Honorable Board of Supervisors (Board) approved target reserve of 15 percent Incurred But Not Reported medical claim reserve and a 15 percent Premium Stabilization Reserve.

For 2023, enrollment, costs and claim experience have been evaluated separately for Wellwise and Sharewell as well as for Non-Medicare and Medicare eligible participants to develop rates for the retiree plans.

With the Wellwise Retiree Health Plan, the County currently applies for the Medicare Part D federal Retiree Medical Drug Subsidy (RDS) under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Medicare provides incentives to Plan sponsors such as the County to provide prescription drug coverage to retirees that do not enroll in Medicare Part D. RDS is used to reduce rates for Medicare-eligible retirees and spouses enrolled in the Wellwise Retiree PPO Plan.

RDS has been declining over the last few years. This has prompted Mercer to look at alternatives to RDS. Currently RDS provides approximately $425,000 in reimbursement. Mercer has evaluated the Employer Group Waiver Plan (EGWP) as an alternative to RDS. The EGWP solution is projected to generate 1,600,000 in subsidies. Based upon this significant increase in subsidies, Mercer recommends that the County transition to EGWP. The reimbursement will be used to offset expense of the premiums. The Wellwise Medicare rates assume that the Board has approved the Amended Versions of 2023 Self- Funded health plan documents and the transition to the EGWP in a separate Board action.

Rates are generally set to fund projected future claims and expenses and maintain the Board of Supervisors (Board) approved 30 percent target reserve of $21 to $22 million, which includes a 15 percent Incurred But Not Reported medical claim reserve and a 15 percent Premium Stabilization Reserve. In 2021 the plan costs for the Wellwise and Sharewell plans exceeded premiums collected by approximately $7 million or 10 percent. The current reserve level is estimated at approximately $15 million

The combination of a decreasing fund balance and high claims experience in 2021 means the 2023 rate increase must be higher than trend to ensure premiums cover the cost of claims and begin to increase the fund balance back to Board target reserve level.

The rates have also been adjusted to ensure consistency and reasonability between coverage tiers (Retiree only, Retiree plus one-dependent and Retiree plus two or more coverage) aligning the differences in value between the plans including Medicare offsets. The increases and decreases in recommended premium vary by plan, enrollment tier and Medicare status. The 2023 retiree PPO health plan rates recommended by HRS and Mercer will increase by an average of 7.4 percent with rate adjustments varying by enrollment tier and plan.

Wellwise Retiree PPO Health Plan Rates

The overall Wellwise Retiree Health Plan 2023 rates will decrease on average by 5.1 percent from 2022 rates. The rate changes will vary based on the retiree's Medicare status. The 2023 average rate decrease is primarily due to the decrease Medicare rates and implementation of the EGWP.

• Rates for retirees under age 65 will increase by 50 percent. Claim costs have increased 70 percent driven primarily by an increase in catastrophic claims. Catastrophic claims have nearly doubled and represent nearly 70 percent of medical expense. This is a very small group with 104 members and, therefore, is subject to wide year-to-year fluctuations.

• Rates for retirees age 65 and older with retirees and dependent(s) enrolled in Medicare Parts A & B will decrease by an average of 13.9 percent. The decrease is primarily due to the transition to EGWP.

• Rates for retirees age 65 and older plan with participants in either the Medicare Part B “Only” coverage or dependent(s) under age 65 will increase from 5.1 percent to 35.7 percent depending on the retiree coverage tier. The wide variation is due to the impact from the EGWP transition.

Sharewell Retiree PPO Health Plan Rates

The overall Sharewell Retiree Health Plan 2023 rates will be increasing by an average of 7.4 percent from 2022 rates and will vary based on the participant’s Medicare status. The 2023 rate increase is primarily due to increase in catastrophic claims.

• Rates for retirees under age 65 will be increasing 25 percent. This is primarily due to catastrophic claims.

• Rates for retirees age 65 and older with retirees and dependent(s) enrolled in Medicare Parts A & B will vary from a decrease of 10 percent to an increase of 0.4 percent.

• Rates for retirees age 65 and older with participants in either the Medicare Part B “Only” coverage or dependent(s) under age 65 will be increasing from 5.2 percent to 22.2 percent. This is primarily due to catastrophic claims in the under 65 retirees.

Prior Board Actions

On July 13, 2021, the Board approved the 2022 Retiree Health Plan Rate Tables for the Wellwise Retiree and Sharewell Retiree Health Plans, and authorized the Chief of Human Resource Officer to continue to apply for the Medicare Part D subsidy for the Wellwise Retiree Health Plan.*

On July 14, 2020, the Board approved the 2021 Retiree Health Plan Rate Tables for the Wellwise Retiree and Sharewell Retiree Health Plans, and authorized the Chief of Human Resource Officer to continue to apply for the Medicare Part D subsidy for the Wellwise Retiree Health Plan.*

On July 16, 2019, the Board approved the 2020 Retiree Health Plan Rate Tables for the Wellwise Retiree and Sharewell Retiree Health Plans, and authorized the Chief of Human Resource Officer to continue to apply for the Medicare Part D subsidy for the Wellwise Retiree Health Plan.*

*All actions included authorization for the Chief Human Resource Officer to continue to apply for the Medicare Part D subsidy for the Wellwise Retiree Health Plan.

FINANCIAL IMPACT:

Retiree Health Plan costs are fully reimbursed by the participating retiree, but with contributions toward the premium made pursuant to the Retiree Medical Plan (which provides a "grant amount" based on years of service and other eligibility criteria and plan terms) adopted in 1993, as amended.

The Retiree Medical Grant amount is increasing 3 percent to $25.37 per Retiree Medical Year of Service. The increase is based upon the average of the increases and/or decreases of all County Retirees for the upcoming year. The average change in the Grant may not exceed three percent per year.

Appropriations for the retiree plans are included in Fund 292 FY 2022-23 Budget and will be included in the budgeting process for future years.

STAFFING IMPACT:

N/A

ATTACHMENT(S):

Attachment A - 2023 Retiree PPO Health Plan Rate Tables
Attachment B - 2023 Mercer Self-Funded PPO Health Plan Rate Requirements - Retiree Report