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The City of Memphis is self-insured for health insurance – meaning that the City pays claims for its employees directly – and utilizes a Third-Party Administrator (TPA), currently Cigna, to manage the operations of its medical benefits and Caremark to manage the operations of its prescription drug benefits. The City offers two health plans:

• Basic Plan – specific network of healthcare providers that contract with City to provide services at a reduced rate

• Premier Plan – managed network of primary care physicians and specialists. The Premier Plan is the highest enrollment plan for the City, with the vast majority of employees participating in this plan.

Family Plan Coverage Details – Basic and Premier Plans

Plan Component Basic Plan Premier Plan

In-Network Deductible $1,050 per family $300 per family

In-Network Co-Pay 10 percent of covered charges $20 for PCP, $40 for specialist

2013 Monthly Employee Contribution ($) $312.47 $322.56

Two surcharges may be applied to either plan based upon a member’s experience. A Spousal Surcharge of $25.00 per pay period is levied if an employee’s spouse has access to another health care plan, but chooses to participate in the City plan. A Tobacco Surcharge of $25.00 per pay period is levied for employees and dependents that use tobacco products. Employees must sign an affidavit indicating spousal availability of healthcare and/or tobacco use. This “self-identification” method is used to establish which employees pay the relevant surcharges.

Cost and Comparability

An important factor affecting City health care expenditures is the premium cost share split between the City and its employees. The City is supposed to fund 70 percent of employee health care premium costs and employees are to fund the remaining 30 percent of premium costs. However, the City has not adhered to this level – instead covering more than its 70 percent share in recent years. Initially, the City covered additional health care premium increases during the period of employee wage reductions. The City has outlined a plan by which it will incrementally step up to the 70-30 cost share within the next two fiscal years.

Three-Year Trend in Employer-Employee Health Premium Cost Share (All Funds)

FY10 % FY11 % FY12 %

Employer $47,547,047 74.0% $52,258,668 73.1% $51,372,415 75.7%

Employee $16,717,827 26.0% $19,248,892 26.9% $15,700,049 23.1%

Spousal Surcharge $0 - $0 - $413,975 0.6%

Tobacco Surcharge $0 - $0 - $369,125 0.5%

Total Contributions: $64,264,874 100.0% $71,507,560 100.0% $67,855,564 100.0%

On a fiscal year basis, from FY2008 to FY2012, the City’s General Fund contributions to the Basic and Premier Plans has increased by more 36.6 percent – or $11.5 million. During this period, the City’s FTEs increased by 54 positions, meaning that the City’s cost to provide medical coverage to an average General Fund employee increased by $1,801 – from $5,079 per year in FY2008 to $6,880 per year in FY2012. In FY2013, the City projects it will spend $45.4 million from General Fund on employee health care premiums – further increasing the per employee cost to $7,347 per year and overall spending growth

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of 44.1 percent since FY2008. By comparison, according to the Kaiser Family Foundation’s 2012 Employer Health Benefits Survey, nationally, large employers (200+ employees) that are self-funded experienced a 22.8 percent growth in premiums from calendar year 2008 through calendar year 2012.

General Fund Employer Health Care Premium Contributions – FY2008–FY2013

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Basic Plan $3,059,636 $2,829,616 $2,926,538 $2,636,306 $2,417,120 $2,885,034 Premier Plan $28,429,304 $31,606,152 $34,566,175 $39,982,226 $40,610,097 $42,494,374 Total $31,488,939 $34,435,769 $37,492,713 $42,618,532 $43,027,217 $45,379,408

FTEs 6,200 6,309 6,150 6,257 6,254 6,190

Cost per FTE $5,079 $5,458 $6,096 $6,811 $6,880 $7,331

In recent years the City began a wellness program, designed to pre-emptively identify or remediate health issues when they can be treated more easily and at a lower cost. This program, combined with certain incentives has shown preliminary success according to the City. Additionally, the City is working with its health care consultant to identify new opportunities to control costs and maintain adequate health insurance coverage for its employees.

Cumulative Percent Increases in Med. Insurance Premium Cost, CPI, Revenues - FY2008-FY2013

Employees in the public and private sectors generally share the cost of their health benefits in the form of contributions to monthly premium costs and making payment when receiving services – through a co-payment, deductible, co-insurance or other mechanism. For Memphis employees, monthly premiums range from $147.19 to $159.69 for single coverage and $312.47 to $322.56 for family coverage, depending upon the plan chosen.¹⁷ Once Memphis achieves a 30 percent premium share, Memphis employees will pay a competitive share of premium (30 percent – though currently the City is not charging employees the full 30 percent share) compared to comparable jurisdictions and public and private sector experiences.¹⁸ Additionally, the City is competitive among other public employers and the private sector in co-pays for office visits and prescriptions.

17 CY2013 rates

18 As previously noted, the City does not currently receive 30 percent of premium costs from employees, making the benefit to the employee richer than the adopted City cost share agreement.

0.0%

City General Fund Revenues (less Fund Balance Transfers)

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While the City’s health plan is generally competitive on most high-level plan details, the primary driver of the City’s health care costs is actual payment of claims because the City is self-insured. Thus, even though the City has a premium share in line with the private and public sectors, the lack of a significant deductible for employees significantly increases the City’s costs. The lack of higher deductible is notable as deductibles approaching $1,000 or more are seen in comparable jurisdictions and several thousand dollars in the private sector. This constitutes a generous benefit to City employees compared to other public and private employers.

Deductibles are also often cited as ways help control the cost of health care for employers. The theory suggests that when employees have a greater financial stake they reduce utilization. The challenge for many employers is to strike an appropriate balance between cost share to provide a disincentive to employees for needless or luxury medical attention, while not incentivizing short-term cost avoidance in seeking medical care for necessary services, which could adversely impact employee health and/or lead to more expensive conditions in the long-run.

The table below shows plan highlights for Memphis employees as compared to benefits received by similar employees in other jurisdictions.¹⁹ The table also contains data on private sector norms and state and local governments generally.

Major Comparable Health Benefit Plan Offerings – Family Coverage

City Monthly Employee

Contribution In-Network Deductible In-Network

Co-Pay Rx Co-Pay

The City also offers dental and vision plans to employees. According to United States Bureau of Labor Statistics 2012 National Compensation Survey data, only 56 percent of state and local government

19 In other jurisdictions, health insurance plans may vary by bargaining unit – this does not occur in Memphis. To ensure comparability, benefits offered to Memphis’ workforce were compared to the highest-enrollment plans in other jurisdictions. Family coverage is used in the comparison.

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employees have access to dental care through their employer and 39 percent have access to vision care.

Among private sector entities, the rate is even lower, with just 45 percent having access to dental care through their employer and 25 percent having access to vision care. City employees have access to three dental plans with various levels of coverage. Employees also have access to a vision plan with an option for a materials-only vision plan.

Dental and Vision Employee Costs (FY2012) Dental Coverage Employee Cost Per Month

Employee only $10.22 to $29.64

Employee + 1 $20.31 to $60.98

Family $37.57 to $88.72

Vision Coverage Employee Cost Per Month

Employee only $3.78 to $5.10

Employee + 1 $6.94 to $9.36

Family $11.79 to $15.88