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HomeMy WebLinkAboutCouncil Presentation 10/15/2019 - Health Benefits Trust New VersionHealth Benefits Trust Curry C. Hale, Human Resources Director Jane Fairall, Deputy Town Attorney Background •In 2014, the Town moved from a fully-funded model to a self- funded model for health insurance benefits –Had previously moved to self-funded for dental benefits in 2010 •Rather than paying a fixed premium to an insurance carrier, the Town budgets for and pays claims costs based on participant utilization of benefits Benefits of Self-Funding •Control/flexibility of plan design –Allows for more customized, tailored plan design –Better aligns funding with wellness and population health management strategies •Better/more timely access to claims data •Cost –Mitigates marginal risk and profit charge inherent in fully-insured premium –Improved cash flow and interest earning Current Status of Self-Funded Program •Medical plan self-funded 7/1/14 •Total Loss Ratio (premiums paid by employee and employer vs. claims paid out) •Below 100% is a gain (funds reserves) •Above 100% is a loss •FY18 loss funded through reserves •Medical reserve-$640,407.18* •*includes a receivable of $1,207,406.89 in June Current Status of Self-Funded Program •Dental plan self-funded 7/1/2010 •Total Loss Ratio-gains funding reserves since FY12 •Dental reserve-$443,246.04 Note: Total self-funded reserve (medical & dental)-$1,083,653.22 A.R.S. §11 -981 State statute provides requirements for a municipality that establishes a self-funded program for employee benefits, when that municipality is located in a county with a population of 1,000,000 people or more Statutory Requirements •The Town shall: –Place the funds for the self-funded program in a trust fund, in amounts as determined by the Council –Designate a licensed risk management consultant or insurance administrator to assist in administration of the fund; license must be verified by Council –Appoint at least 5 joint trustees to administer the trust –Bond the trustees Statutory Requirements (Continued) •The Town shall: –Incorporate a stop-loss provision in the trust agreement •Stop-loss insurance creates maximum liability for the trust –insurance carrier assumes risk of loss beyond the stop loss threshold –Procure an annual audit by an external auditor; keep a copy of the audit report on file with the Town for at least 5 years –Not spend any money from the trust fund for any purpose not related to the fund –Revert funds in the trust fund to the general fund if the trust fund is no longer used by the Town Miscellaneous Statutory Provisions •Expenditures from and monies in the trust fund are not subject to statutory local government budget process •Town’s authority under this statute not subject to A.R.S. Title 20 (Insurance), but the insurance plans shall conform to the requirements of title 20 •Town not authorized to procure insurance from an insurer not authorized by the state Department of Insurance Draft Trust Document •Draft Trust Document created –Keeping in mind general purposes behind the creation of the trust –Reviewed best practices around the state •Cities of Peoria and Chandler •Town of Gilbert •Northern Arizona Public Employees Benefit Trust •Dysart Unified School District Responsibilities & Powers of Trustees •The Trustees may: –Adopt policies, rules and procedures for the administration of the Trust –Authorize the Plan Administrator (HR Director) or designee to retain the services of actuaries, auditors, engineers, private consultants, administrators and advisors as the Trustees consider necessary to carry out the business and purposes of the Trust –Seek private outside legal counsel when legal advice is considered necessary; for routine matters associated with administration of the Trust, the Trustees may seek counsel from the Town Attorney or designee –Recommend modifications of the terms and conditions of the Trust document to the Council –Authorize the Plan Administrator or designee to administer the day-to-day affairs of the Trust Management of Trust •The Trustees have the power to manage the Trust as follows: –To maintain the funds in a separate Trust account, at a financial institution approved by the Town –To request that appropriate Town staff provide services to the Trust –To keep full and accurate accounts, books, and records concerning the fund –To prosecute or defend actions, claims, or proceedings necessary or advisable for the protection of the Trust Management of Trust (continued) •The Trustees have the power to manage the Trust as follows: –To determine the appropriate amount of funds that the Trust should hold as Restricted Reserve, based on accepted actuarial standards and consistent with accounting principles generally accepted in the United States •Restricted Reserve = amount needed to pay Plan claims that are incurred but not reported, and also Plan claims that are incurred but not paid; amount must be attested to by an actuary who has been engaged to provide services to the Trust –To permit a Premium Holiday (i.e., period of time in which the Trust waives the total premium), but only if the holiday would not cause the funds to fall below the Restricted Reserve plus an amount equal to 6 months of premium payments for the Plan Management of Trust (continued) •The Trustees do NOT have authority or responsibility for the following: –Selecting and engaging an external auditor for the Trust –Selecting and purchasing stop-loss coverage for the Trust –Engaging third parties to provide services for the Plan –Designing , adopting, amending, or terminating the Plan –Ensuring that the Plan complies with state or federal laws mandating the terms of the Plan –Determining what portion of Plan premiums should be paid by Participants and Beneficiaries –Collecting premiums from Participants or Beneficiaries •These responsibilities remain with the Town Contributions •The Trustees shall determine the total premium that shall be required to participate in the Plan at each coverage level (e.g., individual coverage, family coverage) •In determining premiums, the Trustees shall consult with the risk management consultant or insurance administrator engaged to assist the Trust, the Plan Administrator, and the Finance Director, and shall also consult with an actuary familiar with the Trust and the Plan •The Trustees shall consider all reasonable factors, including: –Amount of reserves in the Trust, –Claims experience of the Plan and Trust –Market conditions –Cost trends •The Trustees shall determine the total premium no less frequently than annually, but the Trustees have the authority to increase premiums more frequently if reasonably necessary to protect the financial stability of the Trust Contributions (continued) •The Town determines if a portion of the premium should be paid by Participants and Beneficiaries, and what portion •The Town is responsible for collecting such portion from Participants and Beneficiaries and forwarding those monies to the Trust for deposit Specific Decision Points •Town must appoint at least 5 joint trustees to administer the trust –1 trustee may be –but is not required to be -a member of the Council –1 trustee may be –but is not required to be –an employee of the Town –No guidance in statute as to trustees otherwise Health Benefits Trust Feedback and Questions