City of Lowell Adoption of Section 18A MGL Chapter 32B Public Hearing February 9, 2010

Overview MGL 32B, Section 18A What is Medicare? Lowell Statistics & Health Costs Retiree Health Insurance Why Adopt Section 18A?

MGL 32B, Section 18A MGL 32B governs municipal health insurance Sections 18 & 18A: Acceptance requires transfer of all eligible retirees to Medicare Part B (physician insurance) “18A” applies to future Medicare eligible retirees only Emergency legislation – passed Nov ’08 Local acceptance statute Requires adoption by City Council

Section 18 Communities Springfield Worcester Billerica Burlington Chelsea Dedham Fall River Haverhill Needham Salem Framingham Arlington Waltham West Springfield 140+ municipalities have adopted Section 18 including:

Before Section 18A Upon acceptance of Section 18: City would be required to locate & enroll all Medicare eligible retirees City would be required to pay the Medicare waiver fine to federal government for unenrolled Upon acceptance Section 18A: City enrolls only Medicare eligible who retire after provision adoption with no penalties due No effect on current retirees

What is Medicare? Federally provided medical insurance coverage for: Retirees/Spouses 65+ years Disabled < 65 years End-stage Renal Disease Part A-Hospital Insurance Available premium-free if you are 65+, and you or spouse paid Medicare Tax for at least 10 years Part B-Medical Insurance Available to Part A holders for a current monthly premium of $110.50

Medicare Eligibility Eligibility is determined by the Social Security Administration Municipal Employees were not eligible for Medicare coverage until 1986, when the Federal Government required employees hired after April 1, 1986 and employers to contribute 1.45% of salary with employer match of 1.45% Not all city “retirees” qualify for Medicare: “Early” retirees under age 65 Retirees 65+ hired before 1986

Medicare Premiums Non-Medicare Eligible retirees stay on active employee plans – pay no Medicare premium Penalty paid by Medicare eligible retirees for late enrollment: 10% per year for each year not enrolled No penalties for future retirees w/18A Future Medicare eligible retirees accept Parts A & B through SSA upon reaching eligibility

Medicare Supplement Plans City of Lowell offers: Medex & Carve-Out A & B Supplements Medicare A & B to provide coverage that is actuarially equivilant to active employee indemnity plans Monthly premium: $121.50/month Managed Blue for Seniors (New) Supplements Medicare A & B to provide equivalent coverage to Network Blue HMO Preventative Care Wellness Benefits Monthly premium: $107/month (estimated)

How Will Section 18A Help? Need to reduce costs where possible Improves OPEB liability & bond rating Provides for long term savings NO IMPACT on existing retirees NO IMPACT to future non-Medicare retirees Non-Medicare eligible stay in active plan NO PENALTIES to Retirees or City Long-term strategy

Health Insurance Costs Limited ability to control health costs Unsustainable rate increases MA has highest medical costs in US Costs increase as revenues decrease Impact employees, retirees & taxpayers Affect hiring & delivery of public services More $$ for benefits = Less $$ for salaries Fewer laborers, firefighters, police, teachers

Health Insurance Costs FY01-10 (Rounded In millions) FY01FY02FY03FY04FY05FY06FY07FY08FY09FY10 Health Expenses Operating Budget % of Operating Budget 5.1%6.7%8.1%9.6%8.6%11%10.7%10%11%13% Over the Last 10 years: Annual costs: $13.1M to $39.3M (200%) 5% of Operating Budget in FY01 13% of Operating budget in FY10

Health Insurance Statistics $56 Million in claims per year 8,300 members 4,500 plans: 2,000 Retirees 2,500 Employees

Lowell’s Retiree Group 2,000 Retirees in our group health Insurance: 66% in Medicare supplements 34% in Active/non-Medicare plans 689 Retirees remain in Active Plans : “Early” Retirees under age 65 Spouses, Dependents, Survivors Non-Medicare eligible 65+

Cost of Retiree Benefits Cost of Post Employment Benefits OPEB Liability is $433 Million Impacts Bond Rating – effect of growing health care costs on City’s financial stability Pension costs

Retirees in Medicare Plans 1,300+ in Medicare Supplements 91% voluntarily choose Part B already

New Option: Managed Blue for Seniors City proposes new Managed Care Supplement Plan for Medicare Retirees: Preventative Care: Routine Physicals, Screenings, Vision/Hearing exams, $10 co-pay Tiered prescription coverage Wellness Benefits (Fitness, Weight Watchers) Coverage available through Blue Cross Network Monthly retiree premium estimated at $107

Financial Impact - City Annually - Based on current/single plan coverage Plan Coverage: Active Plans: Master Medical Blue Care Elect PPO Network Blue HMO Medicare Plans: C/O A&B or Medex Medicare Part A Medicare Part B Medicare A&B Total: 25% Employee Contribution $2,497 $2,219 $2,046 $1,462 $0.00 $1,326 $2,788 75% City Contribution $7,491 $6,657 $6,138 $4,386 - $4,386 Premium Savings To City per Retiree $3,105 $2,271 $1,752 Per Medicare Retiree

Section 18A Impact on Retiree Benefits No change in the current indemnity plan’s benefits for subscribers who enroll in Carve-Out A & B or Medex plans. Must present Medicare card in addition to Blue Cross Blue Shield card to providers.

Adoption of 18A is the Fiscally Responsible Choice Since 1986, the City and new employees each began contributing to Medicare taxes. We’ve been paying in but not receiving full benefit Soon all employees will be Medicare eligible Cost-shifting from City to the Federal Government 80% of qualified medical claims will be paid by Medicare instead of the Health Trust City can budget with guarantee that retirees will accept Part B when eligible

Adoption of 18A is the Fiscally Responsible Choice Most Medicare Eligible retirees are already enrolled in Medicare – 91% Medicare plus Medicare supplemental plans are equivalent to active employee plans Prospective - NO impact on current retirees No risk of future penalties for Retiree or City Health cost control a necessity Immediate reduction in OPEB liability