NMRHCA Stake Holder Meetings September

NMRHCA’s Creation 2 NMRHCA established by the Retiree Health Care Act [10-7C-1 NMSA 1978] in July, 1990 with no initial appropriation NMRHCA began paying benefits in January, 1991 with statutory limitations to premium increases until 2008 NMRHCA was not prefunded in a similar manner as PERA and ERB “Future benefits may be modified from year to year in order to respond to changing financial exigencies” (10- 7C-3B) “Participating employers, employees and retirees are responsible for the financial viability of the program. The overall financial viability is not an additional financial obligation of the state” (10-7C-13-C)

NMRHCA Composition NMRHCA Currently serves approximately 300 public employers 50% Public Schools 25% State of New Mexico 25% Municipalities, Counties, Universities (not UNM or NMSU), and other public entities (e.g. Housing and Irrigation Districts) Approximately 100,000 active employees 54,460 Covered Retirees 31,058 Medicare eligible 18,233 Pre-Medicare 5, % retiree pay voluntary plans (e.g. dental/vision) 3

NMRHCA Finances* *Excludes 100% Retiree Pay Plans NMRHCA FY2014 Revenue $281,975,654 NMRHCA FY2014 Expenses $249,899,913 4

Back From The Brink and as Important as Ever 2007 Trust Fund set to be exhausted in 2014 Money drawn from fund 4 out of 5 previous years Unfunded Liability (GASB) of $4.1 billion 2013 Trust Fund to stay positive into 2029 $80 million added to fund over last three years Unfunded Liability of $3.6 billion Importance of NMRHCA Programs Retirement Planners Fidelity and Nationwide estimate that couples retiring in 2013 at the age of 65 will need, on average, $220,000 to cover medical expenses throughout their retirement NMRHCA reduces these expenses by well over 60% on average Average PERA Monthly Pension: $2,161 Average ERB Monthly Pension:$1,715 Average Monthly Social Security Benefit:$1,262 5

All Stakeholders Have Shared In Improving Plan Finances Cost Containment Strategies Pre-Medicare plan deductibles have increased from an average of $195 in 2009 to an average of $600 in 2013 Pre-Medicare plan out-of-pocket maximums have increased from an average of $1,500 in 2009 to an average of $3,600 in 2013 Medicare Supplement plans now require all members to pay the Medicare Part B deductible All prescription plans have shifted to members paying a percentage of totals costs (with minimums and maximums) and away from flat dollar copayments (retirees will be paying an additional 5% of total prescription costs) Revenue Enhancement Strategies Increased Retiree Health Care Premiums in accordance with medical inflation averaging 8 percent annually Continued pursuit of increase in contribution levels for active employees/employers All Stakeholders (Employees, Employers, and Retirees) have contributed to improved financial outlook 6

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Cost Management Efficacy NMRHCA - Five Year Financial History 2009 Actual2010 Actual2011 Actual2012 Actual2013 Estimate2014 Approved Plan Costs$201,481,000$205,328,000$205,345,400$223,991,700$235,593,700$258,318,900 Annual Increase Since FY % Medical Membership40,22441,88943,69046,69849,03251,484 PMPM Cost$417$408$392$400 $418 Year Over Year Increase-2.1%-4.1%2.1%0.2%4.4% Annual PMPM Increase Since FY % 8

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NMRHCA Program Is Manageable – But Significant Challenges Remain Recent improvements demonstrate that retiree health benefits can be managed in a responsible way over the long term Fundamental imbalances will require additional changes over time 10

NMRHCA’s Fundamental Challenges 11

NMRHCA Current Fund Balance Projection 12

NMRHCA Five-Year Strategic Plan Positive Fund Balance Through 2043 XPhase out “Family Coverage” subsidies for retirees with multiple dependent children XIncrease cost sharing on prescription coverage (stabilize plan/member share percentage) XIncrease cost-sharing of pre-Medicare Plans Implement graduated minimum age requirement (to receive subsidies)* Increase years of service required to receive maximum subsidy (currently 20 years) Reduce pre-Medicare retiree subsidies Reduce pre-Medicare spousal subsidies Implement enhanced wellness programs (premium incentives for participation/health status) Increase Employee/Employer contribution levels (requires legislative action) X indicates implementation starting in 2013 *NMRHCA will implement any minimum age requirement adopted by PERA and/or ERB 13

Impact of Five Year Plan Current Contributions Vs. Benefits Contributions Vs. Benefits With Five Year Plan 14

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NMRHCA Current Events Board Action for 2014 Raised rates 6% - 8% Continued phasing out child subsidies Committed to alter plans to preclude payment of “Cadillac Tax” Medicare Advantage Plans added expanding coverage locally and nationally Results Reduced unfunded liability by $200 million Reduced solvency deficit of outbound year by $120 million FY2015 Appropriation Request Membership Growth Medical Cost Trend Expansion of FTE’s to accommodate years of accumulated growth 2014 Legislative Session Working with Investments and Pensions Oversight Committee (IPOC) to develop legislation in accordance with statutory requirements “..At the first session of the legislature following July 1, 2013, the legislature shall review and adjust the distributions pursuant to Section NMSA 1978 and the employer and employee contributions to the authority in order to ensure the actuarial soundness of the benefits provided under the Retiree Health Care Act” (10-7C-15-G) 16

Active Employee/Employer Contributions to NMRHCA Effective July 1, 2012 contributions are made to NMRHCA as follows: Non-Enhanced Plans – 90% of membership Employer:2.0% of Salary Employee:1.0% of Salary Total:3.0% of Salary Enhanced Plans* - 10% of membership Employer:2.5% of Salary Employee:1.25% of Salary Total: 3.75% of Salary *Enhanced plans are defined by NMRHCA Statute as: (A) State Police member and adult correctional officer member coverage plan 1 (B) Municipal police member coverage plan 3, 4 or 5 (C) Municipal fire member coverage plan 3, 4 or 5 (D) Municipal detention officer member coverage plan 1 (E) A member pursuant to the provisions of the Judicial Retirement Act

Increase employee/employer contributions from 3% of payroll to 5.25% over a 6-year period as follows: 18 Legislative Proposal

Summary Impact Upon full implementation $90 million of additional revenue annually Employee Impact Example: An employee earning $40,000 annually currently pays $15.39 per pay period (1%) Each.25% increase will result in $3.84 less in take home pay each pay period. A.75% increase will result in an increased contribution of $11.52 per pay period or $300 annually Employer Impact Example: An employer (for each $40,000 employee) currently pays $30.77 (2%) per pay period Each.25% increase will result in $3.84 increase in contribution. A 1.5% increase will result in an increased contribution of $600 annually Each.25% increase in employer contribution will have an approximate $5 million impact on the general fund Each.25% increase in contributions extends NMRHCA’s solvency by approximately 1 ½ years 19

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