1. Group Insurance Summary COUNCIL WORKSHOP MARCH 24, 2015

2. What Impacts Our Insurance ? Group Coverage – Refers to a single policy issued to the entire group. All eligible employees must be insured under the group to avoid adverse impact Class – the definition of who is to be covered under the Group. All active employees who are regularly scheduled to work 30 or more hours per week in a 130 day average rolling period. (New ACA definition.) Elected Officials Retired Employees Underwriting/Experience : Rates based on employee participation and demographics – Adverse Impact Claims experience of the Group Effect of increases in cost of insurance due to Affordable Care Act (ACA)

3. Adverse Impact Ages of the participants Gender of the participants Probability of the particular group being an adverse risk to the insurance company. Insurers are not necessarily fond of groups that have no turnover. If the insurer's loss ratio is to be favorable, some employees must leave the group due to retirement or terminations and new (and hopefully younger) employees must take their place. This turnover of employees helps bring a measure of stability in terms of insurance losses and possible adverse selection.

4. Section 125 Plan/Cafeteria Plan Benefits that have an impact on the taxation of an employee be rolled into one “Plan”. The Plan includes medical, dental, vision, flexible spending accounts (medical and dependent care), and basic life insurance. The Plan is called the “Cafeteria Benefits Plan” and is governed under Section 125 of the IRS Code. The Town adopted a Cafeteria Benefits Plan on 07/01/1999 and it was amended on 07/01/2007. Contributions an employee makes towards any of the Plan benefits are deducted from the employees earnings before taxes are withheld, thus reducing the employee’s earnings and reducing the employers tax liability to only the taxable amount of employee earnings. The IRS allows this relationship to exist as long as certain criteria are met by the Plan. These include: Annual Open Enrollment Period where employees designate the amount they authorize the employer to reduce their earnings in the upcoming plan year. Election decisions must be made in advance of the beginning of the plan year. Provisions for when an employee is allowed to make changes to their plan elections once the plan year has begun.

5. Role of Insurance Broker Brokers have access to a variety of insurance products and have the ability to deal with a range of insurance companies directly. Brokers help employers determine a price range and desired benefits and obtain premium quotes from insurers. The Broker will also assist the employer when insurance policies come up for renewal. If the proposed premium increase is unusually high, brokers explore other options for the employer up to and including conducting an annual search for a lower cost insurance for their clients. Brokers assist in explaining benefits options to employees at Open Enrollment, completing enrollment forms and ensuring enrollees receive the necessary documentation, such as a description of benefits and member cards. Our Broker of Record is Mr. Keith Kiser/ BBT, Senior Vice President, Employee Benefits Manager for NC, SC, GA, TN, FL and AL.

6. What exactly is a Broker of Record letter and why is it necessary? Insurance companies rely on insurance brokers to bring accounts to them for evaluation. Insurance companies do not want to tie up their underwriters by quoting the same risk to several different brokers. Therefore, each will recognize only one broker on any given risk. This broker is the official "broker (or agent) of record" and the insurance carrier will assume this person was the customer’s choice. Employers are generally best served by selecting, up front, one competent insurance broker who has access to all the markets and will consult with you on the resulting proposals. The choice of broker belongs entirely to us, so the broker can be later changed if desired.

7. Fully Insured VS. Self Insured Typically, employers that offer health insurance benefits finance those benefits in one of two ways. These plans differ by who assumes the insurance risk, plan characteristics, and employer size. Fully-Insured Plan - Employer purchases health insurance from an insurance company Self-Insured Plan – Employer provides health benefits directly to employees Fully Insured Plans Risk: In a fully insured plan, the employer pays a per-employee premium to an insurance company, and the insurance company assumes the risk of providing health coverage for insured events. Plan characteristics: In fully insured arrangements, premiums vary across employers based on employer size, employee population characteristics, and health care use. Premiums can also change over time within the same employer because of changes in the demographics of the employed group. Premium: Employers are charged the same premium for each employee. Employer size: Small employers that offer health benefits are typically fully insured. In 2008, 88 percent of workers in firms with 3–199 employees were in fully insured plans.

8. Self -Insured Risk: In a self-insured plan, instead of purchasing health insurance from an insurance company and paying the insurer a per-employee premium, the employer acts as its own insurer. The employer uses the money that it would have paid the insurance company and instead directly pays health care claims to providers. Self-insured plans contract with a third party to administer the plan, but the employer bears the risk associated with offering health benefits. Poor claims experience will have an adverse effect on plan costs. Employer pays for an entire claim regardless of the cost or purchases potentially costly re-insurance. Plan characteristics: Large employers often offer multiple self-insured health plans to different classes of workers. Benefits may vary for management and labor, and benefits may vary by occupation or even hours of work. Employer size: In 2008, 89 percent of workers employed in firms with 5,000 or more employees were in self-insured plans.

9. Reimbursement Accounts Reimbursement accounts are Tax advantaged accounts that work in conjunction with traditional or high-deductible health plans. There are generally the following reimbursement account types: Flexible Spending Accounts (FSA) –An FSA is an employee-funded benefit that allows employees to set aside pre-tax funds to pay for medical expenses. FSA funds are contributed through salary-reduction, and the amount is determined by each participating employee. Dependent Care Reimbursement Accounts (DCRA) - An DCRA is an employee-funded benefit that allows employees to set aside pre-tax funds to pay for dependent care expenses. DCRA funds are contributed through salary-reduction, and the amount is determined by each participating employee. Health Reimbursement Arrangement (HRA) - tax-advantaged benefit that allows both employees and employers to save on the cost of healthcare. HRA plans are employer- funded medical reimbursement plans. The employer sets aside a specific amount of pre-tax dollars for employees to pay for health care expenses on an annual basis.

10. HRAs can generate significant savings in overall health insurance costs HRAs may be designed in many fashions to suit the specific needs of employer and employees alike. It is one of the most flexible types of employee benefits plans, making it very attractive to most employers. The primary requirements for an HRA are: (1)the plan must be funded solely by the employer and cannot be funded by salary reduction. The employer sets aside a specific amount of pre-tax dollars for employees to pay for health care expenses on an annual basis (2)the plan may provide benefits for substantiated medical expenses only.

11. HRA Benefits to the Employer HRAs are most commonly offered in conjunction with a High Deductible Health Plan. As a general rule, moving to a High Deductible Health Plan will result in reduced premium costs, which creates real savings on healthcare costs for the employer. High Deductible Health Plan HRA contributions may then be funded using the savings gained from the lower premium costs. By funding an HRA, the employer effectively bridges the gap between the higher deductible and the expenditure amount at which the insurance coverage "kicks in" for their employees. Most importantly, all employer contributions to the plan are 100% tax deductible to the employer, and tax-free to the employee.

12. Health Care Reform/Affordable Care Act The Patient Protection and Affordable Care Act (PPCAC or ACA for short) was signed into law on March 23, 2010 by President Barack Obama. Employer Mandate is a requirement that all businesses with 50 or more full-time equivalent employees (FTE) provide health insurance to at least 95% of their full-time employees and dependents up to age 26, or pay a fee. Employers have to offer coverage to “substantially all” (95%) of their full-time employees. Coverage must be offered to dependents up to age 26. Spouses do not count as dependents, coverage does not have to be offered to spouses. Coverage offered to employees must be considered affordable. The employer mandate is based on full-time equivalent employees, not just full-time employees. Employees who work at least 30 hours per week, or whose service hours equal at least 130 hours a month, for more than a rolling120 days in a year are considered full-time under the ACA definition.

13. Experience 2014-2015 Fiscal Year to Date Medical Loss Ratio (MLR). Measure of how a Group is performing. Rolling 12 month period so eventually “bad” months fall off. Shows the effects of the Plan Design Changes Made for this Fiscal Year

14. Renewal and Beyond – First Glance Review preliminary rate renewal from BCBS: Initial renewal 11.3% rate increase. ACA Plan Fee 3.62% 0f that increase. Net increase due to experience 7.68%, BELOW TREND. Negotiating with BCBS now on a lower rate. Broker to go out into marketplace to two other carriers. Affect of Affordable Care Act on Plan which is 3.62% fee or $30,000 regardless of what plan or carrier may be chosen to service Town.

15. Proposed 2015-2016 Benefits Budget $861k (medical, dental, life insurance, short term disability, broker fee) For all Benefit Eligible Employees – Including employees who average 30 or more hours per week over a 130 day period. This will add at least 4 more employees due to the requirements of the ACA as discussed in previous slides. Requesting an 8.5% increase on paper until final numbers can be negotiated. $90k – Under age 65 Retirees $56k – Over age 65 Retirees