Employee Benefits Committee February 17, 2005 Information presented by Keenan & Associates

1. Employee Benefits Committee February 17, 2005 Information presented by Keenan & Associates

2. What is a JPA ? • “JPA” stands for Joint Powers Authority • Consortium of public entities that join together to provide employee health and welfare benefits. • Larger Numbers – Risk Sharing, More Stability • JPA Advisory Committee - Employee input into the process. • The Santa Cruz JPA is officially named the Santa Cruz County Schools Health Insurance Group (SCCSHIG) and is a separate legal entity from each individual member district.

3. JPA Enrollment • The SCCSHIG Member Districts are: • Bonny Doon Union • Cabrillo College • Happy Valley Elementary • Live Oak Elementary • Mountain Elementary • Pacific Elementary • San Lorenzo Valley Unified • Santa Cruz City Schools • Santa Cruz County Office of Education • Scotts Valley Unified • Soquel Union

4. How Does the JPA Work Employee Advisory Committee JPA Board (11 members) Vendors Blue Cross Health Net Keenan & Associates Delta Dental VSP JPA Consultant/Adminstrator

5. Santa Cruz JPA Medical Plans What is “Self-Funding”? Our Prudent Buyer Plans are self-funded: • The SCCSHIG assumes the risk for all claims incurred by members. • The JPA collects a “premium” from each of its member districts. • Blue Cross draws from those funds to pay medical claims for employees and their dependents. • “Stop Loss” insurance to protect against catastrophic losses or large claims.

6. How a Prudent Buyer Claim is Paid The JPA gets the benefit of the Prudent Buyer Network discounts if you use a Blue Cross provider Your Provider is reimbursed Blue Cross draws from these funds to pay claims Santa Cruz JPA A stop loss carrier or “reinsurance” carrier protects the JPA against large claims. Your district remits “premium” to the JPA

7. Santa Cruz JPA Medical Plans Self Funding Components: • Adequate Reserves • Third Party Administrator (TPA) Rent a Provider Network Utilization Review Services Care Management Services • Stop Loss Insurance • Carve out benefits (Mental Health, Chiropractic) • Fully Insured Prescription Blue Cross acts only as a third party administrator Keenan is the Consultant/JPA Administrator

8. Administration and Insured Premium Dollars – Prudent Buyer % of medical (approximate) Rx (Insured with Blue Cross) 18% Stop Loss 4% Blue Cross ASO 3.8% MHN (Mental Health) 3.1% Chiropractic (CHPC) 1.2% Keenan Consulting* 0.7% COE Fees 0.1% *Keenan has provided the JPA Board with a compensation disclosure. Keenan’s direct and indirect compensation accounts for 1.85% of the total cost of all programs (Medical, Dental and Vision). Full Board letter dated 1/27/05

9. Financial Issues – What Led to Mid Year changes? • Renewal Timing • Changes in claims incurral patterns • Major increase in Large Claim activity, particularly after rate-setting • Relative richness of the Prudent Buyer Plans • Adverse Selection

10. Santa Cruz JPA Medical Plans PPO-Preferred Provider Organization • Member self-directs medical care • Referral not required for Specialist • Member’s “out of pocket costs” are lower when using the Blue Cross Prudent Buyer network • Consolidated to Prudent Buyer “Standard” and “Catastrophic” plans as the PPO offerings effective 7/1/04. PPO Network Out-of-Network

11. Santa Cruz JPA Medical Plans HMO-Health Maintenance Organization • Members must select and use a PCP (Primary Care Physician) who manages all medical care • Referrals required for Specialist Visits • Member pays a flat co-payment • Out of Network Services only approved if medically necessary

12. What is Adverse Selection? Adverse selection is a phenomenon where healthy members tend to gravitate towards the lower cost plans. This tends to tilt a plan with an even mix of lower and higher utilizers to a plan made up mostly of those that use the plan more. As the healthier members leave the program, the claims costs cannot be sustained by the premium generated. Can lead to a “Death Spiral”, where the more expensive plan ultimately cannot be continued.

13. How are we addressing Adverse Selection? Common Risk Pool This would entail having all of our plans and the associated claims costs in one pool. The JPA would still be able to maintain choice, but adverse selection would be mitigated since everyone is in the same pool.

14. Going Forward… The Executive Board and Advisory Committee rated the following as most important: Save/Keep the PPO Save/Keep the HMO plans Reduce Adverse Selection Contain Future Costs A challenge, since this is the “status quo”…

15. Going Forward • Consumer Directed Health Plans • Exclusive Provider or “EPO” • Fully Insured PPO • Only offer the PPO? • Only offer the HMO?

16. Marketing Issues – Limited Players and Networks Network vs. Cost Employees have historically wanted Santa Cruz Medical Clinic in network Only (2) HMO’s have historically contracted with the Clinic – Health Net and PacifiCare CaliforniaCare only contracts with PMG Blue Shield may be an alternative Are we willing to limit network for cost?

17. KEY ISSUES (1) • The plan increases we have been experiencing are not out of line with national and state trends. Our challenges are not unique. • There are limited plan providers that allow access to the Santa Cruz Medical Clinic. • Are we willing to change the provider network to achieve plan savings.

18. Key Issues (2) • Does it make sense to offer both self insured and fully insured plans. • Should fully insured and self insured plans be rated separately or together. • How do we handle retirees?

19. Next Meeting… Consumer Directed Health Care?