mid-year budget update and review

MID-YEAR BUDGET

UPDATE AND REVIEWSeptember 18, 2013

Agenda• Federal Healthcare Legislation

• Medical and Prescription Drug Plan Update

• Texas County & District Retirement System Update

Health Care Legislation Update

Signed into law March 2010.

Supreme Court upheld portions of the law June 28, 2012.

Ongoing Regulations and Guidance have been issued.

Changes in County’s group health plan to comply as required.

Effective March 1, 2012 Harris County lost its “grandfathered” status.

The Affordable Care Act (ACA)Today is Tomorrow

ACAWhere we’ve been

Increased taxes for Tanning Services, Pharmaceuticals and Medical Device Manufacturers.

Applied for the Early Retiree Reinsurance Program…funds exhausted in early 2012.

Limits and limited reimbursement of over-the-counter medicine from Flexible Spending Accounts.

“Adult children” ages 19-26 covered by plan regardless of student or marital status.

Preventive care covered at 100%.

Expanded preventative care benefits.

Additional communication information included in enrollment materials.

Appeals process expanded for internal claims and new external review requirements.

Value of benefits reported on W-2’s.

Long-Term Care (CLASS Act) was repealed.

ACAWhere we’ve been

Coming soon Comparative Effectiveness Fee

of $1 per covered life per year in 2013 increasing to $2 for 2014

Marketplace Availability Model Notice to all employees by October 1, 2013

Marketplace exchanges open enrollment begins October 1, 2013

Exchange coverage and individual compliance begins January 1, 2014

ACA2014 and Beyond

Annual Health Insurance Provider Fee (Tax) effective January 1, 2014 for Harris County’s dental and vision plans

Limit effective dates for coverage of newly hired eligible employees to 90 days or less beginning March 1, 2014

Coverage for expenses related to approved clinical trials

Transitional Reinsurance Fee, effective from January 1, 2014 through December 31, 2016. For 2014, the contribution will be $5.25 per covered member per month

Maximum out of pocket limits for “essential health benefits” (Medical only for 2014; prescription drugs added in 2015)

“Employer Mandate” Delay Must offer minimum essential

coverage that is affordable as defined by the ACA

Must identify and offer health coverage to all full-time employees as defined by the ACA

Full-time (FT)= any employee who regularly works 30 or more hours per week, or averages 130 hours per month (look back period begins March 1, 2014).

ACA2014 and Beyond

“Essential” health benefits definitions will continue to be modified

Annual reporting requirement for employers and self-insured plans recently delayed until 2015

An excise tax (40% of incremental costs) is imposed on employer-sponsored health plans in 2018.

What does all this mean?

Medical Plan Update

Covered Employee/Retiree Changes

2004 2005 2006 2007 2008 2009 2010 2011 2012 201312,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

16,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000Insured Employees and Retirees

Empl

oyee

s

Ret

iree

s

Note: November actual enrollment each year. 2013 enrollment projected.

Retirees

Employees

A look back…Impact of Hiring Freeze

Mar-09 May Jul Sep Nov Jan-10 Mar May Jul Sep14,500

14,600

14,700

14,800

14,900

15,000

15,100

15,200

15,300

15,400

15,500

3,250

3,300

3,350

3,400

3,450

3,500

3,550

3,600

3,650

3,700

3,750 Insured Employees and Retirees

Empl

oyee

s

Ret

iree

s

Retirees

Employees

Commissioners Court implements policy of no new

positions in General Fund and limited filling of vacant

positions

Commissioners Court

implements hiring freeze

Active Workforce Demographics:32% of Insured Employees Are Now Age 50 or Over

(62% Are over Age 40)

2013

2010

2008

2006

2004

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

14.9%

15.0%

13.8%

13.6%

13.3%

23.0%

23.7%

25.6%

28.2%

29.3%

29.8%

30.5%

31.3%

31.2%

30.8%

23.7%

23.4%

23.4%

21.7%

21.6%

8.6%

7.4%

5.9%

5.3%

5.0%

Age 30-39 40-49 50-5918-29 60+Note: Data as of June of each year.

Impact of Under 65 Retirees:37% of Insured Retirees are Non-Medicare Age

2013

2010

2008

2006

2004

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

4.5%

7.7%

7.7%

9.1%

10.9%

32.8%

36.2%

35.1%

34.5%

31.6%

40.4%

35.1%

35.7%

35.0%

35.2%

22.2%

21.0%

21.5%

21.4%

22.3%

Age 55-64 65-74 75+<55Note: Data as of June of each year.

Covered Employee/Retiree Percentage Change

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10% Insured Employees & Retirees

Note: November actual enrollment each year. 2013 enrollment projected.

Employees

Retirees

Medical Plan is Fully Funded

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14*$0.0

$20.0 $40.0 $60.0 $80.0

$100.0 $120.0 $140.0 $160.0 $180.0 $200.0

$158.1 $172.2 $176.4

$182.3

$175.0

$87.6

$170.2 $177.9 $177.4

$171.9

$179.8

$90.7

Medical Plan Costs Premium Funding

Mill

ions

*Through August 2013.

$500,000 Every Day…

FY 2012-13 Total Medical Plan Costs ($ Millions)

Medical/Rx; $165.9

Administration incl. EAP; $7.0 Stop Loss Insurance, $2.14.0%

94.8%

1.2%

Where Harris County Medical Plan Dollars Are Spent (FY 2012-13)

Inpatient Facility; 21.7%

Rx; 20.1%

Pro-fes-

sional Ser-

vices; 17.0%

Radiology; 7.7%Ambula-tory Fa-

cility; 8.3%

Emer-gency Room; 5.4%

Office Visits; 5.6%

Medical Phar-macy; 5.8%Lab;

5.2%

Home Health;

2.8%

Outpa-tient

Mental Health;

0.4%

Note: Incurred with 2 month lag

Medical Cost Drivers• Uncompensated Care• Medicare Reimbursement Rates• Advancement in Treatment Options

and Technology• Waste and Fraud• Pre-Mature Babies and Aging

Population• Increased Life Span• Prescription Drugs• Chronic and “New” Illnesses• Legislative Changes/ACA• Defensive Medicine• Physician Ownership of Facilities• Utilization (Demand)• Catastrophic (and large) claims

3% of Harris County Members Incurred46% of All Claims Paid in 2012-13

Note: Excludes administration. *Includes all members covered throughout the plan year.

Claims Amount Total # Members* % of Total Total Claims Paid % of Total

Annual Claims Paid per Member

<$25,000 30,713 96.7% $88,856,565 53.86% $2,893 $25,000 - $49,999 625 2.0% $21,329,487 12.93% $34,127 $50,000 - $99,999 234 0.7% $15,805,251 9.58% $67,544

$100,000 - $199,999 118

0.6%

$15,841,945 9.60%

$134,254

$200,000 - $299,999 40$9,909,027

6.01%$247,726

$300,000 - $399,999 10 $3,337,291 2.02% $333,729

$400,000 - $499,999 7 $3,039,633 1.84% $434,233

$500,000 - $599,999 2$1,112,542

0.67%$556,271

$600,000 - $699,999 2$1,331,805

0.81%$665,903

$700,000+ 4 $4,420,198 2.68% $1,105,050 Total 31,755 100% $164,983,744 100% $5,196

FY 2012-13 Top 10 High Cost Claimants

Claimant Major Diagnosis Category Medical Paid1 Newborn $2,373,7322 Colon Diverticulitis $1,040,9823 Acute Respiratory Failure $930,4714 Heart Failure $908,9175 Intestinal Inflammation $739,2056 Cancer $675,9177 Influenza Virus / Pneumonia $665,7578 Human Immunodeficiency Virus Disease $665,0729 Heart Failure $560,276

10 Cancer $521,136

Note: Excludes administration and RX.

Top 10 Sites of Cancer (FY 2012-13)

Cancer Site MembersSkin 402

Breast 310

Prostate 262

Colorectal 102

Hodgkin’s Disease/Lymphoma 82

Malignant Melanoma 67

Lung 60

Leukemia 49

Bladder 45

Cervical 33

Cancer Incidence and Cost

FY 2011-12 FY 2012-13 % Change

Members 1,596 1,527 -4.3%

Medical Paid $13,821,407 $13,450,435 -2.7%

Pharmacy Paid $670,955 $937,268 39.7%

Total Paid $14,492,362 $14,387,703 -0.7%

Prescription Drugs

Prescription Drug Utilization of Harris County Members (FY 2012-13)

Approximately 85% of all members had at least one prescription.

Approximately 515,000 prescriptions filled (nearly 1,900 different drugs).

Average of 17.7 prescriptions per member per year.

Prescription Drug Cost TrendPer-Member-Per-Month

2011-12 2012-13 $25.00

$75.00

$125.00

$175.00

$225.00

$71.23 $65.35

$190.74 $180.78

$219.73

$178.21

Actives Retirees <65 Retirees 65+

Upcoming Major Generic Launches

Q3 2013• Niaspan

Q4 2013• Aciphex• Cymbalt

a

Q1 2014• Loestrin

Q2 2014• Celebrex• Detrol

LA• Lunesta• Nexium• Xeloda

Q3 2014• Evista• Renvela

Q1 2015• Namend

a

Q2 2015• Abilify

Recent Outpatient Drug Approvals

• Zubsolv

Addiction

• Gilotrif• Mekinist• Tafinlar

Cancer

• Epaned 

Hypertension

• Fetzima• Khedezla

Depression

• Lo Minastrin Fe

• BrisdelleEndocrine

• Trokendi XR

Epilepsy

Average Copayment % For All Drugs

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 1315%

17%

19%

21%

23%

25%

27%

29%

27% 27%

26%

24%

23% 23%22%

21%

24%

Generic Utilization Ratio Continues to Climb

FY 02FY 03

FY 04FY 05

FY 06FY 07

FY 08FY 09

FY 10FY 11

FY 12FY 13

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

38%41%

43%

48%51%

53%57%

60%63%

66%69%

76%

Top 10 Prescription Drugs by Total Cost 2012-13

Drug Diagnosis Patients Annualized Cost

Plan Cost/Rx

HUMIRA Rheumatoid Arthritis 65 $766,066 $2,116 CRESTOR High Cholesterol 1,144 $736,293 $119 NEXIUM Heartburn and Ulcer 868 $727,938 $164

ATORVASTATIN CALCIUM High Cholesterol 1,790 $602,848 $69 ENBREL Rheumatoid Arthritis 40 $549,177 $2,223 ABILIFY Psychiatric Disorders 183 $439,105 $525 ADVATE Hemophilia 3 $438,381 $39,853 LANTUS

SOLOSTAR Diabetes 386 $394,498 $224 CYMBALTA Depression 429 $361,485 $171 COPAXONE Multiple Sclerosis 14 $358,613 $4,122

Opportunities for Savings on DrugsCholesterol Management Drug Therapy

$9 $11$16 $17

$38

$115

$130 $132$138 $141 $143 $145 $145

$154

1550

164

564

81158

965

209228

752

184 203110

275 173

avg. charge per month# patients

Opportunities for Savings on DrugsHeartburn Management Drug Therapy

generic Pepcid

generic ZantacPrilosec OTC

generic Axid

generic Protonix

generic Prilosec

generic Prevacid

generic ZegeridDexilant

NexiumAciphex

$15$24 $18

$44 $46 $48$63

$110

$136

$190

$234

4472

016

267 283263

15

162

571

40

avg. charge per month # patients

Opportunities for Savings on DrugsDepression Management Drug Therapy

generic Celexa

generic Prozac

generic Zoloftgeneric Paxil

generic Wellbutrin

generic Wellbutrin XL

generic Effexor XR

generic Lexapro ViibrydLexapro Pristiq

Cymbalta

$8 $11 $13$22

$33$44

$55

$100

$117

$132 $137

$199

323

272

473

153138

223234

375

22

64

102

250

avg. charge per month # patients

Specialty Rx Costs Increasing

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-130.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

75.1% 74.0% 72.7% 71.0% 74.2% 72.6% 72.4% 72.6%

23.2% 23.6% 22.2% 19.4% 17.4% 16.8% 14.7% 13.6%

1.7% 2.4% 5.0%

9.6% 8.4% 10.6% 12.9% 14.2%

Harris County Rx Plan Dollars

Community Mail Order Specialty

Top 10 Specialty Drugs by Total Cost (FY 2012-13)

Drug Diagnosis

Patients Annualized Cost

Plan Cost/Rx

HUMIRA Rheumatoid Arthritis 64 $ 766,066 $ 2,116

ENBREL Rheumatoid Arthritis 39 $ 549,177 $ 2,223

ADVATE Hemophilia 3 $ 438,381 $ 39,853

COPAXONE Multiple Sclerosis 14 $ 358,613 $ 4,122

INCIVEK Hepatitis 5 $ 231,023 $ 17,771

ATRIPLA HIV 20 $ 221,541 $ 1,978

GLEEVEC Oral Oncolytics 3 $ 172,193 $ 8,200

REBIF Multiple Sclerosis 4 $ 170,496 $ 3,628

REVLIMID Oral Oncolytics 4 $ 166,838 $ 7,584

KUVAN PKU 1 $ 157,050 $ 13,088

FY 2012-13 Medical Costs by Group (Per-Member-Per-Month)

Actives Retirees (Non-Medicare) Retirees (Medicare) All Groups$0.00

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

$345.28

$652.64

$159.02

$348.77

$65.35

$180.78

$178.21

$86.20

$21.66

$27.71

$32.04

$23.23

Medical Rx Admin

Total $432.29

Total $861.13

Total $369.27

Total $458.20

FY 2012-13 Medical Cost and Premium Comparison by Group (Per-

Member-Per-Month)

Actives Retirees (Non-Medicare) Retirees (Medicare) All Groups $-

$100

$200

$300

$400

$500

$600

$700

$800

$900

$449.77

$624.28

$498.48 $468.26 $432.29

$861.13

$369.27 $458.20

Premiums

Medical Claims and Expenses

GASB 45 Retiree Healthcare Liability (3/1/2011 Valuation)

Unfunded Accrued Liability (UAL):Fully Eligible Actives $190.4 MNot Yet Eligible Actives $309.0 MRetired $477.3 M

Total UAL: $976.7 M Annual Required Contributions (ARC):

Service Cost At Year-End $34.9 M30-year Amortization of UAL $61.7 M

Total ARC: $96.6 M

County Paid Premiums: $38.2 M

FY 2014-15 Health Benefits Renewal

No premium changes for employees, retirees, and county departments for medical, dental, vision, life, and

long-term disability.

Rates, Plan Changes, and EAP Enhancement

Department Rate will remain at $11,116 per year

$104.90 per month will be added to the cost of Non-Medicare ( or under 65) retiree coverage for “non-grandfathered” retirees

Recommended increase in maximum out of pocket limits due to Affordable Care Act mandate

$100 copayment for complex imaging – Plus plan

Implementation of Healthy Actions Plan

Employee Assistance Program (EAP) recommended to be enhanced to provide additional elder care services

Base Plan vs. Healthy Actions Medical Plan

Plan Feature Base Plan Healthy Actions Medical Plan (HAMP)

Plan Deductible per Individual/Family (Per Calendar Year)

$500/$1,500 $250/$750

Maximum Out-of-Pocket – includes medical deductible, coinsurance and copays

$4,000/$10,000 $3,500/$8,750

Primary Care Physician Visits $25 copay $20 copay

Specialist Office Visit Participating Aexcel providers Non-Aexcel participating providers

$40$50

$35$45

Employees who satisfied the criteria for the Healthy Actions Medical Plan will see that option on their 2014-2015 Open Enrollment Worksheet.

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TCDRS Update

TCDRS Funding Equation

When one piece moves, there has to be anequal or opposite move in the other pieces.

Employee Contributions

+County

Contributions+

Investment Returns

Retirement Benefits

What Is In a Retirement Check?

Employee Deposits; 10%Employer Deposits,

13%

Investment Earnings, 77%

Source: TCDRS

Higher TCDRS Contribution Rate in 2014 (Assuming No Plan Changes)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14* 2014-15*$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

13.00%

$63,427,707.0$63,619,549.0$68,824,674.0$79,100,488.0$82,175,827.0$88,172,958.7$93,199,497.9

$78,351,965.9$84,443,662.9$97,300,000.0$101,500,000.0

10.53%

10.05%9.81%

10.43%

9.64%9.74%

11.31%

9.82%

10.67%

11.59%

12.43%

County's Contribution County's Contribution Rate

*FY 2013-14 is projected based on current payroll and assumes no plan changes. FY 2014-15 assumes no plan changes and is based on an overall 2% aggregate payroll growth.

Note: Contribution rates are established by the TCDRS on a calendar year basis.

Employee Deposit Rate

Changed to 6%

Reasons For 2014 TCDRS Employer Rate Change

2013 Rate 11.59%

Investment Return 0.72%

Payroll / Salary Variation 0.21%

Withdrawal -0.07%

Demographic / Other -0.02%

2014 Rate (assuming no plan changes) 12.43%

TCDRS Investment Returns

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

8% Target Investment Return

Source: TCDRS

Projected TCDRS Employer Contribution Rates

2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 20337%

9%

11%

13%

15%

17%

19%

2008 2009 2010 2011 2012

Valuation Date

Harris County’s Retirement Plan Funded Ratio*

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201280%82%84%86%88%90%92%94%96%

Funded Ratio*

* Funded ratio is based off of valuation date and equals Unfunded Actuarial Accrued liability/Actuarial Value of Assets.

Governmental Accounting Standards Board (GASB)

Statement 68 Net pension liability on balance sheet instead of in the notes

to the financial statements.

Changes in calculation of long term unfunded liabilities

Differences between expected and actual investment returns on pension plan assets would have to be recognized as a pension expense over a closed 5-year period rather than being “smoothed” and then also being amortized as part of the unfunded liability.

Additional disclosure requirements.

Questions & Answers