A Brief Introduction to GIC’s System of Retiree Health Insurance

OPEB CommissionApril 5, 2012

Catharine Hornby, General Counsel, GIC

Legal Framework

• Public retiree health insurance established in statute– State retiree health insurance established in G. L. c. 32A:

• “The commission shall require that, upon retirement of an employee, the policy or policies of insurance as set forth in section six, except the optional group life insurance referred to therein, shall provide that . . . health insurance . . . as may be applicable, shall be continued.” -- § 10

• Survivors in § 11• Contribution ratios established in line item language in the annual General Appropriations Act (GAA).

– Municipal retiree health insurance established in G. L. c. 32B:• Retirees in § 9; survivors in §§ 9B, 9C.• Contribution ratios set by local option. §§ 9A, 9C, 9D, 9D ½, 9 D ¾, 9E, 9F, 9G• Options to transfer enrollees and dependents to the GIC. § 19 or §§ 21 & 23.

• Participation in a GIC health plan does not create contractual rights :– Pensions rights vest:

• “[Present and past pension] provisions … shall be deemed to establish . . . membership in the retirement system as a contractual relationship under which members . . . are entitled to contractual rights and benefits, and no amendments or alterations shall be made that will deprive any such member . . . of their pension rights . . . if such member . . . [has] paid the stipulated contributions.” -G. L. c. 32, § 25(5)

– No equivalent rights established in Chapter 32A or Chapter 32B

2

Who

• Retirees – “Employees formerly in the service of the Commonwealth or certain

of its political subdivisions, whose services ended on or after January 1, 1956 and who are eligible for and are receiving and continue to receive a retirement or pension allowance from a participating retirement system, including from the Board of Higher Education's Optional Retirement Program.” 805 C.M.R. § 1.02

• Survivors – until remarriage or death • Dependents – of eligible retirees and survivors, generally until

age 26

3

What

• Mix of self-insured and fully insured plans

• Fully-insured:– GIC pays premium to health plan– Health plan administers benefits and pays claims– Cost = state share of premium times enrollment

• Self-insured– GIC pays administrative services only (“ASO”) fee to health plan– Health plan administers benefits– GIC pays claims– Cost = ASO fee + claims costs – out-of-pocket expenses (deductibles,

copays, any coinsurance, any non-covered expenses)

4

Retiree Benefits and Medicare

• Medicare plans– Retiree / survivor enrolls in Medicare

• Required by law for those who are Medicare-eligible

– GIC “Medicare plans” provide supplemental coverage

• Non-Medicare plans– Non-Medicare retirees and survivors participate in same pool as active

employees– Retirees generally benefit from sharing risk across a pool that includes

younger enrollees

5

Excerpted from:

Age-Sex Report, Pool I, FY07-FY11Prepared by Catherine Moore for the February 10, 2012 GIC Commission Meeting

THE GIC’S RETIREE POPULATION

HEALTH EXPENDITURES: GIC AND ENROLLEES FY2001 – FY2011

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

State Share of Premium Enrollee Share of Premium Out-of-Pocket Expenses

9.9%

9.4%

8.5%

74.3

%

9.2%

75.6

%

8.4%

76.5

%

73.9

%

8.5%

75.2

%

77.0

%

8.0%

7.2%76

.9%

77.1

%

14.4%

15.7%

15.1%15.9%

16.9%16.3%

14.9%15.1%

15.8

%77

.3%

7.0%

72.9

%17

.8%

9.2%

Millions 9.8%

72.3

%17

.9%

February 10, 20127

TOTAL HEALTH EXPENDITURES

GIC enrollees’ total health expenditures (the state’s and the enrollees’ insurance costs and enrollees’ out-of-pocket expenses), rose $734 million, from $1,246 million in FY2007 to $1,983 million in FY2011 – an increase of 59.2 percent

This is slightly higher than the 56.8 percent increase in the total cost of health insurance, which rose $648 million, from $1,142 million in FY2007 to $1,790 million in FY2011

Note that the increases in both the total health expenditures and the total cost of health insurance are partially driven by substantial GIC enrollment growth since FY2007

February 10, 20128

AVERAGE COST OF HEALTH INSURANCE ANNUAL PERCENTAGE CHANGE

FY2007 – FY2011

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2007 2008 2009 2010 2011

An

nu

al

Ch

an

ge

GIC per Enrollee National Average Inflation (CPI)

February 10, 2012

Sources: National Survey of Employer-Sponsored Health Plans, Mercer Human Resource Consulting, 2010 Survey Report and the U.S. Bureau of Labor Statistics http://data.bls.gov/PDQ/servlet/SurveyOutputServlet9

GIC ENROLLMENT FY2007 – FY2011ACTIVE AND RETIRED ENROLLEES

65,975 68,771 70,613

81,823

89,156

81,298 84,429

87,152 95,016

99,077

40%

41%

42%

43%

44%

45%

46%

47%

48%

49%

50%

51%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

FY2007 FY2008 FY2009 FY2010 FY2011

Retired Enrollees Active Enrollees

Re

tire

es

as a

Pe

rce

nt o

f To

tal E

nro

llme

nt

(blu

e li

ne)

February 10, 201210

GIC ENROLLMENT FY2007 – FY2011MEDICARE AND NON-MEDICARE RETIREES

19,254 19,775 20,036 23,650

25,963

46,721 48,996

50,577

58,173

63,193

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

FY2007 FY2008 FY2009 FY2010 FY2011

Non-Medicare Retirees Medicare Retirees

February 10, 201211

ENROLLMENT FY2007 – FY2011Actives and Retirees

Retiree enrollment grew by 23,200 contracts, and outpaced the growth in the number of active employees despite their significant increase (17,800 contracts)

Seventy percent of the retiree enrollment growth was in Medicare contracts (roughly maintaining the GIC’s ratio of Medicare to non-Medicare retirees)

Most of the GIC’s enrollment growth in the past five years (35,700 out of 41,000 new enrollees) occurred as a result of municipalities joining the GIC

52 percent of municipal enrollees are retirees; retirees are 46 percent of state enrollees

February 10, 201212

MEMBER AGE DISTRIBUTION COMPARISONFY2007 AND FY2011

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0-4

5-9

10-1

4

15-1

9

20-2

4

25-2

9

30-3

4

35-3

9

40-4

4

45-4

9

50-5

4

55-5

9

60-6

4

65-6

9

70-7

4

75-7

9

80-8

4

85-8

9

90-9

4

95-9

9

100+

Percentage of 2007 Lives

Percentage of 2011 Lives

February 10, 201213

ENROLLMENT FY2007 – FY2011Demographics - Age

At 58.6 years old, the average GIC enrollee in FY2011 is slightly more than one year older than the average enrollee was in 2007 (57.3 years old)

The GIC’s aging population is reflected in the decrease in the share of enrollees who are in their 30s, 40s, and 50s (from 49.8 percent of enrollees to 45.4 percent) and in the growing proportion of enrollees in their 60s (from 18.5 percent to 23.1 percent of the GIC population)

The number of dependents ages 20 to 24 more than doubled, from 9,200 to 19,100; likely attributable to Massachusetts Health Care Reform

The average covered life was not quite a year older, at 45.1 years in FY2011 (up from 44.2 in FY2007)

February 10, 201214

RETIREES’ AGES - FY2011 MEDICARE AND NON-MEDICARE RETIREES

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

0-4

5-9

10-1

4

15-1

9

20-2

4

25-2

9

30-3

4

35-3

9

40-4

4

45-4

9

50-5

4

55-5

9

60-6

4

65-6

9

70-7

4

75-7

9

80-8

4

85-8

9

90-9

4

95-9

9

100+

2011 Medicare retirees and retirees'Medicare dependents

2011 non-Medicare retirees and retirees'non-Medicare dependents

February 10, 201215

ENROLLMENT FY2007 – FY2011Retirees’ Age Structure

Non-Medicare retirees remain a significant population in terms of GIC costs. Per capita, non-Medicare retirees are close to twice as expensive to insure as the next most costly group (actives).

A large and growing proportion (41.4 percent in FY2011) of the non-Medicare retiree population are aged 60-64 (includes retirees, survivors and their dependents)

Almost none of the retirees in the 60-64 age group are on Medicare. However, most of them will become Medicare-eligible and join a Medicare plan in the next five years

February 10, 201216

AVERAGE COST PER ENROLLEEFY2007 – FY2011

$11,690

$14,469

$9,284

$11,706

$7,751

$9,508

$3,461$4,025

$0

$3,000

$6,000

$9,000

$12,000

$15,000

FY2007 FY2008 FY2009 FY2010 FY2011

Non-Medicare Retired Enrollees Active Enrollees

GIC Average Enrollee Medicare Enrollees

Non-Medicare Retirees - 23.8% increase

Active Enrollees -- 26.1% increase

Medicare Enrollees -- 16.3% increase

GIC Average per Enrollee Cost -- 22.7% increase

February 10, 201217

AVERAGE COST PER CAPITAFY2007 – FY2011

$3,461

$4,025$4,035

$4,922

$7,366

$8,731

$4,318

$5,236

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

FY2007 FY2008 FY2009 FY2010 FY2011

Medicare Cost per Capita

Actives Cost per Capita

Non-Medicare Retiree Cost per Capita

Average GIC Cost per Capita

18.5% increase

16.3% increase

GIC Average Per Capita Cost -- 21.2% increase

22.0% increase

February 10, 201218

COSTS FY2007 – FY2011By Enrollee Category

Medicare enrollees cost the GIC the least to insure ($4,000 in FY2011 -- Medicare is the primary payer), and their average cost per enrollee increased at the slowest rate over the last five years (16.3 percent)

Per capita, active enrollees cost $900 more than Medicare enrollees. However, actives’ per enrollee costs are much higher than Medicare enrollees’ costs because the average contract covers 2.38 lives (each Medicare enrollment covers one life)

Non-Medicare retirees costs are the highest – roughly double the per capita cost of actives and Medicare retirees. Despite a smaller average family size, their costs per enrollee are also more than $2,800 higher than actives.

February 10, 201219

APPENDIX: DEFINITIONS (I)

ENROLLEES: Health insurance contract holders with the GIC. In most cases, enrollees are either employees, retirees, or survivors. However, people covered by a Medicare plan are considered enrollees, even if they never worked for the Commonwealth, a municipality, or another entity (e.g. the Medicare-enrolled spouse of a retiree is considered an “enrollee”).

LIVES: Each person whose health insurance is provided by the GIC.

SELF-INSURED: The employer (the Commonwealth in the case of the GIC) bears the financial risk that health insurance costs could exceed premiums. In an insured arrangement, the health plan bears that risk.

February 10, 201220

APPENDIX: DEFINITIONS (II)

TOTAL COST OF HEALTH INSURANCE: Premium cost for insured plans, and actual expenditures (claims and administrative costs) for the self-insured plans (the UniCare Indemnity, PPO, Primary Choice and Spirit plans). It includes both appropriated funds and employees’ and retirees’ premium contributions.

TOTAL HEALTH EXPENDITURES = Total Cost of Health Insurance + Copayments + Deductibles

RUN-IN: When a person joins a self-insured health plan for the first time, at the beginning of the first plan year, the plan sponsor (GIC) incurs liabilities, but has not yet received provider bills to pay. This is called run-in; its result is to understate enrollees’ first-year cost.

February 10, 201221