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u~ 1 ~ Salary Policy / Health Insurance Presentation - FY14 - BHR Wednesday, January 23, 2013 5:51 PM This present ation h as been Pl ease see the "U PDATED Sa lary Po licy/Health . .. " tab. State of South Dakota Salary Policy &

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SLIDE 1

Salary Policy / Health Insurance Presentation - FY14 - BHR

Wednesday, January 23, 2013 5:51 PM This present ation has been

u~

1 ~

Please see the "UPDATED Salary Policy/Health ... " tab.

State of South Dakota

Salary Policy & Heath Insurance Presentation to Joint Committee on Appropriations January 25, 2013

1

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SLIDE 2

BHR's Strategic Priorities

  • Talent Acquisition

Provide agencies with the resources needed to attract and hire the best talent available.

  • Talent Development

Help agencies develop and effectively use talent to maximize employee performance and increase agency efficiency and productivity.

  • Talent Retention

Provide agencies with the tools and information needed to retain mission-critical talent.

2

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SLIDE 3

South Dakota State Employee Health Plan

3

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SLIDE 4

Service Partners of Health Plan

Hll!!I!

~lanagement Partners Prior-authorization l\ledical ~lanagement Case -1111zat1on Health creenings Condition ~lanagement Provider etwork Claims Processing Flex.Ible Spending .Accounts Intensin Case ~lanagement

Claims Associates

ubrogation Claims Re"iew Health Fitness Express Scripts Prescription etwork Formula~· & ~lalntenance List Prior-authorization for certain prescriptions Health .Assessment Health .Ad"ising Health Coaching 4

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SLIDE 5

Health Plan Members

25,000 ~------------------------------ 19,881 20,000 t-----.====--------------------------- 15,000 1

I

10,000 5,000 17,271 Latitude Health Plan (S500 Deductible) 7,455 6,555 1,462 1,801

S1 ,000 Deductible

S1 ,800 Deductible

  • FY 12

FY 13

5

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SLIDE 6

Health Plan Budget Cycle

Budget Planning Session for a year end that is 24 months away Finalize proposed FYXX Budget Legislature approves FYXX Budget Project claims 18-21 months ahead End FYXX, compare budget to actual *Projections are compared to actual claims on a monthly basis.

6

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SLIDE 7

Your 2012 Aon Hewitt Guide to Health Care Solutions

State of South Dakota (SD) January 2013

AONHwttt

7

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SLIDE 8

Competitive Cost Benchmarks

  • Cost Sharing Mix
  • Financial Efficiency
  • Actuarial Value

AON Hewitt, January 2013

8

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SLIDE 9

Competitive Cost Benchmarks- Cost Sharing Mix

  • A measure of employee cost sharing is the

percentage of total health care expenses paid for by the employer versus the employee.

  • Estimated out-of-pocket costs are added to the

total health plan costs to determine an estimate

  • f total health care expenses.
  • Employees share costs through dependent

contributions, deductibles, copayments, and coinsurance.

AON Hewitt, January 2013

9

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SLIDE 10

Competitive Cost Benchmarks- Cost Sharing Mix

Cost Sharing Mix-Overall

D Out-of-Pocket Costs

II

Employee Contributions

a

Employer Cost

Out-of-Pocket Costs*

Employee Contributions

Employer Cost

* Employee Out-of-Pocket Costs

SD

Industry

26.0% 11 .6% 11.0%

9.4%

63.0% 79.1% 10,000-

Fortune Labor

24,999 500 Market HHVI 18.1% 18.2% 24.0%

16.6% 18.5% 18.3% 13.4% 16.8% 63.5% 63.5% 62.6% 66.6%

AON Hewitt, January 2013

10

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SLIDE 11

Competitive Cost Benchmarks- Cost Sharing Mix

Cost Sharing Mix-Overall

a Out-of-Pocket Costs a Employee Contributions a Employer Cost Out-of-Pocket Costs Employee Contributions

Employer Cost

SD State 1 26.0%

21 .7% 11.0%

14.4%

63.0% 64.0% State 2

201% 167% 632% State 3 State 4 State 5 171% 6.1%

17.0% 110% 34% 72.0%

00. 5%

83.0%

AON Hewitt, January 2013

State 6 21.3% 20.6% 58.1%

11

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SLIDE 12

Competitive Cost Benchmarks- Financial Efficiency

  • Financial efficiency provides a better

comparative measure than per participants cost- population demographics, richness of plan design, and geographic location are removed.

  • Financial efficiency measures how effectively you

are delivering health care to your participants.

  • A Fl greater than 100% reflects better-than-

average financial efficiency.

  • An Fl greater than 100% indicates your plans are

providing a greater value per dollar spent than

  • ther plans.

AON Hewitt, January 2013

12

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SLIDE 13

Competitive Cost Benchmarks- Financial Efficiency

Financial Efficiency--Overall

Financial Index Enrollment 110.0% 100.0% 90.0% 80.0% 70.0% 60.0%

so

105.9% 12,356 Industry 101 .7% 582,048 10,000- 24,999 100.5% 1,513,720

/ --

Labor Fortune 500 Market HHVI 992% 100.0% 100.0% 3,192,410 132,365 6,381 ,193

AON Hewitt, January 2013

13

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SLIDE 14

Competitive Cost Benchmarks- Financial Efficiency

Financial Efficiency-Overall

110.0% 100.0% 90.0% 80.0% 700% 60.0% SD State 1 State 2 State 3 State 4 State 5 State6 Financial Index 105 9%

102 3% 102.0% 93.2%

991% 103 5%

100.1%

AON Hewitt, January 2013

14

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SLIDE 15

Competitive Cost Benchmarks- Actuarial Value

  • Actuarial Value is a percentage of total health

care costs expected to be paid by the plan after deductibles, coinsurance, and copays are applied.

  • An Actuarial Value of 100% indicates no

participant cost; that is, no copays, deductibles,

  • r other out-of-pocket cost.
  • The measure shown here is an average across all

plans offered within each category, weighted by the number of participants.

AON Hewitt, January 2013

15

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SLIDE 16

Competitive Cost Benchmarks- Actuarial Value

Actuarial Value

90_ 0% 88.4% 850%

  • 81_

9%

81 .8% 80.0%

760% 750%

  • 74 0%

700% - 650%

SD

Industry 10,000-24,999 Fortune 500 Labor Market AON Hewitt, January 2013 83.4% HHVI

16

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SLIDE 17

Competitive Cost Benchmarks- Actuarial Value

Actuarial Value By Plan Type

a combined

100%

93.9%

90% 80% 70% 60% 50%

so

State 1 State 2 State 3 State 4 State 5

AON Hewitt, January 2013

State 6

17

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SLIDE 18

FY12 and FY13 Budgets

18

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SLIDE 19

Major Factors Impacting FY12 Budget

  • Increase in High Cost Claimants from 271 to 308.
  • $5.4 M
  • Increase usage and cost of Specialty Drugs.
  • $2.0 M
  • Change in claims processing.
  • $2.8 M (paid 53 weeks)

Total

  • $8.5 M*

*

$10.2 M FY12 budget shortfall was offset by minus $1.7 M in additional miscellaneous revenue

19

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SLIDE 20

FY12 Claims by Cost Segment

Average Claim Amount per Group Claimants Claim Count Check Amount Member

No Claims 5,377 $0 $0 Paid Claims <$2K 17,786 165,490 $7,923,683 $446 Paid Claims $2K-$20K 5,689 207,614 $34,019,749 $5,980 Paid Claims $20K

  • $50K

505 34,196 $16,233,112 $32,145 Paid Claims $SOK Plus 308 34,359 $39,894,882 $129,529 20

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SLIDE 21

FY 12 Most Costly Conditions Among High Cost Claimants

Condition Oncology Back Condit ions Blood Disorders Injuries & Poisoning Forms of Chronic Heart Disease

Kidney Disease

Newborns with Complications

Other Diseases* *Degenerative Joint Diseases, Respiratory Disease, etc.

Claimants (cost In millions)

$12.9 M

$4.6 M $3.4 M

$3.1 M $2.9 M $2.8 M $1 M $9.1 M

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SLIDE 22

FY13 Budget

  • Major plan changes were implemented to keep plan

claim cost the same as the previous year.

  • Increase in deductible from $300 to $500
  • Eliminated copayments for Office Visits.
  • Increased copayments for Emergency Room,

Inpatient Hospital, all Global Maternity, and CT/PET scans.

  • Intensive Case Management program

implemented.

  • Management of ER use.
  • FY13 plan changes would have resulted in a break even
  • year. However, FY12 claims were $10.2 M higher than

projected creating a budget gap for FY13 before the year even started.

22

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SLIDE 23

Major Factors Impacting FY13 Budget

  • Increased claim projections from actuary.
  • $9.7 M
  • Increased need to carry a higher reserve for claims Incurred But

Not Reported (IBNR).

  • $1.9 M
  • Increased administration fees from implementation of two new

programs: Intensive Case Management and Emergency Room Management.

  • $500,000
  • Reduced interest revenue.
  • $500,000

Total

  • FY13 projected shortfall $12.6 M

23

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SLIDE 24

FY13 One-Time Budget Request

  • SB 90 Health Plan Appropriation Request

General Funds $ 7,916,366 Federal Funds $4,925,785 Other $ 8,472,259 Total $21,314,410 One-time employer rate increase Current FY13 employer rate Total $1,615 $6,335 $7,950

24

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SLIDE 25

Employer Health Insurance Contributions

$8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000

so

Employer Health Insurance Contributions

$7,950

  • South Dakota FY13

South Dakota FY14

  • One TI me Rate Increase
  • Employer Contribution

25

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SLIDE 26

Health Plan Full Accrual Financial Statement

state E1111loyee Self Insured Health Plan Full Accrual Basis Financial S mants FY2012 FY 2012 FY 2013 FY 2013 Original Estimate Actual Original Estimate Revised Estimate Revenue Coolnbuoo,.. 10 Plan

~-erPald

$78040.861 S77,896 559 Sl!0,337.566 S80514054 Retiree CXlBRA ard Employee PaXI for Dependenls s 9.ro4,os1 S19,453041 S19,50406 S18 972,174 Federal Early Reurement Re,ns<rance Program $650,000 $0 $0

$0

Adrnristrauve Fee $145,168

$ 47 770

$145,168 S147.000 ltterest Reverue $600,000

$468 447

$600,000 $150,000 Refl.nd of Pnor Years Claims S2 :l00,000 $5,192171 $1,350000 $1500000 Total Reverue $101 ,240,090 $103,157 988 $101,936795 $101 283,228 E.Npenses $91,642,174 $103,238 687 S91,888080 $103520232 $560,000

ssn500

S560,000 $550,000 Adrnristrauon S7 733,751 $7,962083

ss,460 no

$9258 225 Total Expenses $99,925,925 s 11 ,ne.2so $101,898,850 $113 328 457 Clxrenl Year Over/(Underrecolery) $1 ,314165 (S8620262) $37,945

(S

12 045 229) $75,162 S75 162 S ,389,327

s 545100)

S1389327

!

S8 • u11

51427272

3291

cmwbve Olerl{Undem,c;overy) 11 the analysll of he revenues and expe,- &Ince the beglnrang of the proiµm

26

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SLIDE 27

FY 14 Budget Projections

  • Actuarial Projected Claims
  • $110 M
  • 7.7% Medical and Pharmacy Trend

27

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SLIDE 28

FY14 Plan Changes

  • Eliminate member copayments except for ER.
  • $4.5 M
  • Increase premiums for Dependents, Retirees, and

COBRA.

  • $1.1 M
  • Implement additional contract and administrative

savings.

  • $2.6 M

28

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SLIDE 29

FY14 Budget

  • Projected Claims
  • $103.7 M
  • Employer Health Insurance Contributions
  • $6,335 base helps fund $91 M in claims
  • $7,269 base helps fund $103.7 M in claims

29

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SLIDE 30

Employer Health Insurance Contributions

/-.:::::;

$7,950

ss,ooo ~ /

''""f/

$6,000

:::: /

:: /

$1,000

so

  • South Dakota FY13

$7,269 South Dakota FY14

Base Rate Increase

  • One TI me Rate Increase
  • Employer Contribution

30

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SLIDE 31

Wellness Initiative

"We've learned that 75% of health care costs result from lifestyle choices made by specific subgroups of workers." Towers Watson

31

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SLIDE 32

Wellness Initiative

  • Over the past several years, the Health Plan has

attempted to control the "supply" side of the economic formula:

  • Direct contracting with facilities
  • Engaging the lowest cost provider network available
  • Reacting to market changes in pharmaceuticals

using various PBMs

  • Managing High Cost Claimants and chronic

conditions

32

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SLIDE 33

Wellness Initiative

  • In the last 2 years, the Health Plan has begun to address

the "demand" side of the economic formula:

  • Requiring members to participate in Health

Screenings and Health Assessment to be eligible for lowest deductible plan

  • Enhancing management of chronic medical

conditions such as Diabetes, elevated blood pressure and cholesterols, Asthma, Back Pain, etc.

  • Using risk focused predictive modeling software to

target management programs

33

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SLIDE 34

Wellness Initiative

  • Incentive program to engage and reward members to

modify unhealthy behaviors:

  • Yearlong program with quarterly requirements
  • Mandatory initiatives as well as voluntary options
  • All employees are eligible to participate on July 1
  • If an employee participates throughout the

entire year, $550 reward into health savings account or health reimbursement account.

  • If an employee misses a quarterly initiative, not

eligible for $550 reward until the following year.

34

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SLIDE 35

Wellness Initiative

  • Lifestyle Changes Mandatory Options:
  • Health Assessment
  • Health Screening
  • Lifestyle Changes Voluntary Options:
  • Weight Management Program
  • Smoking Cessation Program
  • Chronic Condition Management Program
  • Health and Lifestyle Coaching
  • Nutritional Eating Webinars
  • Maintaining Online Personal Health Record
  • Physical Activity Challenge (e.g. Walk This Way)

FY14 Budget

  • Increase in Health Plan
  • Implement Wellness Initiative

Total Appropriation Request General Funds Federal Funds

,-..LL--

$12.3 M $8.1 M

$ 20.4 M

$7,536,759 $4,454,093

e-

n """" .11,1n

35

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SLIDE 36

Federal Funds Other Total

Y I,....,._,._,, I_,_,

$4,454,093 $8,429,418 $20,420,270

Employer Health Insurance Premium Contributions

$14,000 (

....

$12.000 r

2012 Employer Health Insurance Premium Contributions

36

FY14 Wellness Increase

  • Rate Increase
  • Employer Contribution

so

South South Montana North Nebraska Minnesota Iowa Wyoming Dakota Dakota Dakota FY13 FY14

2012 National Compensation Association of State Governments Benefits Survey 37

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SLIDE 37

South Dakota's State Workforce

38

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SLIDE 38

State Employee Concentrations (All State Government, including Board of Regents)

HAADINC:

8

fAU RMR

131

l'{RIQNS

16

12,609 total employees

BCNNUT

21

COl!SON11

10,238, or 81.2% located in 10 counties 15% in Black Hills 21% in Pierre 40% in 1-29 Corridor

39

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SLIDE 39

Our Workforce at a Glance

  • Workforce Demographics*
  • Average years of service -12.0 years
  • Average age of state employees - 44.4 years

a

Matures (before 1946) - 1.2% or 99 emps

a

Baby Boomers (1946 -1964)- 43.9% or 3,590 emps

a

Generation X (1965 -1980)- 34.7% or 2,837 emps

a

Generation Y (1981 - 2000) - 20.2% or 1,653 emps

  • Does not include Board of Regents

40

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SLIDE 40

Years of Service of the Workforce

600% 53.2% 400% 300% 24 0% 20.0% 162% 10.0% 6.5% 00% 0-10 years

11-20 years 21-30 years More than 30 years

41

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SLIDE 41

Age Distribution

30.0% 25 0% 20.0% 15.0% 100%

  • 5.0%

0.0%

< 30 years

30-39 years 40-49 years 27.9% 50-59 years

39.6°/o of the

workforce is age 50 or older

60 years+

42

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SLIDE 42

Retirement Eligibility

  • 10.6% of the workforce became eligible to retire as of

June 30, 2012

  • 25.9% will be eligible within 5 years
  • 36.3% will be eligible within 10 years
  • Potential serious loss of talent and efficiencies

South Dakota Retirement System 43

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SLIDE 43

Statewide Turnover

150% ~ --------------------------- 14.0% 13 0% 12.0%

11 0%

10.5%

10.0% g 0% 8 0% FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

44

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SLIDE 44

FY12 Turnover by Role

  • Labor & Support

HM Workers Correctional Officers Admin Support Custodial Workers Professional Accountants Engineers Nurses

3.0%

40.4% or456

Program Admin

  • Management

45

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SLIDE 45

BHR FY14 Budget Request

  • 1 FTE for an additional Human Resource

Manager

  • Focus on Talent Management using

Competency-based Human Resources

  • Targeted Recruitment and Selection
  • Performance Management
  • Career/Leadership Development
  • Succession Planning

46

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SLIDE 46

State Employee Compensation

47

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SLIDE 47

Salary Schedules

  • Civil Service Schedules
  • N Series - includes MOST civil service positions
  • T Series - difficult to fill positions in a schedule adjusted to

address market issues

  • Exempt from Civil Service Schedules
  • E Series - includes MOST exempt positions
  • Q Series - difficult to fill exempt positions
  • L - Law Enforcement positions (Highway Patrol, DCI Agents)
  • M - high level medical positions
  • Career Band Schedules

Accountants/Auditors Environmental Scientists Software Engineers Engineers Nurses Technology Engineers

48

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SLIDE 48

Salary Schedule - Example (N)

GRADE MINIMUM

5%0F 25%0F

JOB MAXIMUM

09 10

11

14 15 16 $9.57 $10.27 $11 .14 $14.33 $15.82 $17.53

MINIMUM

$10.05 $10.78 $11 .70 $15.05 $16.61 $18.41

RANGE

$10.77 $11 .56 $12.53 $16.12 $17.80 $19.72

WORTH

$11 .96 $12.84 $13.92 $17.91 $19.78 $21.91 $14.35 $15.41 $16.70 $21.49 $23.74 $26.29 http://bhr.sd.gov/classification/compensation/salaryschedules.aspx

49

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SLIDE 49

Compensation Systems

  • Performance and Compensation Equity

(PACE)

  • All state employees not included in the Career Bands
  • Career Bands
  • Accountants/Auditors
  • Nurses
  • Environmental Scientists
  • Engineers
  • Software Engineers
  • Technology Engineers

50

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SLIDE 50

PACE

Performance and Compensation Equity

  • Across-the-Board Adjustment - Annual

salary increase to all employees used to address the competitiveness of the system

  • Movement to Job Worth Adjustment - Up

to 3.5% salary increase for employees to

bring them to job worth within 7 years

  • Longevity Pay - Lump sum payment to

employees with more than 7 years experience.

51

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SLIDE 51

Illustration of PACE - Moving Through the Ran e

M ax1mum o

fR

anae

20% above Job Worth

A~

II II

..

..

..

.. .. .. .. .. .. ..

Job Worth

..

What State can afford to pay

Is

Minimum of Ranae

20% below Job Worth

Reserved for:

  • performance
  • added duties
  • special market

rates

7 years 6 years 5 years 4 years 3 years 2 years 1 year 6 months

24.SO/o in FYOS Today, 18.2%

  • f Workforce

{ 31.50/o in FYOS Today, 23.5%

  • f Workforce

43.90/o in FYOS Today, 58.2%

  • f Workforce

52

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SLIDE 52

Longevity Pay

  • Annual Lump Sum Payment to Employees with

More than 7 Years Experience

  • $100 for 7-9 years
  • $10/year of service for 10-14 years
  • $15/year of service for 15-19 years (increases in $5

increments for each 5 year bracket)

  • Example: Employee with 15 years of service

receives $225 (15 years X $15)

  • Provides expression of appreciation for years of

service

53

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SLIDE 53

Career Banding - A Look Back

  • Difficulties acquiring talent for high demand

jobs

  • Accounting
  • Nursing
  • Engineering
  • Environmental Science
  • Information Technology
  • Nationwide demand in both public and private

sector

  • Constant increase in demand

54

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SLIDE 54

Criteria for Inclusion in Pilot

  • Market competitiveness
  • Ability to recruit new employees
  • Retention and turnover
  • Potential retirement impact

55

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SLIDE 55

FY07 Applicant Statistics for Pilot Occupations

Turnover/

Average Applicants Applicants Applicants not Declined

*Projected Applicants Qualified or Interview/ to Retirement per list Considered Job Offer consider Nursing/

19.6% I 24.4% 12.1 9.0% .5% 6. Health Engineering

8.8% / 26.0% 8.2 41.2% 9.0% 4.4 Accountants / .7% / 0.4%

13.

  • 61. %

s.:%

4.9 Auditors

IT Specialists

10.6% I 34.5% 10.8 49.0% 10.2% 4.9

* Projected retirement percentages over the next 10 years

56

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SLIDE 56

FY07 New Hire Statistics for Pilot Occupations

Turnover I *Projected

Average compa Average compa Job Family ratio for new ratio for current Retirement hires emps Nursing/Health 19.6% I 24.4° /o 98.1 % 102.2% Engineering

8.8% / 26.0% 92.9% 101.2%

Accountants I

.7% / "' .4%

.., .%

  • 96. %

Auditors IT Specialists

10.6% / 34.5% 103.0% 99.8%

* Projected retirement percentages over the next 10 years

57

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SLIDE 57

Career Banding and Compensation

  • Compensation Structure
  • A new compensation structure provides needed flexibilities

to respond quickly to changing market conditions and

rewards for excellence.

  • Classification Structure
  • A new classification structure clearly defines career

advancement opportunities.

  • Performance Management System
  • A new performance management system engages

employees and managers, promotes high performance and career development, and ensures accountability.

58

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SLIDE 58

Progress with Career Banding Project

  • Classification
  • All Classification completed
  • Performance Management
  • Performance Management system implemented
  • Training for supervisors and employees
  • Compensation
  • 45% of employees in career families are at least 10% behind

the market

  • 86.5% behind level target
  • 10.2% at level target
  • 3.3% above level target
  • Reward for Excellence

59

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SLIDE 59

Salary Policy Recommendations

60

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SLIDE 60

FY14 Proposed Salary Policy

  • PACE
  • 3.0°/o across the board for all employees in the

PACE system

  • Up to 3.5°/o movement toward Job Worth
  • Career Bands
  • Market Adjustment for all employees in career

bands

a

Accountants and Nurses - 4.0%

a

Engineers, Environmental Scientists, Software Engineers and Technology Engineers - 3.5%

  • Up to 4.5°/o Reward for Excellence

61

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SLIDE 61

Questions?

62