OPEB Liability and Medicare BUDGET, FACILITIES, AND AUDIT COMMITTEE - - PowerPoint PPT Presentation

OPEB Liability and Medicare

BUDGET, FACILITIES, AND AUDIT COMMITTEE DECEMBER 6, 2016 Presented by: Janice Sawyer, Chief Risk Officer Division of Risk Management & Insurance Services December 6, 2016

• OPEB = Other Post-Employment Benefits (i.e. retiree health benefits, for

LAUSD)

• Employers conduct an actuarial valuation of their OPEB biennially to:
• Accurately quantify future financial liabilities
• Assist in budget forecasting
• Account for, and report on, liabilities in financial statements

OP OPEB B Ref efre resher er

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• LAUSD’s most recent actuarial valuation for retiree health benefits was

completed in December 2015

• AAL (Actuarial Accrued Liability/Past Service Liability) was estimated at

$13.6B

• Liability increased $2.7B from the prior valuation due to lower expected

pre-funding contributions and an upward trend in prescription drug costs

• ARC (Annual Required Contribution) was estimated at $1.1B – this is how

much we need to contribute annually for the next thirty years to be able to fully fund the liability

• Valuation only included current active employees and retirees

OP OPEB B Ref efre resher er

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• If the District continues funding the retiree benefit on a pay-as-you-go

basis, the total cost is expected to grow an average of 5.8% annually over the next 30 years.

200 400 600 800 1,000 1,200 1,400 1,600 1,800

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047

In Millions

Benefit Payments on a Pay-As-You-Go Basis

Current Retirees Future Retirees Current Contribution

OP OPEB B Ref efre resher er

$288 $448 $658 $946 $1,290 $1,544 $1,673

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Med edic icar are

Medicare is the Federal health insurance program for people who are 65 or older, and certain younger people with disabilities.

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Medicare has three main parts to help cover specific services:

• Medicare Part A – Hospitalization
• Medicare Part B – Outpatient Care
• Medicare Part D – Prescription drug coverage

Med edic icar are

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• When an LAUSD retiree, or the retiree’s spouse or domestic

partner, becomes eligible for Medicare, the participant must enroll, and remain enrolled, in Medicare Parts A* and B to maintain District-sponsored medical benefits.

• LAUSD offers several plans that cover these services:
• Kaiser Senior Advantage
• Health Net Seniority Plus
• UnitedHealthCare Group Medicare Advantage
• Anthem Blue Cross EPO + SilverScript

Med edic icar are

*If eligible for Medicare Part A premium free

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• For Kaiser Senior Advantage, Health Net Seniority Plus and

UnitedHealthCare, LAUSD pays a significantly reduced premium compared to pre-Medicare plans.

• In general, for Anthem Blue Cross EPO, Medicare becomes the

primary coverage (covering approximately 80% of allowable expenses) and Anthem becomes the secondary coverage (covering approximately 20% of allowable expenses).

Med edic icar are

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Medical premiums per individual are higher for pre-Medicare retirees. However, the medical AAL for current retirees is more than 10 times higher for Post-Medicare benefits than for Pre-Medicare benefits due to the greater number of participants. $3.4B Post-Medicare $0.3B Pre-Medicare

OP OPEB B Lia iabil bility ity and d Med edic icar are

Source: Actuarial Valuation Report as of July 1, 2015, AON Hewitt

MEDICAL COSTS 9

$9.4B (69%) of the $13.6B will go towards paying Post-Medicare benefits

1992 - 2007 - 2009 - 1976 - Today -

Current Active Employees $9.5B

• Medical (Pre-Medicare)

$2.9B

• Medical (Post-Medicare)

$6.0B

• Dental

$0.5B

• Vision

$0.1B

Current Retirees $4.1B

• Medical (Pre-Medicare)

$0.3B

• Medical (Post-Medicare)

$3.4B

• Dental

$0.3B

• Vision

$0.1B

Total OPEB Liability $13.6B

Post-Medicare benefits for active employees and current retirees account for almost 70% of the $13.6B overall OPEB liability.

OP OPEB B Lia iabil bility ity and d Med edic icar are

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There are a number of ways to lower OPEB Liability: 1) Premium Sharing 2) Plan Design Changes 3) Pre-funding 4) Eligibility Changes

Ways s to to Red educe e OP OPEB B Lia iabil bility ity

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Over the years, the District has taken steps to reduce the OPEB Liability by tightening the eligibility rules. Current employees fall under four rules:

1992 - 2007 - 2009 - 1976 - Today -

TIMELINE

What t We H e Have e Don

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e to to R Red educe e Cos

• sts

ts

Eligibility Rule Hire Dates # of Individuals Liability 5-15 Years Service Prior to 6/1/92 14,405 $3.4B Rule of 80 6/1/92 - 2/28/07 36,992 $5.6B Rule of 80 (+15) 3/1/07 - 3/31/09 4,157 $0.3B Rule of 85 ≥ 4/1/09 5,428 $0.2B Total 60,982 $9.5B

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The Health Benefits Committee has made significant contributions in the following areas:

• Employer Group Waiver Plan (EGWP)
• Audits (Dependent Eligibility Verification and Medical Claims)
• Pharmacy Drug Containment strategies
• Health plan contract negotiations

What t We H e Have e Don

• ne

e to to R Red educe e Cos

• sts

ts

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