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‘You Had A Bad Year’

Every few weeks the subject of healthcare appears before the Mendocino County Board of Supervisors, and every time it does we are reminded how absurdly expensive and insanely complicated America’s healthcare has become.

And Obamacare, whatever it turns out to be, will make the already impenetrable labyrinth of health insurance even worse.

Last Tuesday, the Supervisors were told that to keep the County's health plan and the County itself solvent they’ll have to pass along huge cost increases to the employees and the County itself.

Whose fault?

Employees, not the health insurance racket.

From the Supes' agenda: “Human Resources staff has performed its annual review of the County’s health plan cost/premium projections for Calendar Years 2013 through 2015 as prepared by the County’s Health Plan Consultant, Keenan & Associates Based on this evaluation, staff agrees with Keenan’s recommendation that funding and premiums for the 2013 Plan Year be increased by 15% effective January 1, 2013 through December 31, 2013. This increase is primarily due to an unanticipated 8% reduction in plan enrollees/participants and a 45% increase in monthly claims costs per employee over the most recent 12 months. The 15% rate increase will apply to both the County and employees on a bi-weekly basis. While the recommended action to increase funding/premiums by 15% is expected to continue to support the solvency of the Plan, numerous, and *possibly [our emphasis] significant, cost saving measures to reduce anticipated future program cost increases are currently underway. … The County’s Final Fiscal Year 2012/13 budget reflects a 15% funding/premium increase instead of the 10% increase estimated in the recommended budget.”

The primary speaker to address the board concerning employee healthcare was San Clemente-based E. Peter McNamara, Senior Vice President of Keenan and Associates, California’s largest insurance brokerage and consulting firm.

McNamara: “From 2010-2011 and from January 2011 to January 2012 you have actually decreased your enrollment in the active plan. That is significant because even if the claims costs from 2011-2012 was identical — $12 million in 2011 and $12 million in 2012 — the cost per employee has gone up because you have lost employees. You have gone from 1100 down to 900, so the cost per employee is going to go up even if the dollars stay the same.”

Supervisor Dan Hamburg: “Why are there 7% of our employees who are not in the plan?”

McNamara shrugged and gestured to Pat Meeks, the County's personnel director, who explained: “They opt out because they have other insurance coverage through a spouse or through another program and that's the only way they cannot opt out if they are on 32 hours or more.”

“Another program,” means cheaper, but less coverage.

Hamburg: “And there's no way to get them -- it seems like it would be advantageous to us to have 100% of our employees in the plan. But we can't mandate that. We can't force people to take health insurance.”

Meeks: “Correct.”

McNamara continued with the bad news: “So in effect from 2011-2012 your claims costs actually increased by 21%. That's a significant jump. The other thing to mention, which is very important, is that during the period of time that we evaluate claims in the last year you had three claims in excess of your stop loss.”

(Stop loss is another layer of expensive insurance where the carrier picks up the tab for the biggest claims.)

McNamara: “Your stop loss level is at $225,000 per occurrence. You had three members who exceeded that by a total of $766,000. Bottom line: You had a bad year.”

McCowen: “Also, to me the more relevant figure is not the increase from January 2011, or January 2012 over January 2011 which was month over month, which was the 21% increase for that particular month, but the year as a whole saw a 45% increase per employee per month.”

McNamara: “Right.”

McCowen: “And that's pretty eye-opening.”

McNamara: “It is. And part of that is a result of the large losses -- you had several large claims.”

McCowen: “Yes. We've had both [larger and more frequent]. Even in the non-extraordinary costs there was still significant increase there, I believe.”

McNamara: “Yes.”

McCowen: “Even below $50,000. We still had an increase in the utilization.”

McNamara: “You have had an increase in utilization across the board, absolutely.”

Hamburg: “But you look at the fact that those [top] 34 claims were more than 53% of the total cost of claims paid. Am I reading that right? I mean, that's astounding!”

McNamara: “Yes.”

Hamburg: “34 claims accounted for 53% of the claims cost. Boy!”

McCowen: “Do either you or Director Meeks have any insight into why this might be occurring? Is it partly a reflection of an aging workforce where we have more people who are in a demographic where they need more medical care?”

McNamara: “That is entirely possible. But there are also a couple of other things to keep in mind. One is, and I probably have used this statistic here in the past, but fully 50% of claims cost according to study after study after study, fully 50% of claims costs are behavioral driven. To the degree that we can change behavior we can drive claim cost down. And so to the degree that you can, that you are able to help employees understand the advantage of the wellness program in helping them to change behaviors that will allow overall reduction in claims costs, that is a good thing. The fact that you have a wellness program is excellent. We just have to figure out a way to get more people to participate in it because the more people that participate the more likely it is that you will see greater return and those claim costs will start to come down.”

Like County fatsos in the fattest country in the world are suddenly going to get up off it, throw down their Big Macs, trade their Barco-Loungers for stationary bikes?

Mendocino County has had versions of “wellness programs” for decades. To think that somehow reminding County employees that their gluttonous, slothful lives ingesting negative food value are making them sick will inspire them to change is naive.

Ms. Meeks offered the obligatorily upbeat comments on the County’s “cost containment measures.”

Meeks: “Keenan and Associates is a partner with us in our cost containment efforts. They do negotiate annually on our behalf in terms of our third-party administrators, the pharmacy benefit managers, and the stop-loss carriers and this year they were successful in reducing our Delta Health Systems proposed 5% increase to 1.5% for 2013.”

This and other minor changes may make a small dent in the insurance costs, but overall will make very little difference.

Meeks continued: “We are promoting employee participation in wellness activities. We are making a strong effort in marketing our wellness program. We have close to 500 people at this point who are signed up. Everybody, I believe, is aware that by participating it offers the opportunity to reduce premiums for their health plan up to $300 for the plan year. It's truly an opportunity for employees to not only take care of their health and well-being but in the long run it impacts the cost of their self-funded health plan...."

Supervisor McCowen asked how the plan changes would “mesh” with Obamacare implementation in 2014.

“Our crystal ball is pretty cloudy, I would say,” admitted Ms. Meeks, giggling uncomfortably. “When you consider upcoming changes in health care reform, it's going to take some clear thinking and very careful follow-up in terms of what the alternatives are and to what extent they will affect the plan.”

And we all know how good Mendo, not to mention the rest of America, is at clear thinking and careful follow up.

McCowen: “And we hope to have greater clarity on that, when?”

Meeks: “We are working on our healthcare plan impacts chart — all the impacts and how they affect the County and what do we need to do by when. We have that completed. And we will present that to you in a few weeks.”

A big part of Obamacare is a fairly new concept called the California Healthcare Exchange, essentially an insurance clearinghouse which will match up individuals, groups and employers with healthcare insurance providers. If you think that dealing with insurance companies is a mess, wait until the exchanges add themselves to the mix.

McNamara: “You won’t know what the plan designs available through the California Exchange are until March 31 of next year. … They will have the plan designs with the rates for each plan available for review by those interested in the Exchange by the March 31 deadline.”

McCowen: “Are you able to hazard a guess if a situation develops where people for whom the insurance coverage is less, might choose to go to some other plan such as these exchanges and we might be left with the people who incurred the $50,000 claims?”

McNamara: “It's important to keep in mind that not only the Patient Protection and Affordable Care Act [aka Obamacare] itself and also the Board of the California Exchange have made it very clear that it is their intention as it is the legislation's intention to first and foremost cover the uninsured and the underinsured.... But they won't be as rich as the current offerings by most California public agencies for employees.”

In other words, the Obamacare coverage won’t be “anywhere near as rich” as current County employee healthcare, i.e, poor.

McNamara continued: “We won't know that until March 31. But your plan design will likely drive that. There are a whole host of penalties and tax consequences and fees to employers if an employee chooses to leave and go to the Exchange. There are a lot of things to work through before you do that. You may find at the end of the day that you don't want to be in the healthcare business. You don't want to offer health care! You could just allow people to leave — here's the Exchange, go ahead.”

McCowen questioned McNamara about the non-Medicare retirees who would probably be the first to participate in the exchanges. McNamara assured McCowen that there would be no penalty for those people switching to the exchanges “because they are not employees.”

Supervisor Hamburg tried to figure out how the staff and the consultant arrived at the 15% increase in premiums, part of which is paid by the County and part of which is paid by the employee.

Hamburg: “If we are anticipating a 7% increase in claims costs, how does that become a 15% increase in the cost of the plan?”

After about half an hour more of confusing back and forth, it was sort of explained that the 15% increase is an attempt to make up for prior year under-payments, with the hope that the next two years won’t be as high as last year.

As the day grew long, it was clear that the County's healthcare coverage is not sustainable, that it's going to become even less sustainable, meaning the County will rack up big losses in the hope that the "wellness program" will make it all better.

McNamara explained that healthcare and healthcare administration costs are also rising at about 9-10% per year.

Supervisor John Pinches had held his tongue during most of the discussion.

“We all understand," Pinches began, "that this was an extremely bad year, but it says here that you estimate claims increases for the following year to be about 17%. Do you really think we're going to have two more bad years? What's that projection based on? When I read this, even though this was a bad year, you are projecting that we will have two more bad years.”

McNamara: “Yes, this is based on your recent 24-month exposure. We try to blend it as much as possible.”

Pinches: “I hope your projections are wrong.”

McNamara: “They very well may be. Assuming that this last year was an aberration and we do believe that. But we cannot present to you something that is contrary to what the numbers are showing! Right now the numbers show us that in 2014 and 2015 we can expect an 8-10% increase in each year based on the numbers we have. That could come down significantly. But today—”

Pinches: “I know last year was a bad health year, I can attest to that.” (Supervisor Pinches had heart surgery a few months ago.)

McCowen: “Johnny went to the doctor for the first time in 20 years.”

Pinches: “More than that. It was more like 34.”

Several representatives of the County’s bargaining units asked the board to dip into reserves to reduce the 15% increase because the employees have already taken pay cuts and if they have to pay a lot more for the County's doomed health coverage, well, hell.

Supervisor McCowen said they couldn’t do that.

“Last year there was about a 10% increase in costs, and we made the decision to keep the rates stable. In hindsight, maybe we should have been increasing the [premium] costs 10% last year. I don't think we were anticipating a 45% increase in the costs this year.”

Taken together for all categories of coverage, Keenan Associates reported that the County's per-employee monthly cost for medical, prescription, dental and vision claims rose from an already ridiculous average of $803 per month in 2010-11 to a completely unaffordable $1,163 per month in 2011-12.

Supervisor Pinches commented, “We all understand the burden that this increase represents for our employees, and yet at the same time, we've held the line for three years and there's been no net increase for three years.”

McCowen said that approving no increase would put the health plan’s and the County’s reserve “pretty close to zero.”

McCowen: “We've made progress in the last couple of years with the budget, but what we know for sure is that we continue to face significant annual increases for retirement and for healthcare costs, and then, we don't know what's going to happen with the national economy. And we're in a very fragile position financially.”

The Board didn’t really have much choice. They quietly voted 4-0 (Lame duck Supervisor Kendall Smith was absent) to implement the recommended 15% increase.

Which means more employees will opt out of the plan for either no health insurance or whatever jive plan the insurance combines might offer them when Obama Fraud kicks in.

McCowen concluded: “If we do have a better year than what was projected then next year when we are sitting here we may very well be looking at a recommendation for reduction.”

In your dreams, Supervisor.

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