1

NMRHCA Stake Holder Meetings

September 2013

2

NMRHCA’s CreationNMRHCA established by the Retiree Health Care

Act [10-7C-1 NMSA 1978] in July, 1990 with no initial appropriationNMRHCA began paying benefits in January, 1991 with

statutory limitations to premium increases until 2008NMRHCA was not prefunded in a similar manner as

PERA and ERB“Future benefits may be modified from year to

year in order to respond to changing financial exigencies” (10-7C-3B)

“Participating employers, employees and retirees are responsible for the financial viability of the program. The overall financial viability is not an additional financial obligation of the state” (10-7C-13-C)

3

NMRHCA CompositionNMRHCA Currently serves approximately 300

public employers50% Public Schools 25% State of New Mexico25% Municipalities, Counties, Universities (not UNM or

NMSU), and other public entities (e.g. Housing and Irrigation Districts)

Approximately 100,000 active employees

54,460 Covered Retirees 31,058 Medicare eligible 18,233 Pre-Medicare5,169 100% retiree pay voluntary plans (e.g.

dental/vision)

4

NMRHCA Finances**Excludes 100% Retiree Pay Plans

NMRHCA FY2014 Revenue$281,975,654

NMRHCA FY2014 Expenses$249,899,913

Retirees$100,759,0

6836%

Employers$83,129,299

29%

Employees$41,564,64

915%

Federal$25,923,79

89%

Tax Susp. Fund

$23,931,2978%

Misc.$6,667,543

2%

Medical / RX$236,354,286

95%

Health Plan Admin.$10,894,627

4%

RHCA Admin$2,651,000

1%

5

Back From The Brink and as Important as Ever

2007 Trust Fund set to be exhausted in 2014 Money drawn from fund 4 out of 5 previous years Unfunded Liability (GASB) of $4.1 billion

2013 Trust Fund to stay positive into 2029 $80 million added to fund over last three years Unfunded Liability of $3.6 billion

Importance of NMRHCA Programs Retirement Planners Fidelity and Nationwide estimate that couples retiring

in 2013 at the age of 65 will need, on average, $220,000 to cover medical expenses throughout their retirement

NMRHCA reduces these expenses by well over 60% on average Average PERA Monthly Pension: $2,161

Average ERB Monthly Pension: $1,715

Average Monthly Social Security Benefit: $1,262

6

All Stakeholders Have Shared In Improving Plan Finances

Cost Containment Strategies

Pre-Medicare plan deductibles have increased from an average of $195 in 2009 to an average of $600 in 2013

Pre-Medicare plan out-of-pocket maximums have increased from an average of $1,500 in 2009 to an average of $3,600 in 2013

Medicare Supplement plans now require all members to pay the Medicare Part B deductible

All prescription plans have shifted to members paying a percentage of totals costs (with minimums and maximums) and away from flat dollar copayments (retirees will be paying an additional 5% of total prescription costs)

Revenue Enhancement Strategies

Increased Retiree Health Care Premiums in accordance with medical inflation averaging 8 percent annually

Continued pursuit of increase in contribution levels for active employees/employers

All Stakeholders (Employees, Employers, and Retirees) have contributed to improved financial outlook

7

8

Cost Management Efficacy

NMRHCA - Five Year Financial History

2009 Actual 2010 Actual 2011 Actual 2012 Actual 2013 Estimate 2014 Approved

Plan Costs$201,481,0

00 $205,328,000 $205,345,400 $223,991,700 $235,593,700 $258,318,900

Annual Increase Since FY2009                     5.6%

Medical Membership 40,224 41,889 43,690 46,698 49,032 51,484

PMPM Cost $417 $408 $392 $400 $400 $418

Year Over Year Increase -2.1% -4.1% 2.1% 0.2% 4.4%

Annual PMPM Increase Since FY2009                     0.0%

9$100,000,000

$120,000,000

$140,000,000

$160,000,000

$180,000,000

$200,000,000

$220,000,000

$240,000,000

$260,000,000

$280,000,000

$300,000,000

$157,062,118

$122,897,298

$296,548,499

NMRHCA Fund Balance History - July 2005 thru August 2013

10

NMRHCA Program Is Manageable – But Significant Challenges

Remain

Recent improvements demonstrate that retiree health benefits can be managed in a responsible way over the long term

Fundamental imbalances will require additional changes over time

11

NMRHCA’s Fundamental Challenges

12

NMRHCA Current Fund Balance Projection

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

-$200,000,000

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

Revenue Expenses Surplus/Deficit Fund Balance

13

NMRHCA Five-Year Strategic PlanPositive Fund Balance Through 2043

X Phase out “Family Coverage” subsidies for retirees with multiple dependent children

X Increase cost sharing on prescription coverage (stabilize plan/member share percentage)

X Increase cost-sharing of pre-Medicare Plans

Implement graduated minimum age requirement (to receive subsidies)*

Increase years of service required to receive maximum subsidy (currently 20 years)

Reduce pre-Medicare retiree subsidies

Reduce pre-Medicare spousal subsidies

Implement enhanced wellness programs (premium incentives for participation/health status)

Increase Employee/Employer contribution levels (requires legislative action)X indicates implementation starting in 2013

*NMRHCA will implement any minimum age requirement adopted by PERA and/or ERB

 

14

Impact of Five Year Plan

Current Contributions Vs. Benefits

Contributions Vs. Benefits With Five Year Plan

Employee Contribution Employer Contribution Total Contribution Avg Subsidy Provided - Retiree

Avg Subsidy - Retiree+Spouse

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$10,375

$20,750

$31,125

$68,405

$99,619

Employee Contribution Employer Contribution Total Contribution Avg Subsidy Provided - Retiree

Avg Subsidy - Retiree+Spouse

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$18,883

$37,765

$56,648 $58,517

$78,517

1520

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

2520

2620

2720

2820

2920

3020

3120

3220

3320

3420

3520

3620

3720

3820

3920

4020

4120

4220

43$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

2007 Projection 2011 Projection2013 Projection 2013 Projection w/ 5 Year Plan

16

NMRHCA Current Events Board Action for 2014

Raised rates 6% - 8% Continued phasing out child subsidies Committed to alter plans to preclude payment of “Cadillac Tax” Medicare Advantage Plans added expanding coverage locally and

nationally Results

Reduced unfunded liability by $200 million Reduced solvency deficit of outbound year by $120 million

FY2015 Appropriation Request Membership Growth Medical Cost Trend Expansion of FTE’s to accommodate years of accumulated growth

2014 Legislative Session Working with Investments and Pensions Oversight Committee (IPOC) to

develop legislation in accordance with statutory requirements “..At the first session of the legislature following July 1, 2013, the legislature shall

review and adjust the distributions pursuant to Section 7-1-6.1 NMSA 1978 and the employer and employee contributions to the authority in order to ensure the actuarial soundness of the benefits provided under the Retiree Health Care Act” (10-7C-15-G)

Active Employee/Employer Contributions to NMRHCA

Effective July 1, 2012 contributions are made to NMRHCA as follows: Non-Enhanced Plans – 90% of membership

Employer: 2.0% of SalaryEmployee: 1.0% of SalaryTotal: 3.0% of Salary

Enhanced Plans* - 10% of membershipEmployer: 2.5% of SalaryEmployee: 1.25% of SalaryTotal: 3.75% of Salary

*Enhanced plans are defined by NMRHCA Statute as: (A) State Police member and adult correctional officer member coverage plan 1 (B) Municipal police member coverage plan 3, 4 or 5 (C) Municipal fire member coverage plan 3, 4 or 5 (D) Municipal detention officer member coverage plan 1 (E) A member pursuant to the provisions of the Judicial Retirement Act

18

Increase employee/employer contributions from 3% of payroll to 5.25% over a 6-year period as follows:

Legislative Proposal

A B C D E

Fiscal YearCurrent

ContributionProposed Increase

Proposed Total

Additional Revenue

FY14 3.00% 0.00% 3.00% -$ FY15 3.00% 0.50% 3.50% 20,000,000$ FY16 3.00% 0.50% 4.00% 40,000,000$ FY17 3.00% 0.50% 4.50% 60,000,000$ FY18 3.00% 0.25% 4.75% 70,000,000$ FY19 3.00% 0.25% 5.00% 80,000,000$ FY20 3.00% 0.25% 5.25% 90,000,000$

19

Summary Impact Upon full implementation

$90 million of additional revenue annually

Employee Impact Example: An employee earning $40,000 annually currently pays $15.39 per pay

period (1%)

Each .25% increase will result in $3.84 less in take home pay each pay period. A .75% increase will result in an increased contribution of $11.52 per pay period or $300 annually

Employer Impact Example: An employer (for each $40,000 employee) currently pays $30.77 (2%)

per pay period Each .25% increase will result in $3.84 increase in contribution. A

1.5% increase will result in an increased contribution of $600 annually

Each .25% increase in employer contribution will have an approximate $5 million impact on the general fund

Each .25% increase in contributions extends NMRHCA’s solvency by approximately 1 ½ years

20Employee Employer Employee Employer Employee Employer

ERB PERA NMRHCA - Current

30%

35%

40%

45%

50%

55%

60%

65%

70%

45%

55%

37%

63%

33%

67%

Retiree Programs - Contribution Ratios