Scott R. Baldwin Area Senior Vice President, Education

Managing Partner Gallagher Benefit Services, Inc.

scott_baldwin@ajg.com 630.285.3755

Negotiation Trends and Employee Benefits...

A Total Compensation Approach

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Role of Insurance/Employee Benefits◦ Relationship to Negotiations◦ Yesterday…Today…Years to Come◦ Integrated?◦ Total Compensation?

What is current environment?◦ Insurance Committee?◦ Representation to Bargaining Team?

Is there Common Ground?◦ Communication of Value

Employee Benefits & Negotiations

Bargaining Team Education Common Body of Information Benchmarking Plan Modeling Contribution Modeling Plan Migration Total Compensation Wellness and Consumerism Healthcare Reform 2012 – 2018

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Employee Benefits & Negotiations

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Average District Plan Design

Provision Benefit Level

Deductible $400

OOP Maximum $1,250

Co-insurance 90%/70% (in/out)

Office Visit Co-pay $20 (58% of plans)

Rx – Generic $10

Rx – Formulary $25 $30 (mail-order)Rx – Brand $35

* Based on internal GBS data. Sample size of 140 Illinois School Districts

Cost of Coverage: Monthly Premium Increase over the years(Medical Inflation costs average 9% to 11%)

Cost of Insurance Coverage:$10,548,732 per year

How do our premiums compare to others?(From a survey of 145 Northern Illinois school plans)

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What are districts doing today?◦Typical arrangements◦Typical bargaining strategy

What are the dangers?◦ “Affordability” and the exchange◦ Impact of plan migration

Is there an optimal plan design?◦Short and long term strategy

Contribution Structure

Administrative Impact

Financial Impact

Plan Design Side Effects

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Healthcare Reform 2012 - 2018

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Timeline

6/23/10 9/23/10 1/1/11 1/1/12 1/1/13 1/1/14+

•OTC drug reimbursements

•HSA penalties

•W-2 Reporting

•Employee notification requirements

•Medical industry taxes

• FSA limits

• Itemized medical expense deduction changes

•Medicare taxes

• Part D drug subsidy deduction eliminated

•Coverage expansion mandates

•Patient protections

•Early retire reinsurance

•High-risk pools

•Employer and individual mandates

• Insurance exchanges

•Patient protections

•“Cadillac” excise tax (2018)

•W-2 Reporting•Plan disclosure requirements

Communication Requirements◦Educating Employees about Options◦Standardized Communication Practices

Data Collection Requirements◦W-2 Reporting◦ IRS/HHS Communication Requirements

Benefits Changes◦ “Grandfathered” Status◦FSA restrictions◦Preventative Services◦Annual/Lifetime Limits

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Administrative Impact on Schools

Plan Design◦Common School District Plan Designs◦Cadillac Tax implications◦ “Optimal” plan design

Contribution Strategies◦Plan Migration◦Penalties/Fees◦ Incentives◦ “Optimal” contribution strategy

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Financial Impact on Schools

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Higher costs◦Compounded over time

“Cadillac Plan” tax implications◦ 2018 limits - $10,200 for employee only and

$27,500 for family $5,280 and $14,235, respectively, in today’s

dollars◦ 40% excise tax on additional dollars spent

$125,000 penalty for a 250 employee district with an average plan

Is there an optimal plan design?◦Short and Long Term Strategy

Plan Design Side Effects

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A “Wellness Program” is an employer effort to reduce long term medical program costs and decrease absenteeism by engaging employees in disease management and health promotion strategies.

Wellness Programs

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Wellness ROI◦ $3.27 reduction in medical costs per dollar

spent*◦ $2.73 reduction in absenteeism costs per dollar

spent* Incentives allowed under Healthcare

Reform◦Allows 30% cost of coverage discount for

program participants “Discount” rather than “Surcharge”

Carrot vs. Stick Approach Drives participation

Wellness Programs

* Baicker, K., D. Cutler, and Z. Song. "Workplace Wellness Programs Can Generate Savings." Health Affairs 29.2 (2010): 304-11. Print.

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Developing a Culture of Wellness (and realizing ROI)◦Monitor Participation

ROI maximized with 70%+ participation◦ Invest in your program

1-2% of Claims Costs◦Create an active Wellness Committee

Drives the message to employee population Encourages a “Culture of Wellness”

◦Set long term goals, and drive toward them Every “wellness” activity should drive toward those

goals

Wellness Programs

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Health Savings Account (“HSA”) Programs◦What are they?◦How do they benefit the District?

Trend Management Lower Plan Costs

◦How do they benefit Employees? Flexibility and Control Become an Engaged and Educated Consumer

Consumer Driven Healthcare

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What are we driving toward?

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Plan Design

Contribution

Consumerism

Reporting and Compliance

What the Future Might Look Like

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Where you are today along with local factors will drive how you proceed.

Consider bigger strategic questions such as whether to continue to offer health insurance or to have employees access it through the exchanges.

Remain current on regulations, trends and new legislation.

Educate…Communicate…Negotiate

Bargaining to the Future

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Q&A