Prescription drug costs are soaring, driving up insurance rates
■ By Melissa Diaz Hernandez / Editor
During a recent work-study, Hemet City Council was given an update on the city’s medical insurance costs as the city faces potential rate increases as early as next spring. Mike Reilly of HUB International (HUB), an insurance brokerage firm, told the council that the presentation was a “real general overview of the health insurance costs for the city.”
The city pays $3.1 million per year in health insurance premiums. That number is static unless the number of employees, or the cap, increases. There are 252 actives (non-retirees) with a $1,028 per month cap on premiums.
According to Reilly, the most challenging component are the early retirees – those who are under 65 years of age and not Medicare eligible. The city has classified 79 people under this category: 60 are covered by an Aetna plan and 19 receive coverage with a Kaiser plan, which costs the city $2.3 million annually; the majority of costs are covered by the city of Hemet.
Some retirees get 100 percent of their benefits paid — benefits that are subject to annual increases based on the market. The city bears the full burden of those costs.
“The strategy was to try to move people on the managed choice plan to a more cost-effective HMO product,” said Reilly. “In the case of the over-65 group, to a Medicare supplement plan. We were almost 100 percent successful in that process,” Reilly explained to the council. “There were a few outliers over 65 that had never paid into Medicare. There were some challenges, as well as some out-of-state people who created some challenges. Effective Sept. 1, 2016, the managed-choice plan was eliminated, and the [monthly] cost savings for the city was about $3,600-$3,700 per employee, resulting in tremendous savings.”
Reilly said that two years ago, the pools of retirees and actives were separated, driven mainly by the collective bargaining process. It was determined that the retiree costs were driving up the cost to cover active employees.
“The retirees’ Aetna plan went up 44 percent in the year we split them out,” said Reilly.
The city incurred savings by moving retirees from managed-choice plans. There are only six actives on Aetna, and most actives are on Kaiser, even though the valley does not have a Kaiser facility. However, Kaiser penned a deal with Target Stores at the western regional level, and the Target Store in Hemet will have a Kaiser facility, according to Reilly. Kaiser clinics will be in Target Stores in the western region in the next 18 months.
The Valley Chronicle contacted Target for comment. A representative from Target responded, “Target teamed up with Kaiser Permanente in 2014 to expand the health-care service offerings for Southern California Target guests with a four-store pilot test. We currently offer clinic care by Kaiser Permanente in Target stores in Vista, Mission Valley (San Diego), Fontana, and West Fullerton. We’ve heard from our guests that they love having access to high-quality health-care services from Kaiser Permanente while making their Target run, but we have nothing additional to share about these offerings at this time.”
One option for the city includes a full Kaiser takeover, eliminating Aetna in the future. However, that option presents a challenge for the retirees who have moved out of state because Kaiser is not offered. Another option presented during the work-study suggests eliminating Kaiser completely. Reilly did not feel that was a feasible option but emphasized the need to spark some interest among other carriers, which would happen if Kaiser were eliminated.
Ideas for price mitigation were presented; one idea is rate blending, which the city has discussed in the past. For example, if Kaiser’s rate is $100 and Aetna’s rate is $200, all employees would be charged $150. The cost of the plan selected would be irrelevant because the cost then would be the same for everyone. Reilly mentioned that the city of Riverside is considering adopting this tactic.
So, what does Reilly think is going to happen? Since Kaiser is trending at a six percent premium rate increase, its rates are more affordable. The cost remains stagnant among early retirees. Reilly says Aetna and other carrier rate increases are trending at 10-12 percent due to prescription drugs. Prescription drugs are increasing by 19-20 percent annually, which is affecting the overall trend.
The city has nine bargaining units, and if a change is made, then the city needs the consensus of all nine bargaining units. The city may want to consider forming a committee to meet quarterly and discuss strategies, Reilly said during the Aug. 8 session.
Most cities are moving away from the composite rate, which means that single employees with no children pay the same rate as a married employee with five kids, said Reilly. One option presented is a tiered rate structure, which presents a challenge because family rates increase more than the composite rate. Tiering the rates and tiering the caps need to be parallel discussions so families are not priced out. Reilly suggested having a plan in place as soon as possible so when new rates go into effect next March, the increases are already anticipated.
Reilly suggested starting the conversation in early fall because they can anticipate something close to what the renewal costs will be next year. Reilly said his company, HUB International, could pay for a full study allowing the city to compare rates with different options. The study, he said, would cost the firm about $10,000.
According to HUB’s website, “HUB..represents a broad, deep, one-of-a-kind aggregation of insurance entrepreneurs.” The company has more than 400 integrated brokerages across North America.