Early Retiree Health Insurance: A Disconcerting Update

San Angelo city leaders wrote the following in July 2010 when they applied for federal funding for early retiree health coverage::

Reimbursement through ERRP will allow the City "to continue to provide the same quality of care without passing on additional costs to its participants." 

December saw City Council approve draconian health insurance increases for employee and retiree dependents, passing on huge costs to plan participants..

April finds other Texas cities getting federal reimbursement for early retiree health claims, while San Angelo is stuck in a drought.   Lisa Marley, Director of Human Resources & Risk Management, explained why in an e-mail:

Blue Cross/Blue Shield finally authorized access in March to allow HR the information necessary to process any ERRP claims.  The City has attempted to process the ERRP reimbursements but we simply do not have the staff to do it.  At this point it still remains unclear whether or not there are any claims that would qualify for reimbursement.  I met with the City Manager and he has agreed to pay Blue Cross/Blue Shield to process City ERRP claims.  Their cost for this service is $16,000 and we were initially trying to avoid that cost by doing it in house.

The contract with Blue Cross/Blue Shield is currently in the Legal Department being reviewed.  As soon as the contract is signed, Blue Cross/Blue Shield will be responsible for the ERRP process for the City.

The City of San Angelo qualified for federal funding for early retiree health insurance via the Early Retiree Reinsurance Program (ERRP).  Despite being approved on August 31, 2010 San Angelo City Council is yet to hear a presentation on this development.  Retired Police Chief Russel Smith and I raised questions in November and December Council meeting.

Mr. Dominguez added this (ERRP) is a one-time federal program which basically diverts the discussion to a later date. 11-16-10

One month later, City leaders characterized ERRP money as "iffy" and implemented draconian health insurance increases for early retiree and employee dependents.   Premiums rose 34 to 58%,  causing nearly 200 people to lose city sponsored health insurance.  Roughly 50 were employees/retirees and 150 dependents.

Oddly, ERRP money isn't iffy for other Texas cities.

Amarillo--$309,000
Austin--$1.7 million
Brownsville--$68,000
Dallas--$648,000
Garland--$174,000
Greenville--$33,000
Irving--$236,000
Longview--$278,000
Mesquite--$251,000
Midland--$113,000
North Richland Hills--$45,000
San Angelo--$0

Why have they been able to get paid, while San Angelo fumbles?  Benefits consultants projected the City would receive between $200,000 and $800,000 in ERRP reimbursement over a two year period.  The City's ERRP application stated:

Year 1

Low Estimate--$91,217

Expected Estimate--$307,484

High Estimate--$383,915

Potential reimbursement for six months under the projected scenarios would mean $45,000 to $190,000 via ERRP.

Surely, other Texas cities use BC/BS as their third party administrator.  Why have they succeeded in filing claims, while San Angelo has not?

City Manager Harold Dominguez recently told the Standard Times:

He is hoping the city can both cut taxes and raise city employee salaries during the next budget cycle — and that it is looking at a variety of cost-saving provisions to help make those goals more achievable.

The city saved over $300 per month from 45 employees/retirees dropping coverage, which totals $162,000.  How much did the dropping of 147 dependents save?  At $100 a month, savings would be $176,400.  Add six months of projected ERRP claims and cost savings total $500,000.

COSA clearly indicated its plans to the Feds in 2010:

The city intends to maintain the current level of contribution to the (health) insurance fund. 

What other health insurance moves does Harold have in store?  Who knew a tax cut and salary increase would come on the back of early retirees, widowed spouses and children?  It's the new American way of managing risk.

Update 4-30-11:  Cost sharing grows as employers turn their health insurance benefit into a "defined contribution" vs. "defined benefit" plan.  Most employers morphed their retirement (pension) plans into a defined contribution structure.  This shifts the risk to the employee to plan and fund their retirement.  Similar plans for health care have employees buying individual insurance plans, some with monstrous deductibles and copays.  While PPACA dilly dallies, employers and tapped out governments shift responsibility to the individual, already financially distressed.  Mayor New talked about moving in the direction of a defined contribution health insurance benefit for employees and early retirees.  It remains to be seen what types of plans the city explores and when.  How much notice will the public and those impacted get?  It was very short in 2010.   

December Wind Unkind to City Retirees

Nearly one year ago, San Angelo's City Council discussed wellness initiatives and employee/retiree health insurance.  These topics were reflected in the December 1, 2009 minutes.

Wellness initiatives relate to the CareHere LLC proposal to operate the employee health clinic.  City staff cited the health risk assessment as a key reason for recommending CareHere.  One year ago, HR Manager Lisa Marley reviewed "how the clinic could be used to promote wellness initiatives."

Mr. Dominguez disclosed as staff develops the wellness initiative, it is highly likely that the City may move towards rates based on wellness initiatives. Therefore, rates would be based on the health and condition of the employee. Mr. Dominguez provided an example how a reinsurance provider may set a higher stop loss amount on an individual, increasing the City’s liability for that particular employee from $150K to $250K based on claims experience.

The second relates to health insurance and any baseline number.  Mayor Alvin New and City staff said on November 16, 2010 they can't spend a penny more than $6.4 million.  Last December:

Mr. Dane informed the City’s budget for the self insurance health fund is $7.2M and the retiree portion of that amount is $1.5M.  

Mayor New noted the city's good experience under the health plans at the recent Council meeting.

2011 budget (city portion)--  $6.4 million  
Additional employee/early retiree portion-- $1 million
2011 budget total-- $7.4 million

What accounts for the $800,000 difference?  That wasn't addressed at the recent meeting.  Last year, the City tried to pass $800,000 in costs to retirees and permanently cap the City's contribution at a fixed amount.

Mr. Dominguez noted the proposed plan would take three years to recoup related expenditures under the proposed benefit. By adoption of this plan, he informed changes will cover the self-insurance fund $680K shortfall and add an additional $289K to stabilize the fund balance. He advised by freezing the Per Employee (or retiree) Per Month rate (PEPM) at $332.22, any future increases would be covered by the retiree.

What Council declined in 2009, Mayor New and City Manager Harold Dominguez operationalized in 2010.  Albeit, Dominguez found money to help with health insurance increases (August 3, 2010 minutes):

City Manager Harold Dominguez explained the $318K health insurance proposed amount would allow the City to buy down the employee’s contribution amount, thereby keeping increases as low as possible.

A "no new money" wind blew into Council Chambers on health insurance.  It echoed hollow, given the City's acceptance into the Early Retiree Reinsurance Program (ERRP).  City Consultants, using the same claims experience cited by City Manager Dominguez, project $650,000 in reimbursement for early retiree claims from June 1, 2010 to May 31, 2012.

ERRP funds associated with 2010-2011 total $515,000.  That money can be applied toward the $1 million shortfall.  Keeping insurance coverage affordable for early retirees is the aim of the federal program.  ERRP arrived at the wrong time for City leaders, intent on implementing long range plans.  That's why leaders stammered and stuttered when challenged by Retired Police Chief Russell Smith.

City leaders plan to bank ERRP funds for 19 months before using any savings to offset their portion of increases.  That may be the only clear thing in this turbid issue.

San Angelo's Square Dance with Early Retirees

In the last City Council meeting, Mayor Alvin New choreographed his health insurance moves.  New said he wanted to recombine the City's two health insurance plans, one for current employees and the other for early retirees.  GoSanAngelo reported:

A a year ago ..., when the council voted to split retirees and employees into two separate insurance pools to help the city comply with a federal law. That split resulted in higher insurance premiums for retirees this year.

Retirees face a second year of premium increases under the proposal.  It's not clear from the public presentation how much of the $1 million increase comes from the employee vs, early retiree side.

On August 31, 2010 the City learned of its acceptance in the Early Retiree Reinsurance Program.  Consultants project ERRP reimbursement of $650,000 over a two year period.  ERRP.gov speaks to the issue:

Q.  Can retiree-only plans participate in the ERRP?

A.  Yes. The Affordable Care Act does not prohibit retiree-only plans from participating in the ERRP, provided the employment-based plan and its sponsor satisfy all applicable requirements.

The City's having two plans could be a constraint under ERRP.  Guidance states:

(F)or purposes of ERRP, a sponsor may consider multiple health benefit arrangements as one employment-based plan, unless (1) it is clear from the instruments governing an arrangement or arrangements to provide health benefits that the benefits are being provided under separate plans, and (2) the arrangement or arrangements are operated pursuant to such instruments as separate plans.

Until the two plans are combined, the City may be constricted in using ERRP money outside the early retiree plan.

(F)or purposes of ERRP, a sponsor may consider multiple health benefit arrangements as one employment-based plan, unless (1) it is clear from the instruments governing an arrangement or arrangements to provide health benefits that the benefits are being provided under separate plans, and (2) the arrangement or arrangements are operated pursuant to such instruments as separate plans.

Q.  If a sponsor combines plans during or at the end of a plan year but after it has submitted its application to participate in the program, does the sponsor have to submit a new application?

A.  If plans are being combined into an existing plan that has been certified for ERRP purposes, the sponsor should not submit a new application. The sponsor will need to make HHS aware of the change in plan structure through a process that will be developed and announced by HHS.

ERRP funds have to used to stem cost increases inside the approved plan.  This makes the City's stated use of ERRP funds in the HHS application critical.  That information should be made public.

It's clear City leaders want to hold onto ERRP funding until 2012.  The Mayor's desire to combine the two plans could be driven by the aforementioned information.

Separate..., Combine...,  Do-Si-Do.  Watch to see what New calls next..

San Angelo's ERRP App

San Angelo's Early Retiree Reimbursement Program application states the intended use of federal funds:

Reimbursement through ERRP will allow the City "to continue to provide the same quality of care without passing on additional costs to its participants."

This flies in the face of the City's plans to pass 100% of health insurance cost increases to employees and early retirees for 2011.  While citing "no new money," the city will effectively bank 80% of ERRP reimbursement.

The full ERRP application is below, for those interested:

PIR - APrest

City Council plans to act on this item December 7.  Anyone wanting to impact this decision should contact their City Council representative ASAP.

Thanks to San Angelo's Public Information Officer Ty Meighan for this document.


Update 11-29-10:  Section E1 is missing from the above document.  It's not clear if the City failed to fill it out or if something got lost along the way.  I sent a follow-up e-mail to Ty, requesting this portion of the application. 

E. *Intended Use of Early Retiree Reinsurance Program Reimbursements

1) Please summarize how your organization will use the reimbursement under the Early Retiree Reinsurance Program to reduce health benefit or health benefit premium costs for the sponsor of the employment-based plan (i.e., to offset increases in such costs); reduce premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs (or combination of these) for plan participants; or reduce a combination of any of these costs (whether offsetting increases in sponsor costs or offsetting or reducing plan participants’ costs). If necessary to provide a complete response, the sponsor may submit additional pages as an attachment to the application. Please reference such attachment in this space.

Update 1-12-11:  HHS responded to my FOI request.  They received the City's application on July 14, 2010.  The City stated in response to the above E.1 request:

The City of San Angelo is self-insured for health coverage.  Early Retiree Reinsurance Program Reimbursement proceeds will be deposited in a dedicated account for insurance funds.  These funds will then be used to offset increases in premium contributions and increases in participant costs.

ERRP Update: One Citizen's Perspective

In early July 2010 the City applied for the Early Retiree Reinsurance Program (ERRP) program, which pays a large portion of early retiree health care claims.  San Angelo was approved on August 31, 2010.  Paid city consultants projected two-year ERRP reimbursement of $650,000.  A Standard Times article in mid-September 2010 quoted Human Resources Manager Lisa Marley on ERRP:

“It will either be a better (health insurance) benefit or their premiums can be lowered.”

In November 2010 Council heard about the program in a public meeting for the first time.   Retired Police Chief Russell Smith raised ERRP during public comment on proposed health insurance increases.  Despite its clear relevance to the issue at hand, no City leader, paid or elected, mentioned the program prior to Russell Smith’s utterance.  Various city leaders responded with:

"I don't have those numbers"
"There is not clarity"
"These things are hard to predict"
"When one time funds go away, you have problems"

The November minutes stated:

General discussion was held on the Early Retirement Reissuance Program (ERRP) federal grant program which allows cities to receive reimbursements on certain claims, as well as creating alternatives to make benefits affordable for both employees and retirees. Staff is currently working on the new program, therefore, information is not yet available to report. Mr. Dominguez added this is a one-time federal program which basically diverts the discussion to a later date.

ERRP arose in the December 7, 2010 meeting.  City leaders called ERRP money “iffy” and “like a lottery.”  I commented that ERRP money was like taxes, you know it’s coming, but not how much. I suggested they use some portion of expected ERRP reimbursement to offset the hardship of premium increases.  Under the lottery analogy, a submitted claim is a winning ticket.  No claim, no reimbursement.  I couldn’t conceive the City would never file a claim.

City Council chose not to apply any expected ERRP funding to relieve draconian premium increases for employee/retiree dependents.  Here’s how the December 2010 minutes masked 35-60% premium increases for dependent coverage in 2011:

... and the differential distributed to the medium and high plans, and dependent coverage across the board.

In the midst of the health insurance chaos, Human Resources mailed out the required ERRP notice to plan participants in early December.

As a result of this Council’s December actions, 45 employees/retirees and 147 dependents dropped coverage for 2011. Nearly 200 people lost city sponsored health insurance.

One might expect this to ramp up the urgency for ERRP reimbursement.

Eleven Texas cities were able to file claims and receive reimbursement.  Amarillo, Longview, Midland, Greenville, Garland, Irving and Mesquite got ERRP money, while San Angelo did not.

HR stated why:

Blue Cross/Blue Shield finally authorized access in March to allow HR the information necessary to process any ERRP claims.  The City has attempted to process the ERRP reimbursements but we simply do not have the staff to do it.  At this point it still remains unclear whether or not there are any claims that would qualify for reimbursement.  I met with the City Manager and he has agreed to pay Blue Cross/Blue Shield to process City ERRP claims.  Their cost for this service is $16,000 and we were initially trying to avoid that cost by doing it in house.

The City contracted claims submission to Blue Cross/Blue Shield by July 1.  Even with an executed contract, no claims had been filed as of late August.

Councilman Kendall Hirschfeld said in the June 28 City Council meeting that expectations were given in January or February that there be no increases in health insurance.  I checked the minutes of City Council meetings in January and February and found only one reference to health insurance:  It was under public comment:

Retiree Curtis Barsley commented on the recent increase to retiree health insurance.

I venture Mr. Barsley’s comment was not positive.  Given there is no evidence of Hirschfeld’s charge in public documents, in what meeting did members of council create this expectation for management?

Going back to the June council meeting, where health insurance was expressly discussed, staff initially proposed a $250,000 budget increase.  Council reduced that to zero.  This sets the stage for a repeat of last year’s fiasco.

There are two strategies going forward, pass increased premiums to employees and retirees or dramatically cut benefit levels.  Only one of four options in the City’s RFP is keeping current benefits.  The other three are a reduction. 

Advising City Manager Harold Dominguez is an Insurance Review Committee.  When questioned by council if any retirees sat on the committee, staff said no, but “we can do that.”  Has a retiree representative been added to the Insurance Review Committee since June 28?

One citizen spoke on behalf of retirees in the budget hearing, held August 30.  Her comments fell to floor like a tripped retiree.  Not one city official responded to her concerns.

CFO Michael Dane closed the August budget hearing with a story.  He said a year ago a council person asked him to make sure city employees received raises this year.  He suggested this private, one-person directive drove this year’s budget priorities.

A year after receiving ERRP approval, the City Council will receive a report in its September 6 meeting.  The ERRP report comes at the end of a second budget-approval cycle, where program funds could make a difference.  ERRP’s a goose egg for the second time.

Recall the secret charge given by Council to reduce health insurance expenditures year-over-year when premiums for other employers have risen 25%?  Any reduction in health insurance expenses by an employer violates ERRP's maintenance of contribution requirement.  Hirschfeld's directive could be an ERRP excluder.

Recall the siren song of “better benefits” and “lower premiums”?  The “premiums lowered” promise didn’t happen, given many experienced draconian increases in 2011.  The “better benefits” lure is impossible given the City’s bid specifications for health insurance for 2012.

Summary:

The City’s inability to file an ERRP claim, with an executed BC/BS contract and while other Texas cities successfully filed claims, raises questions as to intent.  From a retiree standpoint, leaving ERRP money on the table is made worse by the City’s budgeting no new money for health insurance for the coming year.     For retirees, it’s another failed promise from City leaders, only this one is on their shoulders, not a prior council.

I'll be surprised if this conclusion is part of the City's ERRP update.  Feel free to compare and contrast Harold and Lisa's to mine.

ERRP Fails to Stem Rise in Uninsured

The headline read, "City Workers May Drop Coverage."  San Angelo's early retirees are in the same sinking boat as workers.  Retiree-dependent health insurance premiums soared 34% to 58% for the City of San Angelo, an Early Retiree Reimbursement Program (ERRP) recipient. ERRP is intended to keep health insurance premiums more, not less affordable.

The City came up with $318,000 between Council meetings to cushion the $1 million blow. However, 70% of the cost increase was passed onto workers and early retirees. GoSanAngelo reported new rates for retiree dependents (on a high deductible plan):

                                  2010        2011    Percent Increase
Retiree-Spouse      $377.31    $506.64    34.28%
Retiree-Children    $240.26     $342.63    42.61%
Retiree-Family      $435.58     $691.27    58.70%

The City hemmed and hawed on ERRP, keeping City Council members in the dark and completely mischaracterizing the program as "a lottery."

It's akin to stop-loss coverage, which the City dearly counts on.  ERRP funding is not the least bit questionable.  ERRP began accepting claims for reimbursement the end of October and promised a 30 day turn around time for payment. 

The end result is the City will bank 19 months of ERRP funding before sharing any proceeds, while 51 retiree-dependents struggle to keep health coverage.. 

To maximize ERRP funding, the City would work to keep early retirees in the plan, not drive them away with massive rate increases.

Employee-dependent rates also soared.

Employee-Family plans skyrocketed 48% to 58%.  Human Resources brought CHIP applications to their employee "open enrollment" meetings.  The City suggested government health insurance for those now unable to afford their portion of an employee benefit, 280 employees with some form of dependent coverage. 

Given Texas' budget woes, CHIP insurance premiums will likely soar, as well.  That's if Texas doesn't pull an Arizona and eliminate the plan altogether.

One thing is clear.  Employers continue shifting the burden to struggling individuals.  America's legions of uninsureds will grow until 2014.


Update 12-12-10:  Another retiree expects no help from ERRP.  This one is from GM.

Update 1-12-11:   According to a letter sent Wednesday by HHS Secretary Kathleen Sebelius, Department of Labor Secretary Hilda Solis and Treasury Secretary Timothy Geithner, HHS began making reimbursements late last year and as of Dec. 30 said it had paid out about $1 billion.  Has the City of San Angelo received its first check?

San Angelo's Marley Chains Early Retirees

San Angelo's Human Resources Director Lisa Marley held a meeting on health insurance changes for employees and early retirees.  Of the attendees, all but two were early retirees.  Retired Police Chief Russell Smith raised ERRP, the Early Retiree Reinsurance Program.  Marley said any monies would not be available until 2012 and that the Council would decide their use.

The timing and use are within the purview of the City Council today.  City leaders agreed to pass 100% of cost increases to employees and early retirees.  Mayor Alvin New stated there "was no new money."   City Manager Harold Dominguez and HR's Veronica Sanchez hemmed and hawed when Smith raised ERRP at the November 16 Council meeting.  The City will bank 19 months of ERRP's new money, before considering how to use the funds.

IPBTax.com's Employee Benefit Insider stated:

While reimbursements may be used to reduce either participant or employer costs, it is not clear whether at least some participant cost reduction is required. The preamble states that HHS “encourage[s]” employers to use reimbursements to offset both kinds of costs. 

I believe the City wants to combine employer and early retiree health plans, allowable under ERRP. Given their firm stance of not sharing proceeds until 2012, I believe the City wants to use the funds to cover their portion of future health increases.

What's clear?  The federal government gives, the City takes and not one early retiree gets a break in 2011. Who'd have thought such a thing could happen?

First Jacob, now Lisa.  Add a link to the Marley chain.

San Angelo's ERRP: Bank or Lottery?

City Council acted on health insurance coverage.  As a result, early retiree health insurance coverage for dependent spouses will soar from $377 to over $500 per month, at least a 33% increase.

The monstrous burden will occur in 2011, a period when the City of San Angelo will get federal money intended to help early retirees, via the Early Retiree Reinsurance Program (ERRP).  Benefit consultants project ERRP will save retiree plans 25 to 33%.

Why are San Angelo's retiree rates going the opposite direction?  It's the result of a strategic decision to bank ERRP funding for 19 months.  The decision was made outside City Council, given members were unaware of the program.  Human Resources admitted they had not informed elected leaders and City Council minutes bear this out.

When asked why a portion of ERRP funds were not used to offset retiree increases, Mayor Alvin New and City Manager Harold Dominguez stuck to the "iffy" script on funding?  Councilman Johnny Silvas compared ERRP funding to buying "a lottery ticket." 

For those in the know, ERRP is more akin to a bank.  Uncle Sam is shouldering 80% of claims from $15,000 to $90,000.  Funds are coming, soon.  The question is how much?  In that regard, the city has years of experience, six months are directly reimbursable.  I've never seen a lottery ticket with those attributes.

How many of the City's 51 retiree dependents will drop coverage, unable to pony up more than $500 a month?  The irony is this.  The more retirees the City drives from the plan, the less opportunity for ERRP reimbursement.

Retired spouses may have $377 to spend on lottery tickets in 2011, one option for funding future health care expenses.  It's a high risk strategy, but what alternative do they have?

Update:  KLST noted that a family of four would pay $200 a month more for coverage.   The Standard Times live reported on the meeting.  Neither mentioned, much less investigated, the city's weak ERRP assertions.

San Angelo's Health Department Decimation & ERRP Gift

Tight budgets over the last fifteen years caused the shedding of major health department services.  The Primary care clinic went first.  The city then shed its pharmacy and social services ($176,000 savings).  The 2010-2011 budget indicates what's left:

Immunizations
TB Clinic
Sexually Transmitted Disease Clinic

Oddly, the city added an employee health clinic while cutting services to the public.  This may make financial sense for San Angelo, as it could save health insurance costs, where the City is self insured.

Health reform included a $5 billion Early Retiree Reinsurance Program (ERRP) and the City was in the initial group approved for reimbursement.  Over a two year period the City expects $750,000 in ERRP funding.  The money is intended to keep health insurance affordable for early retirees.

Hewitt Associates generally projected a 25 to 35% savings within any retiree healthcare program.  That's $2,000 to $3,000 per early retiree. In this scenario, the City's expected funding translates to 150-175 early retirees

Veronica Sanchez with San Angelo Human Resources gave different numbers.  She cited a $200,000 savings on a $4 million program, savings more like 5%.  Had she used the $307,000 expected savings given by the City's benefit consultant (Holmes Murphy), the number would have been near 8%, but well below Hewitt's projection.

The City budget shows self insurance operating expenses of $6.7 million (page 36).  Veronica's $4 million in retiree health costs comprise 60% of the total.  Maybe 150 early retirees could cost more than 1,000 employees, but it seems out of whack.  Plus, if this were the case, wouldn't reinsurance, paying 80% of costs between $15,000 and $90,000 produce a much bigger check from Uncle Sam?

Is the city spreading ERRP savings over the whole self-insurance program?  There's more to this story.  The report from Holmes Murphy may have the answers.

ERRP Help: Too Little, Too Late?

San Angelo's number of early retirees covered under the city's health insurance plan plummeted from 280 to an expected 215 for the coming fiscal year.  The 65 person decrease amounts to a 23% drop.  Ironically, during this time the city had access to hundreds of thousands of dollars to keep early retiree health care affordable. 

The City of San Angelo qualified for federal Early Retiree Reimbursement Program funds three years ago.  The city received $343,000, an amount less than originally projected, but a significant sum.  The first two years the city spent zero ERRP funds.  City leaders, staff and elected officials, painted ERRP money as uncertain in November 2010.  Council refused to use any expected funds to ease the pain of back breaking premium increases foisted on the city's employee and early retiree dependents.   

Only recently did the city tap these funds.

Council approved the use of $142,000 for this fiscal year in order to keep premiums flat from 2012 through 2013.  $201,000 ERRP funds remain, and I will likely ask Council to approve use of those funds for the upcoming premium calculations.

Council instructed City leaders to spend ERRP money in early 2012 to avoid "federal strings."  There is only one string associated with ERRP money, one which staff and council fail to understand.  The City cannot displace local money with federal.   It remains to be seen if the City can comply with this requirement and utilize the $201,000 in remaining ERRP funds.

San Angelo's Invisible ERRP

During the budget process, San Angelo City Council postponed addressing health insurance.  The numbers, pictured above, were the last the public knew about the issue, until today's Council meeting.  In the interim, the City successfully applied for the Early Retiree Reinsurance Program, which has the federal government reimbursing retiree claims.  ERRP pays 80% of costs between $15,000 and $90,000.  Savings are expected to be $650,000 over a two year period.  GoSanAngelo reported:

“It will either be a better benefit or their premiums can be lowered. Those are the two choices we have to use the funds for,” said the city’s Human Resource Director Lisa Marley, noting the city has yet to determine whether it will put the funds toward claims or premiums although it may be “easier to put toward claims to allow employees to have better coverage.”

"...the program will help offset costs for the city and its early retirees, Marley said

The city is self-insured.  It covers employees and retirees in two separate plans.  Mayor New said BlueCross/BlueShield's rates would increase $960,000 from the prior year, an increase of 10-15%.  The City is financially strapped, given property and sales tax staying level or declining.  That means passing on increased costs to those covered.

Retirees and employees lined up for public comment.  Familiar themes were the rushed nature of the agenda item, the lack of information shared with those impacted and the failure for leaders to meet with employees to understand their needs.

“The problem is there are $1 million of new expenses and there’s not any new revenue, “ said Mayor Alvin New. “So how do you want to pass on for the employees the ability to have the same health care coverage they have ... and how you want to pay for it? That’s what this is about.”

City leaders avoided their receipt of ERRP funds, expected to be $307,000 the first year and $343,000 the second.  When challenged by Russell Smith, retired Police Chief and Justice of the Peace, Veronica Sanchez only gave the name of the program.  HR Director Lisa Marley was not at the meeting.  Also missing in news coverage, when did the City receive bids on their self insurance plans?

City Council and paid leaders purposefully kept ERRP monies out of the discussion.  Surely, they knew of the city's windfall, courtesy of Uncle Sam.  Why? Health & Human Services expects ERRP reimbursement to keep health insurance affordable for retirees.  How is the City planning to use ERRP funding?  The public deserves an answer.

The City Council is a microcosm for American society.  Obama's Deficit Commission hopes to cut Social Security by reducing benefits and/or increasing the retirement age.  Within three years, City retirees will pay the same amount in premium sharing as employees.  By then, the City will have received up to $810,000 in federal reimbursement for retiree claims.

Given the City kept ERRP off the table, it must have plans for the money, other than Lisa Marley's stated promise.  Retirees will not see their premiums go down.  The lack of honesty is disturbing.  It's anything but terrific news.

One employee suggested the city provide assistance for employees, who can't afford huge dependent premium increases.  He thought the City could help enroll dependents in Medicaid or CHIP.  Given the City jettisoned its Social Services workers, this added to the "down the rabbit hole" nature of the meeting,

The final plummet came at near the end of the meeting, when the Council approved a new holiday for workers, Veterans' Day.  If the City can't afford to pay more for health insurance, why did Council increase the paid time off benefit?  Another vacation day cost $135,000.

Combine the first year of ERRP ($307,000) with the new vacation day ($135,000) and you get $442,000, nearly half of the $960,000 shortfall.  The maximum ERRP reimbursement over two years ($810,000), plus the vacation day, knocks out almost the whole amount.

If City Council won't talk about it, what can retirees do?  The message is clear.  Don't be a senior, much less an early retiree.

ERRP Funds to be Used in 2013

After a two year wait the City of San Angelo will finally use a portion of its Early Retiree Reinsurance Program funds.  San Angelo was approved for ERRP in August 2010.  Council discounted the use of expected ERRP funds for calendar year 2011.  Instead, it passed on draconian premium increases to retiree and employee dependents, such that nearly 200 people dropped health insurance altogether.

City Council changed its stance on ERRP funds after approving an exclusive provider arrangement with Aetna.  Council specified ERRP funds be used in 2012 to "avoid federal strings."

The City expected $483,000 in EPO savings, but got double that amount, over $1 million.  Note the minutes from the last City Council meeting:. 

Line Item 310 $1M decrease in the City’s Health benefit due to positive impacts of the plan’s changes

These savings preclude the use of ERRP funds, which can only be used to ease the pain of health insurance cost increases, not decreases. 

Staff will provide an update of the self-insurance fund performance during calendar year 2012. Projections for 2013 indicate an increase in health insurance premiums would be required. Staff is recommending the use of $142,000 from the $343,288 Early Retiree Reinsurance Program (ERRP) to offset the projected increases for 2013.

Problems arise in talking about health insurance due to the difference between the city's fiscal year budget and calendar year health plan.  Yet, Council did not approve a budget increase in health insurance in their last meeting.  The budget shows a decrease of $50,000 in 2013.

The above information came as surprise announcement to Council on September 4th, given not one prior budget document showed this revised health insurance number.

The City's $1.1 million health insurance budget amendment is dated July 5th.  The draft budget was produced on July 26, then revised per council direction and included in Council's agenda packet in August and early September.

City brass and staffers clearly knew of big savings, yet waited until the last minute to inform Council and the public.

There is one huge oddity in this budget amendment, revenue and expenses went down by the exact same amount.  Expense savings came from lower utilization and better pricing under Aetna's EPO.  Revenue tends to be more predictable, given employees and retirees pay a fixed amount per paycheck for insurance and the City commits to paying X dollars per employee per pay period.  Generally, the only variable for the city is the number of employees and retirees it's funding.

For the 2012 plan year Council lowered employee, retiree and dependent contributions, effectively sharing a portion of $483,000 in predicted EPO savings.  Yet, savings are double what was predicted. 

Does the city plan on rebating premiums to employees, retirees and dependents?  Will it hold the funds for the coming year (fiscal or plan)?  Will it set the money aside to meet GASB requirements?  Or will it pocket the money in the General Fund and spend it elsewhere?  

I look forward to hearing the update on the Self-Insurance Fund performance.  It could well provide answers. 

San Angelo's ERRP Chickens to Hatch

The City of San Angelo is self insured for employee and early retiree health insurance.  It received approval from the federal government for the Early Retiree Reinsurance Program (ERRP).  From June 1, 2010 to December 31, 2011 the City bears the following risk for early retirees:

$15,000 or less--100% of risk
$15,000 to $90,000--20% of the risk (80% ERRP)
$90,000 to $125,000--100% of risk
over $125,000--0% (stop loss coverage)

The City has three cases where claims exceed $125,000, over $375,000 total.  Stop loss coverage kicked in.  If those are early retirees and all claims came after June 1, 2010, Uncle Sam will reimburse the city $180,000. 

Reimbursement could be thirty days away, the promised turnaround time for paying claims.  Senator Jay Rockefeller (D-WV) stated:

"Since October, companies have been able to submit claims to obtain reimbursement for 80 percent of health care claims in the $15,000 to $90,000 range."

The City counts on stop-loss coverage.  It can count on ERRP funding, but chose not to.  Leaders did say they could conduct a mid-year review based on experience and ERRP chickens hatching.  Rates could even be adjusted.  However, retiree spouses and dependents may drop coverage January 1, giving the City fewer egg laying chickens.

Update:  Thanks to General Dynamics Information Technology in Oakton, Virginia for their interest in this topic.  

ERRP Saving for a GASB Day?

San Angelo City leaders said "there is no new money," in regard to health insurance plan increases.  Their charge was:

All 2011 plan cost increases must be passed through to employees and retirees. 

When challenged by Russell Smith, retired Police Chief, about Early Retiree Reinsurance Program (ERRP) funding, the range of responses included

"I don't have those numbers"
"There is not clarity"
"These things are hard to predict"
"When one time funds go away, you have problems"

Yet, the City has projections from Holmes-Murphy on expected ERRP funding for retiree claims after June 1, 2010.  That's new money.  City Manager Harold Dominguez bragged about Holmes-Murphy's expertise when introducing the agenda item.  Yet, Holmes-Murphy didn't speak at the meeting, nor were their ERRP projections shared with the public.  Kiah Collier of the Standard Times followed up with HR's Veronica Sanchez.

"Because there's so much uncertainly with it, we hate to count on that reimbursement prematurely."

I can't think of a program with less uncertainty.  The City will receive 80% reimbursement for early retiree claims between $15,000 and $90,000 until $5 billion runs out.  The City will bank 19 months of ERRP funding, before pondering sharing any savings with employees/early retirees.  That's $515,000 at Holmes-Murphy's expected amount, a major dent in the $960,000 increase being passed on to workers/retirees.

The City's wants to share ERRP savings in 2012, mashing two years of assistance in one.  This aggravates the problem of "one time funds."   ERRP is expected to run out of money in 2012.  Just as the city is ready to share, the program could be gone. 

Consider the City's position when it received ERRP funding:

“It will either be a better benefit or their premiums can be lowered. Those are the two choices we have to use the funds for,” said the city’s Human Resource Director Lisa Marley.

The benefit is the exact same, not better.  Premiums aren't lowered.  They are going up, even skyrocketing.   The countdown is on, given City Council will make a decision on health insurance at its next meeting.  Will the City remain evasive and non-forthcoming on ERRP and its intended use of the funds?

The City's 2009-2010 budget stated:

As a result of GASB 45, the City is required to fund other post-employment benefits anticipated to be provided to current and future retirees. The City’s unfunded liability is substantial. The budgeted amount to fully fund the liability on an annual basis is in excess of $2 million dollars.

ERRP funding could put a dent the City's GASB obligations. Will the feds allow it?

How many workers and early retirees will drop health insurance as a result of the changes?    While working with San Angelo's Health Access Coalition, I watched City employees drop unaffordable coverage for 100 dependents.  I saw CHIP enrollment plummet when the State increased premiums and deductibles/co-pays. 

What happens when a program intended to keep people covered does the opposite?  That may be the real world application of health reform under PPACA.  While Uncle Sam stumbles forward to help, others walk away.

San Angelo City Council Kept in Dark on ERRP?

Retired Police Chief Russell Smith brought up the Early Retiree Reinsurance Program during public comment on health insurance increases for employees and early retirees.  After the November 16 meeting, Smith followed up with City Council members, two of whom said they never heard of the program.  How could that be, given San Angelo's ERRP timeline?

City representatives signed the ERRP application on July 7, 2010 

HHS approved San Angelo in the first round of announcements, August 31, 2010 (which I reported on)

Standard Times ran a blurb on ERRP approval, September 19

No city council agendas/minutes mention "Early Retiree" or "ERRP" from July 6 to December 7, 2010 (12 regular meeting opportunities)

I began communicating with the City on this issue on August 31.  A follow up phone call in October muddied the water.  Then I saw Russell Smith lament draconian health insurance increases for early retirees, with his ERRP "pin drop" moment.

That agenda item deserved a thorough and clear ERRP explanation by City representatives.  Instead, staff stammered, hemmed and hawed.

Seeking answers, I formally requested copies of the Holmes-Murphy report and the methodology for applying ERRP savings, required in section E of the federal application. 

Nov. 17--requested copy of report
Nov. 29--City sends ERRP application, minus section E1 which states how funds will be used
Nov. 29 (evening)--requested language submitted in E1
Dec. 3--followed up with City representatives, HR busy--maybe Monday
Dec. 6 (evening)--no E1

Note:  the federal ERRP application is electronic, in PDF form, capable of being moved rapidly via the internet. 

The practical outcome, should it stand, means the City will bank 17 months of ERRP funding, before considering what to do with federal funding.  Who made the decision to set aside federal funds for a rainy day, while hail beats early retirees?  When will Section E1 arrive?  Will it be read in Council Chambers tomorrow morning?

"New" money is available to help early retirees.  I hope an honest conversation about the program occurs in the morning.  It should make interesting television.


Update:  No E1 arrived before the City Council meeting.  It was not read to Council members.  ERRP remained a virtual secret until raised by the public.  The City stuck to their "unsure source of funding" line, despite the program accepting claim submissions the end of October.    City Council members had three weeks since Russell Smith raised ERRP to ask questions.  None did.  They claimed ignorance.  As for the missing E1, staff blamed it on a quirky electronic application.  Odd, HHS required a hard copy be mailed in.  Did the feds want an incomplete hard copy?  There's either one layer of government incompetence or we're facing a fractal.  My E1 request remains unfulfilled.  It's a sad state for knowledgeable citizens, who expect all cards on the table when dealing with difficult issues.

Early Retiree Posse Will Arrive in 2012

It suddenly became clear why San Angelo City leaders didn't want to discuss Early Retiree Reinsurance Program (ERRP) funding from the federal government during the last City Council meeting.  The light dawned as I read Health and Human Services' (HHS's) statement regarding ERRP:

“For example, for a sponsor that pays a premium to an insurer, if the premium increases, program funds may be used to pay the sponsor’s share of the premium increase from year to year, which reduces the sponsor’s premium costs.”  

The City can use ERRP to pay its portion of premium increases. The City's doing 0% this year, passing 100% of increases to those covered.  Thus, ERRP is off the table.

The City wants ERRP funds to go toward its premium increases, not those passed through to workers or early retirees.  This explains their abject silence, until Retired Police Chief Russell Smith broached the topic.  Once challenged, city leaders stammered and stumbled over ERRP.

Help is available for City employees and early retirees, a projected $515,000 between June 1, 2010 and December 31, 2011.  The City plans to bank 19 months of ERRP reimbursement, before offering improved benefits or decreased premiums.  It seems San Angelo's HR Manager Lisa Marley spoke prematurely, nearly a year and a half early.

The current ruse for not applying a portion of the expected reimbursement in 2011 is a "lack of clarity" regarding qualifying claims.  HHS conducted two webinars on the topic in October. Did the City have anyone participate?

The city remains evasive and non-forthcoming on this issue.  I have compassion for them.  It's hard to publicly state, "we got a gift from Uncle Sam and only wish to apply it toward our share of premium increases."  That could make early retirees angry.

Paid local leaders are clear in their position and show no signs of budging.  How might elected members and religious leaders react?  We'll find out November 30  December 7.  (Two weeks in "City Council time" can be three weeks)

San Angelo's ERRP Remains Cloudy

Standard Times reporter Kiah Collier followed up with Human Resources on ERRP funding.  She wrote:

The city HR department says it simply does not know yet how much it will receive in reimbursements from that program.

Estimated ERRP reimbursements come from Holmes-Murphy, the City's health plan consultants.  They used prior claim experience for their calculations.  This is like projecting future tax revenue based on prior collections.   If the City applied the same logic on taxes or expenditures, the Finance Department couldn't prepare a budget.

Kiah continued:

It (City of San Angelo) does have a projected or estimated amount, but even if it does end up receiving anything, it will likely use those reimbursement to offset any increases in the 2012 health insurance plan - not the 2011 (upcoming year) plan.

I just called Veronica Sanchez with the HR department and she said, "Because there's so much uncertainly with it, we hate to count on that reimbursement prematurely."

The City is eligible for federal reimbursement for retiree claims as of June 1, 2010.  The first reimbursements to sponsors, like the City, were expected to be deposited in October.  That's last month.  Has the City or Blue Cross/Blue Shield gotten an ERRP check yet?

Program funding is expected to last two years.  When the city is ready to share any savings with retirees, ERRP will likely be out of money.

There is no uncertainty in reimbursement under ERRP.  Early retiree claims between $15,000 and $90,000 after June 1, 2010 are reimbursable. Checks for 80% of those costs will be cut.  The question is how much?

The City was accepted in the first round.  Why hold onto 18 months of reimbursement, before sharing a nickel with plan participants?  ERRP's aim is to keep insurance affordable, especially for retirees.  Hewitt Associates projected a 25 to 35% savings within any retiree healthcare program.  That's $2,000 to $3,000 per early retiree.

I spoke to Veronica several times on this issue.  The numbers changed each time.  Local data doesn't align with national projections.  I'm sure much of it is explainable.  However, for citizens to understand, the city should share their ERRP application and Holmes-Murphy report.

City leaders have been evasive and nonforthcoming on this issue.  That should concern citizens, as well as retired and current employees.  The Standard Times is in a position to press leaders to be more open and accountable.

City Council to Act on Health Insurance

Last month San Angelo City Councilwoman Charlotte Farmer talked about getting staff salaries up to 85 to 90% of the national averages.  Other council members offered a different comparison group, cities our size or in our region.  Wages are but one component of total compensation, which includes benefits.  One key benefit is on City Council's published agenda:  

29. Consideration of matters related to Request for Proposal HR-01-14: 

a.Discussion of proposals submitted for Request for Proposal HR-01-14 for benefits regarding health/Rx, clinic, dental, flexible spending accounts, employee assistance program (EAP), voluntary benefits and COBRA administration. 

b. Consideration of selecting Benefit Providers related to Request for Proposal HR-01-14, authorizing staff to negotiate contracts, and authorizing the City Manager to execute said contracts and related documents Presentation by Human Resources Director Lisa Marley) 

The city budget projected health insurance costs to soar, with the city picking up a portion of the increase.  How much will employee costs for health insurance rise?  How much will retiree health costs increase?  Several years ago the city hammered employee and early retiree dependents with massive health increases.  It caused nearly 200 people to drop city sponsored health insurance.  The irony was City Council had access to Early Retiree Reinsurance Program funding and chose not to use a penny.

Last year HR Director Lisa Marley changed faces on health insurance costs between budget and council proposal   In one month the projected number swung nearly $1 million.  (fiscal year)

The City's 2013 Comprehensive Annual Financial Report (CAFR) revealed the health insurance fund to be much lower than budgeted, $469,000 vs. the expected $1.23 million. (fiscal year).  The actual drop was even larger.. 

In July Marley flashed a slide showing a projected $2 million increase in health insurance costs (fiscal year).  Staff proposed Council fund $750,000, leaving $1.25 million for employees and retirees to shoulder. 

Former Police Chief Russell Smith has been the voice of retirees on this issue.  Their pay was a fraction of their peers in other cities, yet the selling point was city benefits.  These retirees got neither fair pay or the promised free lifetime healthcare. It must gall retirees to see staff get a 5% across the board increase while their retirement income remains fixed.

Both staff and early retirees will pay more for health insurance coverage.  The question is how much?  Another question is how many positions will no longer have health insurance benefits due to the city's contracting out numerous functions formerly performed by employees? 

Council's discussion should include a deep and honest discussion on health insurance.  That has not occurred in years.

San Angelo's ERRP Bank

The City of San Angelo's estimated Early Retiree Reimbursement Program Savings are pictured below.  They cover a two year period, June 1, 2010 to May 31, 2012.   Data comes from several sources, city officials and national benefit consultants.

Holmes-Murphy (San Angelo City HR data)

Low --  $193,836
Expected  --  $653,404
High --  $805,819

Hewitt Associates (national projections)

25% of early retiree plan --  $841,935

$3,000 per retiree @250 under 65 retirees --  $750,000

The five projections can be seen in the blue bars.  The City will bank 80% of ERRP funds before sharing any savings with early retirees or employees.  This is represented by the red bars.

There is "new money," contrary to Mayor New's assertion. The City is choosing not to use it until 2012.

Bitter Chill Aimed at San Angelo's Early Retirees

The City of San Angelo faces a political blue norther.  City Council promised to pass 100% of health insurance increases to employees and early retirees at the November 16 Council meeting.  Mayor Alvin New stated there "is no new money," despite the City's qualifying for Early Retiree Reinsurance Program (ERRP) funding on August 31.  When challenged by Retired Police Chief Russell Smith, City leaders' lips froze.  Council will revisit the topic December 7, agenda item #10:

a. Authorizing the City to make the appropriate premium adjustments approved by City Council for January 1, 2011 through December 31, 2011 plan year with Blue Cross/Blue Shield and The Hartford

b. Authorizing the City to discontinue health and prescription coverage for employees/retirees who fail to satisfy monthly premium payments and who are in arrears in excess of sixty (60) days

c. Authorizing the City Manager to execute related contract agreement regarding the January 1, 2011 through December 31, 2011 plan year renewal with Blue Cross/Blue Shield of Texas

(Presentation by Human Resources Director Lisa Marley)

Given the intense public comment during the last meeting, one could expect more information in the packet.  One might expect an explanation of ERRP, its projected funding and intended use.  Hardly, the packet included one memo:

Date: 12/2/10
To: Mayor and Councilmembers
From: Lisa E. Marley, Director of Human Resources
Subject: Agenda Item for December 7, 2010 Council Meeting
Contact: Lisa E. Marley, Director of Human Resources, (325) 657-4221
Caption: Regular Item
Consideration of the following items related to Health Benefits (items a-c listed above):

Summary: At the November 16, 2010 City Council meeting, staff was instructed to meet with
employees to review the health insurance. On December 1, 2, and 3, 2010, a total of four meetings were held. Staff has several options for premium adjustments for the 2011 plan year as well as a recommendation on making necessary plan changes for employees/retirees who fail to satisfy monthly premium payments.

History: In July 2009, RFP# HR 02-09 was issued for proposals on health insurance benefits and RFP# HR 01-10 for pharmacy benefits. With council approval, the City elected coverage
through Blue Cross / Blue Shield of Texas for the 2009 plan year, with subsequent renewals
for three years.
History on item B – The City currently drops employees/retirees who fail to pay monthly premiums from their current plan to the Employee/Retiree Low coverage plan, primarily because the low coverage plan is at no cost to the employee/retiree and further past due premiums will no longer accumulate. The City then goes through the process of collecting past due premiums, many times unsuccessfully, while claims under the low coverage plan continue to be paid by the City.
Financial Impact: Please refer to presentation.
Other Information/Recommendation: There will be no recommended benefit changes to the current low, medium and high health plan coverage. Recommendations will be strictly for premium adjustments.
Additionally, it is recommended that the City drop health and prescription coverage for members that fail to satisfy monthly premiums payments and how are in arrears in excess of 60 days.
Attachments: None.
Reviewed by Service Area Director: Lisa E. Marley, Director of Human Resources, 12/2/10.

San Angelo will bank 19 months of ERRP funding before considering any break to early retirees.  Will Christmas 2011 be as cold?

Retirees had to wonder why Council had the resources to approve a new holiday, Veterans Day, but not a penny for increased medical costs.  What will the next North wind bring those on a fixed income?  So far, it's not honesty or complete information on federal funds for early retirees.  God bless us, everyone!"