Committee helps city cut health care costs

Like many communities, Lakewood, Colo., was facing the prospect of dramatic increases in retiree health care costs. Upon policy renewal, the city’s insurance carriers had imposed a requirement that the city cover at least 50 percent of each retiree’s premium cost. That, along with the projected increase in potential retiree participation, led the city to implement a pre-funded health care program in April 2000.

A committee consisting of senior management, human resources personnel and residents was formed to explore various approaches to retirement health care. The committee, Health Upon Retirement Team (HURT), established objectives that included:

• recognizing the contributions of career employees;

• providing access to health care coverage between retirement and Medicare eligibility;

• developing a benefit that allows for a determinable expense; and

• developing a funding mechanism that allows for a predictable cost of health care.

• HURT then identified pre-funding vehicles available to the city, as well as potential plan features. It determined that Lakewood’s program should include:

• a state grantor trust;

• a defined benefit approach to address the needs of current and soon-to-be retirees;

• a defined dollar benefit to provide the city with control and predictability over costs;

• eligibility provisions to reflect organizational philosophies and human resource objectives; and

• benefits that would support the retirees’ health care costs in an equitable fashion, irrespective of covered dependents.

• HURT ran several actuarial models to estimate costs for different benefit amounts and features. The committee developed a model to determine the amount of funding, as a fixed percentage of payroll, needed to support the program over the next 20 years. When the costs associated with various plan designs were calculated, the committee established plan provisions.

  Once the plan for the funding was established, the committee reviewed the underlying medical insurance programs and modified them to better accommodate the desired coverage. For example:

• Active employee and retiree rates, previously blended, were developed and evaluated on a stand-alone basis. Ultimately, Lakewood decided to blend the rates and to closely monitor retiree participation and the corresponding impact on active rates.

• A higher deductible indemnity plan was designed to address service area concerns.

• To manage adverse selection, retirees residing within the network service area were requested to select one of three managed care options.

• Now, health coverage is available to retirees until they are eligible for Medicare. The program will be monitored for reasonableness and actuarial soundness by the program’s trustees.