Medical and Dental Benefits Discussion

February 17, 2010

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Presentation Overview

1. Total Healthcare Costs2. Healthcare Premium Sharing3. Managing Future Costs

a. Wellness Programb. Plan Design Changesc. Retiree Update

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Scottsdale Medical and Dental Participation

Three self-insured medical plans 2,705*

Aetna EPO 86.2% 2,331Aetna High Level PPO 9.8% 264Aetna Basic PPO 4.0% 110

Two dental plans 2,385

Delta Dental, self-insured 79.5% 1,898Assurant, fully-insured 20.5% 487

* Includes 276 retirees

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National Healthcare Trends

Hewitt Associates For third year, average health care premiums up 6% in 2010 Phoenix market was lower-than-average at 3.8% in 2009 Average total health care premium per employee for large

companies = $9,120

Mercer With no changes, costs would rise an average of 9% in 2010 Most employers plan to hold overall cost growth to 5.9%

through plan changes Average annual cost increase has been 6% since 2005

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Scottsdale’s Healthcare Trends*

FYE 2007 FYE 2008 FYE 2009 FYE 2010 est $-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$20.1 M $22.8 M

$24.4 M $24.5 M

Covered EEs 2,435 2,542 2,589 2,429Covered REs 208 223 227 276Cost Per EE/RE* $7,776 $8,303 $8,793 $9,000Annual Trend 7% 6% 2%*Includes Medical, Dental, and RX Coverage

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Medical Benefit Cost Overview

FY 2008/09 (Last Year) Total costs were 2% below projection ($435,000)

FY 2009/10 (Current Year) Total costs are ~5% below projection ($485,000 YTD)

Employees are helping manage costs through using benefits less than anticipated. This may also be affected by the economy.

Effective plan design, cost sharing features and wellness programs are also helping to hold the line on costs.

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Policy Considerations for Premium Sharing

Adopt financial policy outlining strategy for premium sharing

Consider long-term viability and sustainability of plan

Consider impacts in consumer behavior due to rate changes, such as shifts in plans, etc.

Consider importance of competitive rates for recruitment, retention and employee morale

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Current Medical Cost Sharing (Aetna EPO)

Notes: Full-time employee contributions for Aetna EPO plan 86% of eligible employees/retirees are in this plan Employees pay full cost to buy up to Aetna High Level PPO No Employee cost for high-deductible Aetna Basic PPO Part-time employees receive 75% of full-time contribution

MonthlyPremium

Monthly City Cost

MonthlyEE Cost EE %

EE $348 $336 $12 3.4%

EE & CH $632 $573 $59 9.3%

EE & SP $755 $678 $77 10.2%

EE & FAM $1080 $962 $118 10.9%

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City rate comparison with other Valley cities

Notes: Chart compares total premium and city contribution for

Aetna EPO and comparable plans for full-time employees as of Jan. 1 with these Valley cities: Chandler, Gilbert, Glendale, Mesa, Peoria, Phoenix & Tempe

EE & CH and EE & SP only includes Chandler, Peoria, and Tempe with multi-tier structures

COSPremium

ValleyAverage

COS Pays

ValleyAverage

EE $348 $423 $336 $379

EE & CH $632 $798 $573 $708

EE & SP $755 $881 $678 $771

EE & FAM $1080 $1188 $962 $956

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Employee rate comparison with other Valley cities

Note: Chart compares total premium and full-time employee

contribution for Aetna EPO and comparable plans for full-time employees as of Jan. 1 with same Valley cities

COSPremium

ValleyAverage

EE Pays

ValleyAverage

EE $348 $423 $12 $44

EE & CH $632 $798 $59 $90

EE & SP $755 $881 $77 $110

EE & FAM $1080 $1188 $118 $232

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Current Cost Summary

EPO total premium currently less than other cities for similar plan. Total premiums are 17.7% lower for single and 9.1% lower for family

As a result, the City’s cost is also lower than other

cities. Employer cost is 11.4% less for single, and is slightly higher (.7%) for family

Full time employees currently pay about 3.5% of EPO

premium for single and about 10% in other tiers Average Valley city employees currently pay about

10.5% of premium for single and about 19.5% in other tiers

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FY 2010/11 Medical and Dental Premiums

Consider no change to medical premiums for FY 2010/11 Total costs below projections the past two years, and Sufficient reserves in the Loss Trust Fund

Balance has grown to $8.1 million, an increase of nearly $2 million in four years. Although total costs may increase in the area of 5%, the reserve is adequately funded to cover this shortfall

Consider no changes to dental premiums in FY 2010/11 Self-insured dental PPO claims running as expected over

past two years Dental HMO is insured by Assurant, rates held constant for

FY 2010/11

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FY 2010/11 Aetna EPO City/Employee rates

Consider a two-year strategy to increase rates to 85%/15% Annual City savings for FY 2010/11 estimated at ~$500 K. Moves to a more consistent approach with a set ratio Additional employees may migrate to no-cost basic PPO plan

Current Proposed FY 2010-11Halfway to 85%/15%

Proposed FY 2011-12City 85% Employee 15%

(Premiums may increase)

City EE EE % City EE EE % City EE EE%

EE $336 $12 3.4% $316 $32 9.2% $296 $52 15%

EE & Ch $573 $59 9.3% $555 $77 12.2% $537 $95 15%

EE & Sp $678 $77 10.2% $660 $95 12.6% $642 $113 15%

EE & Fam

$962 $118 10.9% $940 $140 13.0% $918 $162 15%

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FY 2010/11 City/Employee Rates

Additional Considerations

Employee rates for the Aetna High Level Plan (formerly MMSI) will increase by the same amount as the Aetna EPO Plan

Aetna Basic PPO Plan continues to be available at no monthly cost to full time employees

Part time employees continue to receive city contribution equal to 75% of full time employee contribution

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Since 2004 – City-Paid Single Coverage

2005 2006 2007 2008 2009 2010 2011 2012 est$250

$260

$270

$280

$290

$300

$310

$320

$330

$340

$350

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Since 2004 – Employee Share of Single Coverage

2005 2006 2007 2008 2009 2010 2011 2012 est0%

5%

10%

15%

20%

25%

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Aetna EPO Overview

Must use network providers for services Self-referral to specialists Basic care office visit - $20; specialist office visit $40 Other co-pay amounts: Urgent Care $50; Emergency Room

$150; Outpatient Surgery $150; and Inpatient $300 Retail and Mail Order prescription drug benefits Full time employee monthly rates increased from $12 to

$32 for EE only, $59 to $77 for EE & Child, $77 to $95 for EE & Spouse and $118 to $140 for family.

Part time employee monthly rates increased from $96 to $111 for EE only, $202 to $216 for EE & Child, $246 to $260 for EE & Spouse and $358 to $375 for family.

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Aetna High Level PPO Overview

In-network deductible: $500 individual & $1,000 family Out-of-network: $2,000 individual & $4,000 family PPO provider paid at 90% after deductible Non-PPO paid at 70% Only plan with access to Mayo network Basic care office visit - $20; specialist office visit $40 Retail and Mail Order prescription drug benefits Full time employee monthly rates increased from $67 to

$87 for EE only, $158 to $176 for EE & Child, $195 to $213 for EE & Spouse and $287 to $309 for family.

Part time employee monthly rates increased from $151 to $166 for EE only, $301 to $315 for EE & Child, $364 to $378 for EE & Spouse and $527 to $544 for family.

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Aetna Basic PPO Overview

Aetna Basic PPO Plan Separate deductibles for in-network and out-of-network In-network: $1,750 individual & $3,500 family Out-of-network: $3,500 individual & $7,000 family PPO provider paid at 90% Non-PPO paid at 70% Retail and Mail Order prescription drug benefits No monthly cost for full time employees – City pays full

rate Part time employee monthly rates will remain $71 for EE

only, $121 for EE & Child $144 for EE & Spouse and $204 for family.

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Managing Costs – “Live Life Well” Wellness Program

Unhealthy employees cost more than healthy employees

Improve employee health through helping them make lifestyle changes to stay well, and create informed consumers to help manage their costs

Strategies include: Conducting annual biometric screening with health

risk assessment Providing no-cost preventative care, annual physical

and immunizations Wellness classes, including walking and weight loss

programs, also fitness and health education classes.

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Managing Costs – “Live Life Well” Wellness Program

Wellness Screenings Employees gain specific information about their health status City obtains aggregate information to help anticipate future

claims costs and to identify specific program needs

Activity Oriented Projects 2008-09 Weight Busters – 480 employees lost 1,470 pounds 2009 Sneaker Club I – 600 employees and family members

walked 178 million steps, 3.5 times around the world

Health Education and Fitness Classes 40 employees recently completed medical self-care course

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Consider $120 investment for HRA participation

Consider $120 investment for covered employees and spouses participating in biometric screening and health risk assessment. Why invest in an incentive to encourage participation?

Research shows that incentives drive participation, participation drives trend changes, and trend changes drive costs

In 2008 with a $50 incentive, 40% participation; In 2009 with no incentive, 7% participation

At 50% participation, costs about $250,000 in incentives, plus cost for screening is $50,000.

Glendale and Mesa also incent employees through a similar premium discount to participate in screenings

Additional $25,000 per year would also be made available to encourage employee participation in other Live Life Well programs

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Managing Costs – Change some co-pays in EPO Plan

1. Complex out-patient imaging procedures (cat-scans, MRI scans, etc)

Implement $50 co-pay ($40,000 savings)

2. Co-pays for chiropractor, physical, occupational therapy and home healthcare

Consider co-pay increase from $15 to $20 ($16,000 savings)

Changes are similar to changes made in prior years to improve efficiency of plans; no changes to the other plans

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Managing Costs – Update on Retiree Eligibility

2009 Change to retiree medical benefit eligibility – employees must retire prior to July 1, 2012 to remain on City plan. Savings are long-term, not short term

With implementation of Retirement Health Savings Plan – 14 retirees have opted out of plan