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2003-01-15 Afternoon(January 15, 2003 - Afternoon - Adjourned Meeting) (Page 1) An adjourned meeting of the Board of Supervisors of Albemarle County, Virginia, was held on January 15, 2003, at 4:00 p.m., Room 235, County Office Building, Mclntire Road, Charlottesville, Virginia. This meeting was adjourned from January 8, 2003. PRESENT: Mr. David P. Bowerman, Mr. Lindsay G. Dorrier, Jr., Mr. Charles S. Martin (arrived at 4:30 p.m.), Mr. Walter F. Perkins, Mr. Dennis S. Rooker and Ms. Sally H. Thomas. ABSENT: None. OFFICERS PRESENT: County Executive, Robert W. Tucker, Jr., County Attorney, Larry W. Davis, and, Clerk, Ella W. Carey. SCHOOL BOARD MEMBERS PRESENT: Mr. Ken Boyd, Mr. Gary Grant, Mr. Stephen Koleszar, Ms. Diantha McKeel, Ms. Pamela Moynihan, Mr. Gordon Walker, and Mr. Charles Ward (arrived at 4:59 p.m.) SCHOOL BOARD OFFICERS PRESENT: Superintendent, Kevin Castner, and School Board Attorney, Mark Trank. Also present were Ms. Kimberly Suyes, Human Resources Director; Mr. Bob Brandenburger, Human Resources Manager for Benefits and Compensation; and Ms. Jennifer Johnston, Clerk of the School Board. Agenda Item No. 1. The Supervisors' meeting was called to order at 4:03 p.m. by the Chairman, Mr. Dorrier. The School Board meeting was called to order at 4:03 p.m. by its Chairperson, Ms. McKeel. Agenda Item No. 2. HealthCare Executive Committee Report and Recommendations on Medical and Dental Insurance Programs, Discussion. Mr. Brandenburger said staff will not make a formal presentation to the Boards this afternoon because of the nature of the topic. All available materials were provided to the Boards in the HealthCare Executive Summary. As outlined in that report, he would like to highlight a couple of things. One has to do with the current plan year for the medical program, and the other has to do with budgetary recommendations for 2003-04 for the Boards contribution for both the medical and the dental program. Mr. Brandenburger said he would like to explain the recommendation for a mid-year change. This has never been done in the past. Normally, when the rates are set for the year, revenue collections and Board contributions usually balance out what ends up at the end of the year as claims experience. He said when recommendations were made to the Boards in July concerning premiums for employees and the plan design for both programs, it was mentioned that medical claims experience was running high. Another update was given in early November, and that information closed out the plan year which ended September 30. The claims experience seen earlier in 2002 continued through the balance of that year, so on November 1, the plan was $1.0 million over what was brought in through contributions and premiums. Medical reserves were a little over $2.0 million at that time. Part of the purpose of those reserves is to help cover claims in that plan year. The reserves dropped to $1.2 million, which is where this plan year (2002- 2003) began. Mr. Brandenburger said the HealthCare Executive Committee recommends that a 15 to 20 percent reserve be maintained in the event there are higher claims, and also to provide a buffer when setting rates for any particular year. He referred to a graphic which had been furnished to the Boards and said that it represented the track record over the plan year. Historically, claims are highest between February and July. In looking at the data and balancing projections against the premiums being collected, the Committee felt that if the same claims experience continued, the reserve could easily be depleted. In order to preserve the financial integrity of the plan in the current year, and also when developing programs next year, the Committee did not want to start with a zero balance in reserves. To do so would create significant implications in terms of cost increases in future years. Mr. Brandenburger said the HealthCare Executive Committee is recommending that employee premiums be increased effective February 1,2003. Part of their proposal is to use some of the reserves bringing the balance of that reserve down to $500,000. The Committee considered having the Boards increase their contribution, but others will have to speak to whether or not that is viable. They put together different scenarios, and show in the written report a need to raise $500,000 to try and protect the reserve. If that can be done, commencing February 1 it would give eight months in the current plan year to try and generate that revenue. The premiums proposed in the report are the premiums that would be needed to do that. It could be deferred for another month to see how claims experience runs. However, the Committee felt that with known claims experience, if they waited an additional month and things did not change, in order to generate $500,000 in seven pay periods, the recommended premiums would have to increase even further. Mr. Brandenburger said one of the recommendations for the mid-year is to implement a change effective February 1,2003. For employees, that would affect their January paycheck. Mr. Rooker asked if the Committee considered making changes in the plan itself, such as increasing the deductible or the co-pay. Mr. Brandenburger said it did not, although it was discussed. The Committee felt that design changes in the middle of the year were more detrimental in terms of how employees view the plan. If co-pays were changed, it might lower utilization and total expense, but that would be more appropriately done in the following year. (January 15, 2003 - Afternoon - Adjourned Meeting) (Page 2) Mr. Boyd said he was confused at some of the numbers quoted in the report as to what the reserve should be. The report says the reserve is at $1.2 million at this time. He asked if it is anticipated that the reserve will go to a negative $500,000 in the next seven months if nothing is done. Mr. Brandenburger said the reserves are at $1.2 and they want to end the year with $500,000 in reserves. Based on some of the projections, if no change is made, it could deplete one hundred percent of those reserves. He said that 15 to 20 percent of claims experience should be held in reserve. Some of that rational is to protect the plan if the employer chose not to offer a plan next year. If that happened there would be three or more months of claims in the pipeline to be paid in the next year. There needs to be a reserve to pay those claims because there would be no other revenue source for these payments. The reserve is used to take the edge off of a bad year, recover from that year in the second year so the reserve is not further depleted, and then build up the reserves again. This year there is continuing claims experience which was not anticipated. Mr. Walker asked the dollar amount related to 15 or 20 percent. Mr. Brandenburger said the total claims experience at this time is running about $14.0 million, so 15 percent would be about $2.3 million. He said that last year claims experience was running at about 16 percent. Mr. Rooker asked if this is in line with national trends. Mr. Brandenburger said the Committee looked at other localities and their experience. One of the difficulties in terms of total cost is that benefit design can be different. Trends are about the same "across the board." This kind of situation in terms of escalation of health care costs is not unique to the County. Last year the number of claims over $10,000 almost doubled and that was unexpected. The HealthCare Committee will be looking at ways to help moderate that in the future through plan design changes. Mr. Walker said the $500,000 reserve which is the goal is about four percent, not 15+ percent. He asked where the Committee wants the reserve to be in the next year or two. Mr. Brandenburger said when the Committee decided something must be done in mid-year, it considered the impact on both the Boards and employees in the future. Since premiums are being raised on employees today, the Committee would like to hold those premiums at the same level going into the next plan year. Before knowing what the plan should look like in the next year or so, several months more of claims experience is needed before it will be known if this change is having the wanted effect. If everything worked out according to projections, and the Board set the contributions levels proposed, the reserves would go from $500,000 up to $700,000. He does not think the Committee would recommend trying to get back the $2.0 million reserve in one year. Mr. Grant asked if it typical for the private sector to raise someone's bill midyear. Mr. Tom Mackay, consultant, said this is atypical. Mr. Boyd said he was struggling with the difference in the plan year, and the County's fiscal year, and the reason for it. He does not like the idea of a mid-term adjustment. He has never read a teacher's contract, and asked if those contracts make reference to compensation and benefits, and if they do, is this in violation of that contract? He would prefer for the Boards to supplement this so they do not have to go back on "a promise or commitment" to teachers and employees to cover their expenses this year. He suggested making up the difference between now and the end of the fiscal year if the funds can be found. That would not put the Boards in a position of changing the employees' deductions outside of the budget planning year. Maybe the Boards could even agree to provide funds on an as-needed basis if claims do not go as expected. Then the Boards could deal with the increased premiums and the overall budget process as it works on the budget for the next fiscal year. That is more acceptable to him than bringing this up at this time. He thinks the School System still has over $670,000 in surplus funds from last year and that is after netting out the $1.3 million the Supervisors took back from the budget this year and after releasing the school hold-back of $193,000. Usually, they would not use those funds in the current year, but there is nothing which says they can't use them if necessary. Mr. Walker said he would be willing to look at this possibility after receiving the Superintendent's budget proposal. The School Board has heard about the need to use the surplus for targeted priorities. Dr. Castner said this past year, the contribution of the School Board was increased by about $800 per employee. This was about $1.4 million. In the budget he will be presenting next week, he will again recommend increasing $780 per employee just to hold the line. The $780 is recommended with the idea of keeping the reserve at its current level. That is $1.3 million. They intend to add more to health care because costs are increasing by 20 percent each year. They are not trying to make it part of the compensation package. Last year, the School Board had $3.5 million in new money, and put about one- third of that in trying to maintain the compensation package for health. Most of the rest of that money went into salaries. Mr. Boyd said he thinks what it costs to maintain employee benefits should be brought out more often. He does not apologize for the increased compensation and benefits that the School Board has given to its employees over the past three years. Mr. Tucker said employees were advised during the last budget cycle that a lot was being contributed to health insurance to basically keep their premiums unchanged. They were reminded that what would happen during the next six months would be monitored, and that at midyear that premium might have to be increased. In hindsight, the employee premiums might have been increased a little more at that time rather than maintaining the same level as in previous years. In the future, this kind of situation may be handled differently. (January 15, 2003 - Afternoon - Adjourned Meeting) (Page 3) Mr. Koleszar said he recalls that this budget cycle is the first time the County has paid for employee plus dependents. For some employees, there was an increased amount paid for dependents. He asked if these increases eliminate that, or would the Board still see some of the contribution paid for dependents. (Note: Mr. Martin arrived at the meeting at 4:30 p.m.) Mr. Brandenburger said the proposal, looking toward next year, is that the premiums would not be increased for family and spouse, or employee and minor. These premiums would be carried forward to all levels for next year. Mr. Koleszar said his specific question was: Will the County contribution still be paying a portion of dependents? Mr. Brandenburger said "yes." Mr. Koleszar said the County contributes "x" amount of dollars to single coverage. Does it contribute that same "x" to everybody else, or does it contribute "x" plus "y" to someone who has a family. Ms. Suyes said it is the same amount. Mr. Brandenburger said the Boards contribution is $320 a month for a full-time employee regardless of which plan they select. The person getting family coverage gets a $320 Board contribution, and the person with single coverage is getting a $320 Board contribution. Mr. Koleszar said he misunderstand what was discussed last year. Are the breakdown of premiums for single, family, etc. coverage based on actual claims, or is that manipulated to soften the blow to employees. Mr. Brandenburger said it was recommended that the premium for the employee portion, regardless of the coverage they select, not increase. In order to do that, the Board contribution was raised high enough to underwrite the amount that normally would have been passed to those employees. Ms. Moynihan referred to Table I included with the executive summary which shows the premium increases. She asked how those increases were decided in terms of what the employees will have to pay. The percent of change for single coverage, and for employee plus minor seems to be fairly high compared to the other plans. Mr. Brandenburger said when the Committee looked at rate structures, they also looked at the market in terms of what others pay for single coverage. They felt that what employees are paying for single coverage is not as close to market-related information. Ms. Moynihan asked who uses more services each year, single or family. Mr. Mackay said it varies each year. About 50 percent of the cost is for employees, with the other 50 percent being for spouses and families. That varies each year. Ms. Suyes said there needs to be some education of employees as to the benefit from a total compensation perspective. Her department needs to take the lead in doing that. Mr. Dorrier asked if staff was seeking approval of the HealthCare recommendations on Page 3 of the executive summary. (1. 2002-03 Plan Year: Increase employee premiums effective February 1,2003, as noted in Table 1; and 2. 2003-04 Plan Year: Budget the Board contribution for medical insurance at $384 per month and budget the Board contribution for dental insurance at $13.33/month.) Mr. Brandenburger said that is what the HealthCare Executive Committee has submitted to the Superintendent and to the County Executive. Ms. McKeel said it is noted in the executive summary that staff considered other alternatives, and one of those is to change the plan design to reduce coverage thus lowering claim costs. She has often heard comments about coverage that requires PCP referral versus non-PCP referral. She asked if County employees need PCP referral. Mr. Mackay said effective with the plan design that went into effect on October 1, there is no longer a referral required. Everyone has a primary care physician, but they do not need a referral to see a specialist. With that change, the specialist co-pay was increased to $25 from $15. The theory is that the "non gatekeeper" program is a break even approach. It keeps the employee from first going to their regular doctor, and then to the specialist. Studies were done by a couple of companies that have gone to this process, and they advocate this non gatekeeper approach. The administrative expense and the extra claim expense from two visits is more expensive. Mr. Dorrier asked Mr. Tucker if there is anything else that staff wants today. Mr. Tucker said "no." Those are the recommendations Mr. Brandenburger reviewed, and he has nothing to add. Ms. Thomas said she would like to mention what Mr. Boyd said earlier because this is an unusual move the Boards are about to take. She does not want to leave dangling the charge that there is $600,000 that could be used for this. She asked someone to address that charge. She said it is not fair to bring it up and not discuss it in some way. She said the Board of Supervisors spent every penny, and then some, of its Contingency Reserve, just last Wednesday. The Board no longer has such a fund. Mr. Tucker said that is true. On the Local Government side, there is no longer any contingency, in fact there is a negative balance. Local government would have to cut services in order to find revenue. Ms. Thomas said the Board is trying to cut $2.8 million from the budget because it is already essentially $2.8 million in the red for the present fiscal year. She asked if there is a fund on the School side. Dr. Castner said the Schools had $3.5 million in new money, and were told it had to give $1.3 million back, so 33 percent of the new money was encumbered to do so. A lot of their reserves and some of the carry-over moneys that might have been used in next year's budget were actually used to encumber. (January 15, 2003 - Afternoon - Adjourned Meeting) (Page 4) Some of the money mentioned was part of the $1.3 million. Mr. Boyd said that in the June 30, 2002, Unaudited Financial Report, which was received by the School Board on November 7, it shows $2,160,823 in Excess Income in carry-over. Of that, $193,322 was School hold-back and it had to go back to the schools. The Supervisors took back $1.3 million from the current budget, leaving a balance in limbo of $667,000. This does not include the School Board Reserve of about $200,000+ at the current time. He is in favor of having reserves for emergencies like this. He does not want to put this five months of burden on the employees if it can be picked up. He will be fully behind passing it to the employees next year, at a time when hopefully they will be getting an increase to offset this additional expense. He said if this change were made July 1, presumably the classified people and the teachers paid on a 12-month basis would be receiving an increase in salary which would somewhat offset this expense. Mr. Rooker asked if Mr. Boyd was suggesting that the increase be deferred until July. Mr. Boyd asked when the plan year begins. Mr. Brandenburger said the plan year runs from October 1 through September 30. Mr. Boyd said he thinks a transfer of funds should be done on a month-to-month basis hoping that claims go down so the full $500,000 would not be necessary. Ms. Roxanne White, Executive Assistant, said for the $1.5 million shortfall in General Government this year, some savings can be made in the Capital Budget (those recommendations will be coming to the Supervisors soon). Some of the one-time moneys will have to be used for some of next year's requests. The Boards don't have information about those choices at this point, or whether to fund the health insurance increase, or whether to fund something else. The General Government shortfall can probably be funded through some one-time savings. Ms. Thomas said if Mr. Boyd is correct, and if there is money the School System has not appropriated to specific items, they are in a different situation than General Government. The Supervisors did spend down into the operating reserves, which it normally does not do. She does not see how the General Government side would be able to pick up this expenditure now. Mr. Koleszar said the main reason the Schools have this large carry-over is that two years ago seeing what the potential might be in the State budget, the Superintendent put on a hiring freeze and increased the amount of hold-back on the departments, anticipating this. The School Board was proactive in anticipating these problems. Mr. Boyd said the question is: what is the appropriate use of those funds? Is this an appropriate place to spend some of those dollars? He believes it is, at least to carry it through June 30. He understands it would take away money from next year, but he believes it is appropriate support for the employees. Ms. McKeel asked if staff had any thoughts about what Mr. Boyd has suggested. Ms. Suyes said it would never be staff's recommendation to raise premiums in the middle of the year. It is atypical in any organization, private or public. But, there is a problem which needs to be resolved. The HealthCare Committee came up with this recommendation based on the fact that there are no funds available other than to raise the employee premium to make sure the shortfall can be handled. (Note: Mr. Ward arrived at the meeting at 4:59 p.m.) Mr. Rooker asked if the $780 in increased premiums per employee which was picked up at the beginning of this plan year was $780 per employee regardless of how many people were insured. Mr. Brandenburger said it is based on the employee regardless of which tier is selected. If an employee wants to cover a family member, he pays for that coverage, and the Boards pay for the employee. Mr. Dorrier said there is no easy answer to this problem. He does not know what the alternative is other than staff's recommendation. He asked if any Supervisor member had another suggestion. Mr. Rooker said he thinks what the Committee recommended is fiscally responsible. He does not see a big difference in raising the premiums in February, or raising the premiums in September. An individual will be paying $27.00 per month. The County is paying $320 a month for that individual. He thinks the percentage of the premium paid by the County, either before or after the increase, is competitive with what is seen in private industry. It is probably competitive in the public sector. The plan is still seeing significant increases in usage. Those increases have not slowed down, and based upon national usage figures, another 15 percent or more increase in usage can be expected next year. He thinks the Committee probably deliberated all of these things, and made what they considered to be a fiscally responsible recommendation. He thinks the Board "should go with it." Mr. Boyd said he would like to clarify that the difference between starting July 1 and starting now is five times $42 month. That is a big hit for some of the lower salaried employees. He feels the School Board made a commitment to its employees to pick up that cost. When this was discussed last year, he was in favor of passing along more of the cost to the employees. He will be in favor of increasing the employee contribution with the budget that starts in July. He is not in favor of doing so at this time when the School System has the money to pay for the increase. (January 15, 2003 - Afternoon - Adjourned Meeting) (Page 5) Mr. Rooker said when the communication about health insurance went to the employees last year, it was indicated that there might have to be a midyear increase in premiums if usage did not slow down. He does not think that there is a big difference between saying the premium is being increased in July, as opposed to having it increase now. Mr. Bowerman said he agrees, and it is unfortunate that there is no other course of action the Supervisors can take. Mr. Martin said from the County's point of view, if the School Board votes to pay the increase, the Supervisors will have to do the same just for the issue of commonality. Dr. Castner said he appreciates getting both points of view. He thinks the information that influenced him to support this recommendation was that the Schools are most stable if they encumber recurring money. This health care situation will continue each year. There is no sign that things will change. It was inevitable that an increase would have to be made in July. The reserves protect everybody. Increasing the baseline at this time is more up-front and moves toward the longer term solution. The down side has been clearly pointed out, and he is sorry for that. The strongest solution is to solidify the recurring dollars. Then, during budget work sessions, continue the recurring dollars in the baseline with another $780,000 or a 20 percent increase. There are two points of view, but either way, the baseline will need to be protected for the employees. At this time, Mr. Koleszar moved that employee premiums be increased effective February 1, 2003, as noted in Table 1 set out in the Executive Summary. Mr. Rooker made the same motion for the Supervisors. Mr. Ward seconded the School Board motion. Mr. Bowerman seconded Mr. Rooker's motion. The School Board Clerk called the roll for the School Board. The motion carried by the following recorded vote: AYES: Mr. Koleszar, Mr. Walker, Mr. Ward, Ms. Moynihan and Ms. McKeel. NAYS: Mr. Boyd and Mr. Grant. The Supervisors Clerk called the roll for the Board of Supervisors. The motion carried by the following recorded vote: AYES: Mr. Bowerman, Mr. Dorrier, Mr. Martin, Mr. Perkins, Mr. Rooker and Ms. Thomas. NAYS: None. Mr. Tucker said there was a second recommendation on Page 3 of the Executive Summary regarding the 2003-04 Plan Year. It is recommended that the Boards contribution for medical insurance be $384 per month (a 20% increase over the current year) and that the Boards contribution for dental insurance be $13.33/month (a 14.3% increase over the current year). Mr. Boyd suggested that this recommendation become a part of the budget process. Mr. Bowerman said this is policy, and staff is just asking the Boards for direction. Ms. Thomas said she would make this her own personal promise, so would be happy to vote that the Board's contribution for medical insurance be a 20 percent increase over the current year, and that the Board's contribution for dental insurance be a 14.3 percent increase over the current year. Mr. Rooker suggested that the Boards not vote on this. To him, this is just guidance. Ms. Thomas said she thought staffwas asking for a vote. She asked Mr. Tucker to explain. Mr. Tucker said the Committee recommended that both Boards give some guidance, and that is one way to do it. If the Boards want to do it without voting, staff can take that as guidance. Ms. Thomas said she is comfortable making a motion. If others are uncomfortable for some reason other than they are opposed to the 20 percent increase, then it should not be brought to a vote. Mr. Ward said he would rather have staff give a recommendation and then work with it. Ms. Thomas said she thinks it is important because the Board has just required the staff to pay a 20 percent increase. If possible, she would expect staff to come back with a 20 percent increase. Mr. Rooker said that between now and the time budget work sessions begin, there should be more claims data. At this time, it is not even known if 20 percent will be the right number. He does not object to using 20 percent, but would not want to put it in the form of a resolution. Mr. Martin agreed. (January 15, 2003 - Afternoon - Adjourned Meeting) (Page 6) Mr. Walker said the executive summary was well written, and the Board has no control over what the media might say about what has been done here today. However, in any transmittal to employees, he hopes it is expressed clearly that the Boards are empathetic, and do not like having to increase premiums in midyear. Prevention and other things need to be looked at in order to keep utilization down, but this action had to be taken. Mr. Dorrier thanked Ms. Suyes and Mr. Brandenburger for their work with the Committee. Agenda Item No. 3. Matters Not Listed on the Agenda from the Board and School Board. Mr. Stephen Koleszar said the PREP Board met today. They are looking at creating a regional consortium of school divisions and governments to get a larger pool of people in order to get a better rate for health care. The members are to inquire to see if their boards would like to pursue this idea. He thinks it would be appropriate for staff to make a recommendation to the individual boards. Mr. Martin said in some of those localities, the counties and the school boards have separate plans. Ms. Suyes said a discussion of this was begun about seven months ago. The City, both government and schools, were present. It can be done as self-insured, or fully-insured, if costs can be reduced from an administrative perspective. However, there were costs associated with any study of the idea for which there were no budgeted funds. She is willing to participate in the studies, but needs to know if there are costs associated with that. Mr. Mackay said they have a lot of experience with these plans around the state. Mr. Koleszar said at this point, he thinks there should be a recommendation from staff as to whether it is worth pursing. Ms. McKeel said the two Boards can discuss this separately. Ms. Thomas said if any member of the School Board wants to make comments on Long-Range Transportation Planning, they can go to the Planning District Commission's website, and fill out a form. Ms. McKeel asked if the two Boards should set a date now to discuss salary/compensation issues for the next budget. Mr. Tucker said the Supervisors meet again on February 5, and he would prefer to have that meeting as soon as possible. It was the consensus to have that meeting on February 12, 2003, at 4:00 p.m. in Meeting Room 235. Mr. Grant said it is six months and fifteen days since the end of the last fiscal year, and there is still no final audited financial report for FY 2001-2002. Ms. White said a draft of the audit was submitted about three days ago. The reason it is so late is because of the new GAS-B34 regulations this year. This is not the only locality experiencing difficulty getting their audits done. It is a completely different system. The audit should be back on a regular schedule next year. Agenda Item No. 4. Adjourn. With no further business to come before the Boards, the meeting was adjourned at 5:30 p.m. Chairman Approved by the Board of County Supervisors Date: 05/07/2003 Initials: EWC