lucio, we did not make any design changes. we did that not that long ago. a few undesigned changes to it. it is for the same for the life insurance and long-term disability programs. they have been tentatively awarding that service to the wedding participants. the big area where i of catherine and the actuarial will get into will be on blue shield. we're recommending to continue with the fully insured plan. however, a big change for the city potentially with regard to the active and early retirees,,

the city will take on the reliability and risk. i want to highlight that. we shouldn't either. how to make sure you are aware of that. it will apply money that we lower the rate for blue shield. and we hope that wellhouse mitigating folks that are migrating from one fund to another. i wanted to highlight that because we should not make this choice or this decision lightly. >> thar! thank you for a representation on health services and your thoughtful contribution.

i recommend you consider adopting the county for the reagan package. would that be permissible? supervisor chu: i think we should run through the presentation. >> i want to thank all of you for being here. one of our goals of the health service board is to provide affordable sustainable quality benefits. as the supervisor pointed out, lee moved blue shield to a flecks funded model. if you look at the overall aggregate cost, it shows you where we saved, what a year over

year increase was. our line ironically, they came in at 9.6% in your coming in at 1.4%. both of these years, we subsidize the blue shield plan in order to bring the premiums down to avoid migration. this was mentioned, there are no

changes. and we made a plan design changes that are saving the city $591,000. the competitive process we participated in will select the long termrg8qñ disability groupd life insurance provider. the other good news is that for the medicare retirees, the surface has -- we saw a decrease in those premiums. in allowing us to switch to a calendar year. we are implementing the waiver plan within the united healthcare ppo. it is ultimately closing the double for medication between

now and the year 2020. and since people who don't have w hr it, will provide a subsidy to the employers. to make sure all those are eligible for the money. the migration of families and has lowered the risk of this plan that linked and said no employer group could get better benefits9>]fg from the federal employee health benefit plan. they could come in and charge us what we should have been charged. we went to a negotiated

decreases with kaiser. the formation of the accountable care organization has created competition. they would must increase their market share, so they came man very low. supervisor kim: can you talk about that again? there is a sunset of the federal law. >> they were charging the federal government so we were playing for the federal employees risk. congress in their wisdom saw that was unfair to other large employers. supervisor kim: i thought that is what he said.

>> the other good news is for retirees that improved rate stabilization for families specifically and is different than what we approved last time. we did an analysis so that you feel comfortable making this plan. we outlined a plan difference between fully funded. $hr2qi want to begin by saying y large employers are moving to a type of self funded or self insured because of the managed- care product. in 2014, san francisco pg&e is

flex funding all of their projects. it is aware large employers are moving because they believe they can better manage their cost that way. on an extended time beyond the last 12 months. we look at how much utilization we had. blue shield gets to keep the money. it comes up to a big number at the end of the year. the blue shield keeps its. if the claims are less than the premium, we get to keep the difference. what is key is figuring out the right point for the premium. blue shield of still hold that

money in reserve and collect interest on it. going on in a fully funded plan, if the claims are more than the premium, they said they're ready to go for the premium to low, lucio would be at risk for that amount over the premium. the trust is at risk for that liability. in this product, there is a $1 million claim liability. in any claim above $1 million, we are at risk and that goes back to the insurer. the parameters of that we would not have to pay more than 125% of the aggregate premium.

we will have much more transparency. dthe aggregate costs, deflects funded plan without any subsidy would have been $297 million. you see the savings right there. the blue shield premium increase would have been looking at all of our members, the 44,000 members having a 15% increase in those premiums. to 10.12%.

the board chose the flex funded plan because we wanted to apply the money in the trust. ù8cto the reserves the or requi, the recommended reserve this $20 million. rather than justf lucio. the $7 million that would be left for the blue shield will have established the reserve at $7 million, and a bill that over time. his blue shield is the current plan, all of that money would be gone. the board would not have the resources to implement flex funding in the future.

i met the actuary that has 30 years of experience, considered an expert in this area. the we had them run and rerun the numbers. they did statistical modelling that looks at the likelihood of were the claims will fall. 50% of our claims are going to be blown $290 million. the likelihood of having those claims decreases. there is a sense of how likely are to be safe in this. it is a completely unpredictable amounts. the physician costs are the

black line. before we implement them, we could have saved $7.9 million a year if we had better inflects funding. this was done before the accountable care organizations. our goal overall a stabilizing the risk in blue shield's pool. in order to do that, the health service aboard -- these are blue shield of dollars that were credited back to us. the rate stabilization lowered the rates another 4%. sza3xin doing this, the board

prevented a catastrophic migration of families and healthy people. again, it kept the blue shield more competitive with kaiser that provided pressure for them to keep their rates low. in doing that, because we lowered the migration, blue shield lowered their rates again. the total aggregate cost went from $287 million -- $297 million to $287 million. only one observation out of 50,000 claims to statistically analyzed them. only one of them exceededuea>ñ e top mark. supervisor chu: an important point, the idea here is that for

active and early retirees, instead of playing for a plan where we pay the premium and we have no risk in terms of the expenses go up, people use medical services more. instead of paying for a much higher premium, we are going to go down the path of a flex thought that says we're going to play a premium -- pay a premium. paying for those directly with hospitalization and other services that might accrue. if an individual goes in and exceeds $1 million, we are not liable for that amount, but we are liable for that below. to understand what is the maximum liability under the approach, what is the likelihood we would get to that level?

can you succinctly explain? and finally, what kind of reserves do we have within the health service system to buffer that. >> be maximum liability is $31 million. that is the difference between what we are collecting and the 100% claim which is $312 million. the likelihood that that will happen depends on how far you will go up. there is a likelihood that we will be about 0.2%. it will be below, and iwe will e

saving $2.3 million. there is a 2.3 percent likelihood that will save us $800 million. a all of those savings will go into the reserves. we start with a $7 million balance from the blue shield creditors. as we save money, we will add to that reserve until we get to the recommended reserve of $20 million. this is the exact same modeling that we do for city plans to sell the insurer in terms of looking at what our costs are in predicting what our reserves should be. supervisor kim: just going between slide 13 and 15, how is remodeling done in terms of

getting a sense of our risk? do we also take into account the trend practices that the city is implementing a around making our employees healthier? >> i will let our actuaries speak to that. supervisor kim: and as much as you can speak in laymen's terms for me. i know it is a very complicated formula, but i want to get a sense of what we will be basing our decision on today. >> slide 13 is historical information, so thatññá is basic data, the premiums that were spent. if we had been flaks, you still would have made some money. we expect what the cost will be

and will incorporate all the information we have in terms of historical spin. we integrate any of the actions being taken to minimize utilization that would impact futures been. we think the trend rates based on the currentb ütájjuz be a lower spin in the future. it was running at a home -- it was not doing that well. we used that information to apply for historical costs. to project what we anticipate the future will hold. we reflect what we think the future should be. it is my job to assess the risk and determine the relevance of those opportunities to protect the future. supervisor kim: when you assess

the risk that the future, you look at data, numbers with some friends? are there any other factors you look out on top of that? other practices, other municipalities, or other similar employers? ñ?b]ñ>> all of the data i looke, for your case specific information, look at the practice pattern. it is big enough that i can take that information. 4 more of the relevance of the actions, programs. some people want actuaries to put a reduction on a very strong wellness program. we take every consideration we can to affect all programs.

thank you. i do not know if this goes back to the doctor, but in terms of the worst-case scenario? kenneth explained again -- can you explain again the liability? >> i will lead amil do that. i just wanted to show you the example the model of the last 31 months. this is what our trend began to go down. blue shield looks back 31 months. they had to keep us on that 16% trend. down here, our last 12 months, the data that our actuary is

using to propose for next year, next year we will do this again and keep an eye on what we're doing, month by month and this is where the aco's were implemented. blue shield is trending when they set the rate for a fully insured model. we are trending at 9.05%. your question was, well we have enough money in the worst-case scenario. >> when you go into these arrangements, since you are now point to be collecting a premium equivalent from the bank and literally paying claims, you get coverage is to protect your worst-case scenario. you have an aggregate attachment point. the spread between what you will collect and what you are now insured of its $31 million. the likelihood is negligible to

99 out of 100 cases. but a thick practice is to take the anticipated spin and multiplied -- but the basic practice is to take the anticipated spent and increase it 125%. now, we will offer you blue shield coverage if the span goes over that amount. for your comfort level, will we ever wind up having to fund of the worst case possible, our analysis is that it is less than a certain amount, and it never happens. i can say with almost certainty that it will not happen. supervisor kim: there is a 0.2% chance that we could exceed projection. that is kind of the spread we're

looking at? >> yes. the boundaries in those graphs are which you should expect. close to $300 million. we're talking about active early retirees. that is what we anticipate. will they go to that amount? in my head it is some big number. that being the case, will it get there? our analysis of the graft function is that it will not pass $300 million, but you are insured if the worst thing is that $328 million. ñ $y appropriated. operation, you could probably justify an additional $13

million in reserves. the worst he will ever see is likely $20 million. in my mind, as an actuary, my job is to assess risk, and it is highly unlikely that you will never see this. supervisor chu: one thing that i wanted to give committee members perspective on, we ask the actuary to look at the potential bring down on the cost. we looked at renewing the rates potentially according to what the actuaries were saying and utilization looked like over 30 months. that would be paid by members, employees, and retirees.

we asked them to run another, applying $5 million to stabilize the rates and bring down the rates. we asked them to do a fully insured product and apply $10 million to the plan. then, as we started to approach the flex funded approach, which started to get to a level where the proposal before us, this is 9 million compared to 39 million. in order to pay for that, paying less in terms of a premium, we are taking on a risk with a maximum liability potentially of $31 million. there is a likelihood that we would pay that. i think that that is the trade- off. let's say that began with a

fully insured plan, or going down the flex funded approach, we have a potential rift that we will reach of $31 million worth of liability. so, that was the decision that be grappled with. from the employee employer perspective, there is a big difference. we talk about maintaining affordability and preventing the migration as much as possible. as the supervisor asked about, what were the factors? we were also looking at what they expected migration to look like. that was something that we were very sensitive to. in the flex-funded approach, employees would pick up $2 million and the employer would pick up $7 million. we think that that would help to buy a little bit of time.

not forever, to be honest. we would have to look at the different offerings provided. it was a trade-off between for sure $32 million or $9 million more in taking a 0.2% risk that we could be $10 million worse off. that was really the choice that we had. one thing i wanted you to cover in terms of the maximum liability, but was the level of funding we had in our reserve? we know that that is thernn5 mm to percentage probability. how much is in our reserves? if we were to exceed the reserve, what is the health service system next step?

>> these usually come in three months after. when we move to flex funding, we will start accruing premiums, collecting premiums, while blue shield will still be playing those bills from the previous years -- paying those bills from the previous year. the actual estimate is that that will be $17 million. we will have that incurred but not reported. those dollars will be in our budget. if we were to stop for some reason doing plaques funding, we would have that liability ourselves, but that gives us another $17 million. between those in the first three months, we would have more than a $20 million reserve fund to pay any bills that come in. we will bett