their budget is impacted by the general fund. that goes for all of us and as i mentioned there are one time solutions to balance the budget. other uncertainties is the long-term impact of the economy. we have all heard on the radio all the time about how we maybe up, we maybe down, we maybe in a steady state. there's a large uncertainty of that. the increase in benefits -- they have already -- they're factoring in the fact that our retirement goes up in -- well, what happens is that when the financial downfall hit the retirement fund the city had to pick up more -- it was spread out over five years that. five years is ending so our retirement, the contribution that the city has to give to

the retirement is -- you're going to see some changes. there's open labor contracts just to give you an idea a 1% salary increase in the general fund city wide is $20 million so obviously the people who are negotiating the contracts are going to be kind of solid and try not to get salary increases, and i also mentioned that there still is the affordable care act and other state and federal impacts that the governor's proposed budget comes out in may. we never know what it is -- no, the revise is in may. the original one is in february i believe so that can also impact the general fund and it's whatever else departments are doing for the general fund in terms what they

need for supplemental appropriation leaves less for the rest of the departments so we're all in this big family is affected by what each other does. the mayor's budget instructions -- the two year instructions are as follows. reduce the general fund support by 2% over two years qha. that means to us in 14-15 is that we are to propose ongoing reductions and revenues equal to 1.5% of this support and that reduction targ set 41,000 and in 15-16 we have to propose on going reductions and revenues equal to 1% of the general fund support and reduction of 69,000 and on the side put together another contingency reduction equal to 1% and that is equal

to $28,000, so what the mayor's office asked us to do when thinking of the reductions -- every year they want us to focus on things. it's always to prioritize functions, minimize impacts, look at department fees if there are any, engage with stakeholders, and then they're areas that we need to focus our requests -- not only the reductions but any requests that we have for additional funding on government efficiency, affordability of services and programs, government innovations, and particularly to use data to support both reductions and augmentation requests. now, with a two year budget we have to start somewhere, so where we start is

from the current year which is 13-14 and what they do is they back out any one time programs, any one time equipment. unfortunately you will see when we come here they also backed out money for an election that we need to get back and the mayor's office knows that we need that money. then they annualize new positions that have been added in 13-14 so that's the base budget and that's what we budget off of. that is equal to what we actually -- what we requested when we went for the second year last year, so remember when you were year last year was somebody else and i hope i am here next year so it's me but when we

were here with someone else what you did was put together a proposal for 12-13 -- no, 13-14, and 14-15 and now doing 14 and 15 and rearrange things on what we proposed and we propose a new 15-16 so it's a little different than i think the approach that was done last year. so the next steps is that we will propose a budget to the board that satisfies the reduction targets either by increasing revenues if we can, or by reductions in expenditures. we are looking carefully on any opportunities we have to not have to make cuts in the budget. we're going to focus on the areas that need

augmentation so we will come back, not only with a list of reductions. we will come to you with recommended augmentations that are critical to the department to continue with our operations and that look at the efficiencies and providing savings in health costs and that sort of thing, and of course we will look at the areas that are traditionally ignored and need augmentations to deal with changes in our vendor's funding models and then we need to propose a realistic contingency reduction because the departments that have flaky ones end up in a worse case than departments that have -- that look at it seriously; if the

general revenues don't come in, if there is a major problem in their projections they may need additional cuts. the key milestones in terms of the budget process so on the 13th you will be considering the budget, and we will need to approve it. the department's budget is due to the mayor's office based on charter mandate on the 21st of february. by the charter mandate or by admin code the labor contracts have to come to the supervisors in may, and then the mayor proposes the budget in june, june 2. so when all is said and done there's changes. they're maybe changes due to the negotiations. there

maybe changes due to the state. i dent expect that we will see a big change in the local economy. i think it's very strong and maybe it get better. and then we have the budget hearings in june. we have the budget considered by the board of supervisors in july and then the board of supervisors actually approves the budget in by the end of july so this calendar only includes our actual budget activities. there will be a discussion later on the schedule for the rest of the rates and budgets so it's a busy time. this is a lot of information in a short period of time they wanted to make sure that we started the discussion of the budget early. do you have any questions? >> commissioner scott. >> just a clarification

question on page three, item three under next steps you cite funds or areas that are ignored or augmentation and in the vendors requirements. can you give me an illustration of what that is or an example? i think i could guess but i don't want to do that. >> so when we went to flex funding one of the things we requested was additional accounting staff. >> okay. >> and as lisa mentioned it's very difficult to fill these kind of positions, but depending upon what the recommendation on some of the other contracts, large contracts, it may require having more data analytics staff with the changes that are planned, long-term changes of

the city having do to with emerge we may need more staff, so it's those kinds of things. >> well, i only cite that because as we go through the processes i think we think they're administratively impacting in a neutral way, and i think it needs to be highlighted that the more complexity that we bring to plan design, plan administration and so forth it has these impacts and we shouldn't sort of like bury it. we need to be -- make sure that's visible. i know that you guys are not quanderringing the assets of the plan or the trust and that but as we're doing these things and even those they seem administratively simple many times they have these consequences and i wanted to to

highlight that. >> >> thank you. one of the things we will look at is our analytic sho. we hired the manager lorena coalridge to do that and she has two analysts and 100% of the time on the system so we have minimal analytics on the areas where we need to be looking and that is one of the examples of the areas we want to spend more -- request additional support for. >> any other comments? any other questions? thank you. that was a great presentation. >> thank you. >> any public comment on this item? >> hi health board. this is the first time in this meeting. okay i was walt on dr. dean o'dell. what's on your mind

walt? walt, what's going on -- retired now but i miss that budget saving advice and i know one thing that is true without bud, without this we have nothing. without health you have nothing, nothing at all. you may have conquered the budget world, but one thing it did not have without budget, budget, without health yiew you've got nothing, nothing at all. thank you. good luck. >> thank you. and he does that extra temp rainiously by the

way. ever watch watch the board of supervisors? catch beat that. i am claire zvanski and one thing that was mentioned and when the assets in the trust fund go up it clicks someone's bulb in another -- i'm not wired -- in city hall and they want to encourage us to somehow spend more of our trust fund dollars on our operating expenses and we usually have that discussion in the city. why -- you can pay for this out of the trust, you can pay for this out of the trust. you can transfer a lot of those expenses and while prop c opens some of the doors and there's more opportunities to fund some things from the trust there is also a restriction that items from the trust really need to be for the full membership

and that ultimately it was always my goal that trust fund could help us become self sufficient at some point in the future and every time that we've had these financial situations where we're encouraged to discount more to the city and bleed down that trust fund we stepped back and we've stepped back any number of times over the last 30 years that i remember so i am urging you all to keep a firm line and make sure the language in the charter that says the city must fund and provide the administration and understand the real needs of serving 110,000 people and everyone that works in the city and whoever did that that's really a vital obligation and the support must come from the city and beg the budget but people need to understand it's

critical and as commissioner scott pointed out as they look at certainly kinds -- what is it? traditionally ignored or augmentation to deal with the changes and as we add to the boths as well as the work that we do increasing the eap and i'm going to send an email about the history of that because i was involved with the eap for 20 years on the side to try to get them better staffed et cetera. there is a history there. as we look at the benefits we need the expertise and we need it internally so we're not reliant on outside sources so i want us to keep that in mind that we have to hold that line seriously and protect also the trust fund assets for all of the members so i appreciate that and thank you very much and happy new year to everybody. >> thank you. >> [inaudible] whiner. happy new we're to members of the

board and those absent today on the board. i want to make up what claire zvanski stated. i think it's good to have a trust fund in time of emergency. suppose there is an earthquake, a disaster and the trust fund and the assets of the health services system are going to be severely taxed. you need a ready reserve for that. also in the case of epidemics or something like that and affect workers and you need that solvency and i think it's unethical people in city hall want to raid the fund and it's not a slush fund and i like the integrity of the board and protecting that fund and it's one of the oornd missions of the board and i want to back up

what was said previously and i thank you. >> thank you. >> dr. ghotbi. >> i appreciate the comments of both speakers and i think with the guidance of our cfo we are making sure every asset of the trust fund is well documented and its purpose is clear so we have been doing i think for the board has seen a better job of making sure we are clear on the contingency reserves and all of the different reserves that are required for the work that we do to make sure that the risk is mitigated. i would also add that the conversations that claire zvanski was referring to do continue and there is always the ongoing conversation what should be funded through the trust and what through the general fund and we will continue to make sure that line is maintained. >> thank you. any other public

comment? seeing none item number five. >> item five action item, final report on kaiser negotiations with recommendation for funding structures to evaluate during rates and benefits process. [inaudible] >> good afternoon. neil kosher and [inaudible] hewit and come up shortly as a presentation. i will share with the board and people that are here to hear this today. it's a pleasure to be part of this process and i turn your eyes to the executive summary. before i get into the majority of the deck i want to summarize and this presentation is the work of hss and kaiser and aa hewit over the last five months and driven by xaserated

but a negotiation with kaiser permanententy and there were items to be discussed through the meeting and before i proceed i call staff from hss to say a few words about the process and with that peter. >> i would like to ask sf gov to bring up the presentation on the television. thank you. >> thank you for having us here today and thank you lisa to open up with a few questions. i think it's obvious but i have to say you're a very important customer to us if not the top customer in california. we understand your concerns around

affordability and issues in the past and transparency and reporting. we have been working hard over the last months to establish a high level trust and improve the relationship with hss staff and other leaders here in san francisco. we believe we have demonstrate a high level of engagement and flexibility with hss staff and brought in senior leaders from kaiser permanente to better explain the company and we have a team to serve you and hss and many of them are here today. we're committed to continuing to serve city and county of san francisco hss and this board and we're committed to just not talk about affordability but actually demonstrate it. we are the lowest cost plan for you but we know it's not good enough and you expect more from us. we also understand that you face economic challenges and we need to be part of that solution and not part of the problem. i know that last year's renewal

process was difficult for everyone. i believe that we have a dramatically different set of meetings in the last six months and with staff and several commissioners we have made tremendous progress. i feel that we have a better understanding of each other and working relationship. you have very high expectations of kaiser permanente and you have worthy goals as a board and as a staff and for the industry. we believe that we are part of that solution and we want to help you further achieve your goals. thank you for having us as a partner and we look forward to the next several months working together. >> i would really add to that and say this was a difficult task. we started with difference of opinions, business needs that not align in some areas and in some areas very far apart in the discussions but kaiser brought in strong and

experienced representatives to the table. hss benefited from having both and commissioner scott and president breslin at some of the key and participating in the meetings and kaiser and discussing every issue. discussioning this with the executive leadership demonstrated a these negotiations and positive with the health system. i think we leave this phase of the negotiations with very high level of confidence that we will refine a positive path forward in our partnership with kaiser, both on our pricing and charge concerns, but as importantly on a new and more engaged partnership to improve the health of our members and i will say more about that with goal four and five but i am happy where we are today and we will let neil walk us through the

different goals and where we leave this phase of the negotiations. >> neil kosher. not to digress. there are copies on the board, item five, so we have to work from your packet. >> [inaudible] >> okay. let's turn to page one, the executive summary. i will briefly go through the items. we will look at funding structures in terms how they can address some of the items brought to the attention of the board of supervisors in may and some of the items are the icn, profit pledge and the price guarantees and fee schedules so i won't belabor the point. why are we look at funding structures to sort of talk about why this helps with the differences of opinions within hss and kaiser? well, the funding structure can do things like take away any kind of what

is considered overly [inaudible] premiums, it can allow you to take risk and that happened with blue shield and you did that and the premium under blue shield and i argued it should be lower and turns out i got lucky and not to digress into blue shield -- but why not? i am up here, so the question is we're at fully insured structure and we want to propose to the board of consideration whether or not to take risk as a way to reduce margins, increase cash flow and increase the admitted assets to the trust what we heard about before and increase the cash and the overall cost for kaiser's coverage so there are three options on the table from kaiser. risk sharing arrangement. they pay the premium. we look at the

experience and reconcile that to 180 days after the year and pay the premium and by mid16 if it's better they cut a dividend check. this has a up side and down side. if the experience is worse the trust has to fund that. you can do adjustments. they do all of these different things, the retention fees and okay this was good. it was less than we expected. the history of this case indicates there is a possibility of receiving dividend checks and if you approve this i will bring back my analysis whether or not there is potential to gain from one of the alternative funding arrangements. the other two are flex funding. that works exactly like blue shield. you create the premium equivalent so you now own the premium. if

you believe it should be $500 and they say 507 and you pin the premium and do it at $500 and premium for all of the people presented by kaiser and the analytics are owned by us and you own the premium and then you can build assets in the fund and you decide what the premium is next year over the experience and this say model and the other one is pure self funding. same basics as flex funded but under pure self funded you are truly self funded. under flex it's a contract. you're with blue shield with a contract and pay taxes to the federal government for health care reform. under

this you have the max flexibility. there are no federal tax or other tax and you save money. conversely if you do self funded at the end of the exercise you have to may a surcharge administration fee because they independently administer the claims so those are the options on the table and we go to the next page and do any of these address the items outlined on page one of this document? so if we go on this -- is there capped profits? and fully insured -- the answer is no. if you go to self funded the answer is yes because you don't have any profit in the product. you don't pay a little premium. you pay what you spend, what the services cost, so if you believe in the fee schedule that's all you pay for at the end of the day. some of the other ones that were concernings is limitations on

cost increase, the third item down. the answer is if we get a fee schedule that we believe in and we feel good about it and we have a hard fee schedule at least we know what it's going to be cost and they're not set until the fall so there is no negotiated fee schedule but we will have a sense of what it will be and another question presented in the may document by hss and cap icm at 10%? no we cannot fix a number but we can have a variable icn so if the claims -- the literal claim spent is less than the predetermined target should be -- 5% less and a percentage relative to that amount and the claims go down it will be less so this is a lot of information how this structure -- these funding alternatives integrate with some of the hot

items brought to this board and subsequently shared with the board of supervisors. are there any questions about any of this at this time? >>i am still -- >> yes, ma'am? >> i'm a little confused between the risk sharing and the flex funding. i'm still not -- >> okay. the risk sharing you pay the agreed upon premium. it's identical to the premium determined by kaiser for the renewal. say it's $500. you constantly pay that money to kaiser and there is a reconciliation and in your case it's several hundred million dollars at the end of the day and we have a formula we agree on and the claims and the ad min

and other issues are $275 million and they owe you $25 million and you get that when the reconciliation is done. i bring it to you. good news and a good call to do risk sharing and the dividend check and do we use it to determine the future or bring it under the trust? under flex we set a premium equivalent and used to set the contributions and bring money into the trust but at the end of the day you only pay claims. you pay claims and other numbers like decappations and you have a e quill length and this is what we have to charge for this. at the end of the day you benefit from this on a real time basis so if you set the two numbers you would get the money sooner under flex because u