For the Retirement Board Meeting Agenda Item #5b for

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					                  STANISLAUS COUNTY
                  EMPLOYEES’ RETIREMENT ASSOCIATION                                 Phone (209) 525-6393
                  832 12th Street, Suite 600                                           Fax (209) 558-4976
                  Modesto, CA 95354                                          
                  P.O. Box 3150 Modesto, CA 95353-3150                  e-mail:

For the Retirement Board Meeting Agenda                                        Item #5b
for the meeting on August 12, 2009 (Consent)


TO:            Retirement Board

FROM:         Retiree Benefits Committee
              Darin Gharat, Chair; Jim DeMartini and Wes Hall

SUBJECT:      Change in payment responsibility for administrative costs related to retiree health
              Insurances (including medical, dental and vision insurances)

DATE:          August 4, 2009

The Retiree Committee met today to review the administrative costs for retiree health insurance
premiums. Staff provided some of the contractual language, 1937 Act statute and background history
from these past few months related to the change of paying retiree health insurance administrative costs
to BMTI directly from StanCERA to these charges being additional fees paid by retirees as part of the
health insurance premium paid by the retiree each month through BMTI. The following material shows
that the Retirement Board does not need to take any further action. All detailed activities needed to
complete the conversion of payment of retiree health insurance plan administrative services performed
through BMTI from direct payment by StanCERA to payment by retirees through an additional fee on
the regular health insurance premiums are to be done by BMTI and RESCO.

In the Agreement for Professional Services between StanCERA and BMTI (as “Consultant”) effective
January 1, 2008, the administrative costs for health insurance plans were initially borne by StanCERA
for the first year (January 1 to December 31, 2008). The Agreement further states, “Thereafter, on an
annual basis the StanCERA Retirement Board will evaluate the method of payment for Consultant’s
services and may require that Consultant’s cost be solely reimbursed through additional fees that will be
added to the retiree health insurance premiums.” (see Agreement section 2.1)

In the Agreement with BMTI, the Scope of Work for Consultant includes that Consultant will
“Negotiate with insurers and retiree representatives of the Retired Employees of Stanislaus County
(RESCO) organization on matters such as, but not limited to, billing options, premium rates, benefit
levels, performance standards and guarantees;…” (see Agreement Exhibit A – Scope of Work – Section
A paragraph 14).

Government Code section 31693, as part of the 1937 Act, specifies that notice shall be provided to any
recognized organization that is representing retired employees within StanCERA of any proposed
changes in employee health care benefits affecting retired employees and these changes would include
health care carriers, plan design and premiums. StanCERA recognizes RESCO as the organization that
represents retirees.
Retirement Board Agenda August 12, 2009                                             Page 2
Change in Responsibility of Payment of
Retiree Health Insurance Plans Administrative Costs

On April 14, 2009, the Retiree Benefits Committee met and determined to propose the change of
payment of health insurance administrative costs from payment by StanCERA to BMTI, to having
retirees pay an additional fee as part of their health insurance premium for the Consultant’s
administrative services costs. In the same room with the Committee were representatives of RESCO’s
Board of Directors who were allowed input at the Committee meeting.

On April 28, 2009, the Retirement Board met in the Gallo Center for the Arts. Representatives from
RESCO’s Board of Directors (and other retirees) were in attendance and offered input when the matter
of this change of payment for BMTI’s administrative services from directly from StanCERA to
additional fees on the retiree health insurance premiums was discussed. Patrick McTighe of BMTI was
also present. The Retirement Board determined to require that BMTI’s cost be solely reimbursed
through additional fees that will be added to the retiree health insurance premiums. This was done in
accordance with BMTI’s Agreement section 2.1. The effective date for the change was determined by
the Retirement Board to be on the January 4, 2010 retiree payroll. This time frame allowed sufficient
time for BMTI to make the changes and incorporate the administrative costs as additional fees for retiree
health insurance premiums within the process of “open enrollment” when annual changes in health
insurance premiums are announced and retirees can make choices to continue, change or decline
enrollment in any offered health insurance plan.

At the July 8, 2009 Retirement Board meeting, agenda item 6.a. was noted as the “Retired Employees of
Stanislaus County’s (RESCO) Letter Dated June 24, 2009 – Response to Review of Proposed Changes
to the Revocable Health Benefits Subsidy Payments.” This letter had been sent with the Board members’
agenda packets. The letter was also read in its entirety during the July 8, 2009 meeting by Rhonda
Biesemeier, 1st Vice President of the RESCO Board of Directors. There are three main bullet points in
the letter. The third bullet point states “Moving administrative cost for health insurance from the
retirement system to individual retirees, at the same time the board is also contemplating ending the
medical stipend, will adversely affect retirees. It may cause some to forgo medical insurance altogether
to balance their personal budget.” Patrick McTighe was also in attendance at this meeting.

At the July 28, 2009 Retirement Board meeting, Patrick McTighe distributed three pages of material for
the Retirement Board’s consideration. The first page was a draft letter in support of his efforts to be kept
informed of changes in health insurance plans through Stanislaus County. The following two pages
showed some calculations related to BMTI’s administrative costs as currently paid by StanCERA and
the potential for adding 2.1% or 2.5% to the retiree health insurance premiums paid each month to cover
BMTI’s administrative costs in lieu of payment from StanCERA.

The historical record clearly shows that StanCERA provided notice to RESCO of proposed changes to
health insurance premiums. Retirement Board meeting records and the letter from RESCO dated June
24, 2009 all point to the fact that RESCO was aware (and had input) of the proposed (and now final)
change from the direct payment by StanCERA of BMTI’s administrative costs to an additional amount
to be added to retirees’ health insurance premiums effective with the January 4, 2010 retiree payroll.
Patrick McTighe as President of BMTI attended enough Retirement Board meetings to be aware of this
change and was able to calculate some proposed addition to retiree health insurance premiums (for his
cost of administration) and show these to Retirement Board members at their July 28, 2009 meeting.
Retirement Board Agenda August 12, 2009                                         Page 3
Change in Responsibility of Payment of
Retiree Health Insurance Plans Administrative Costs

The Retirement Board is not responsible for negotiating retiree health insurance benefit levels or
premium rates. These activities clearly fall within the realm of BMTI’s duties per the Agreement. BMTI
is therefore responsible for formulating premiums that will include the “normal” cost of the health
insurance benefit levels provided and any additional fee amount to cover the cost of administration of
the health insurance plans offered.

The Committee recommends that the Retirement Board finds that proper legal or contractual notices
have been provided to RESCO and BMTI and that these two organizations can work together to
formulate the applicable health insurance plans and associated premium rates that will include the cost
of BMTI’s administrative services. The Retiree Benefits Committee will incorporate the review of the
retiree health insurance administrative costs annually as part of its annual review of the Revocable
Health Benefits Subsidy. No further involvement by the Retirement Board is necessary.

cc:    Deirdre McGrath, Counsel