2006-06-07 Special Called Regular Meeting of the La Porte City Council

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City Council Special Called Regular Meeting - June 7, 2006 Page 3 whether it be for the public sector or the private sector so the first slide there represents the trend in folks that participate or employers that participate in retiree health insurance programs. Council was informed the lines have gone from a 1993 from 40 some odd percent of employers and this is employers over 500 employees down to folks in the 20-25% range. It was noted in corporate America the change has been made primarily because F ASB was implemented and many of those companies didn't want to have to continue their retiree health insurance. The retiree population was discussed and noted in 1993, prior to pre- Medicate and current Medicate, an example of corporate America as well as public entities showing the prevalence of retiree health plans back to 1993 vs. where they are today. This was the time period when private industry was dealing with what public entities will begin dealing with starting December 15th, 2006. Cities will be required to report liabilities on their balance sheet for the downstream potential cost of health care for retirees. He noted he expects the trends of not offering retiree insurance to increase. The next slide showed the relationship of payments to those retiree health plans, again for those folks that are below age 65 and people who are Medicare eligible, almost 50% in both slides are costs being shared between the employer and the employee whereas the blue section the second largest section is the retiree paying all the cost. It was noted the slide was incorrect showing retiree paying all and this should be employer paying all not employee paying all. An explanation ofGASB was briefly discussed. GASB requires all U.S. public secular employers to account and report for their annual cost of non-pension post employee benefits and related outstanding obligations and commitments rather than accounting for these benefits on a pay as you go basis which is essentially what we do now. Phase 2 will begin in 2007 and here is the real impact to the City and it affects the financial reporting. It does not require that you fund that amount, and by the way this is an actuarial statement and Cities will have to retain an actuary. .. they put some money in the budget through the plan to retain an actuary in order to give us that number. It doesn't require that you have to fund it, they recommend that you ultimately fund it. This could have an impact on a Cities bond rating. It might have affected a stock price or the value of a private company for you it affects a bond rating because for the first time Cities will have a liability stuck on their balance sheet with no asset to offset it. Tab 2 discussions: Tab 2 primarily deals with budget issues. Mr. We1ch noted he had been working with staff to come up with some numbers they feel are possible. He requested Council note the vast amount of the funds of our health plan go to pay claims. He noted the City does not have commissions and fees and taxes and licenses and all of those kinds of things involved with that plan so $350,000 approximately goes to pay for the administration of the program and our reinsurance and all the other dollars go toward paying claims for the plan members. The expected, the midpoint, and the maximum were discussed. Expected is what it says that's what the City would expect the claims to be. A maximum, if you will, is 125% the reason we use that number is because that's where the City also buys its reinsurance or aggregate stop loss insurance, insures the entire fund at a 125% of expected claims will come. This example, if a stop loss company quoted the City's plan for 2007 and the aggregate attachment point was $3,592,000 that would be the maximum liability and from there on from that plan year, the City would receive reimbursement on a dollar per dollar basis. If the City buys insurance and that's what the 213,000 dollars there represents in stop loss for specific claims and then in aggregate. Then halfway between there the City just comes up with a midpoint and the reason that is done is the City wishes they had the perfectly clear crystal ball and always knew where the claims were coming in, but the fact is