Agenda 12/13/2016 Item #16E1 16.E.1
12/13/2016
EXECUTIVE SUMMARY
Recommendation to approve the purchase of Group Health Reinsurance coverage through Sun
Life effective January 1, 2017.
OBJECTIVE: To protect the Group Health Insurance Fund against catastrophic losses through the
purchase of group health reinsurance coverage.
CONSIDERATIONS: The Board of County Commissioners, through the Risk Management Division,
sponsors a partially self-funded Group Health Insurance Program (the Plan) for Board employees,
participating constitutional officer employees and their eligible dependents.
Group Health Reinsurance, also known as "Stop Loss," is purchased to protect the Plan against adverse
loss experience. Two types of reinsurance coverage are generally available. Specific excess insurance
protects the Plan if a covered member incurs claims cost in excess of a "per member" deductible (self-
insured retention). Aggregate excess insurance provides coverage to the Plan if total losses exceed an
aggregate deductible for the Plan. Currently, the County purchases specific excess insurance through Sun
Life with a self-insured retention of$400,000 per member. Aggregate excess coverage is not purchased.
The current Stop Loss coverage expires at midnight, December 31, 2016.
Willis Towers Watson, the County's benefits brokerage and actuarial consulting firm, marketed the Stop
Loss program on behalf of the County. Willis sought quotes for specific excess retention levels
(deductibles) ranging from $375,000 per claimant to $450,000 per claimant. Willis approached eleven
carriers. Four carriers offered proposals. The common response from carriers who did not quote was that
they did not believe they could be competitive with the current rates paid by the County.
The incumbent carrier, Sun Life proposed a rate increase of 6.5% to maintain a $400,000 self- insured
retention. The proposal does not include any terms that establish higher self-insured retentions (a/k/a
"lasers") on members with known catastrophic loss potential. The next most competitive quote from
Beacon/Companion life proposed a 21.5% increase from current rates. Beacon's quote is subject to final
disclosure of potential catastrophic claimants and lasers may be added. Based upon Willis' analysis of
pricing and terms, Sun Life is recommended as the preferred carrier.
In order to determine the level of self-insured retention to purchase, Willis performed a retention analysis
on the Sun Life proposal to calculate the lowest Expected Cost of Risk Transfer (Estimated Annual
Premium minus Expected Total Claims Recovery). This analysis determined that an increase in the Self
Insured Retention from$400,000 to $450,000 presented the most cost effective option. Further, given the
healthy reserve position of the Fund,Willis recommends a higher retention.
Willis Retention Analysis of Sun Life Proposal
Specific Deductible Estimated Expected Expected Cost Return
Options Premium Total Claims of Risk Transfer on
(P) Recovery (P-C) Premium
(C)
$375,000 $1,195,000 $655,585 $539,415 0.55
$400,000 $1,056,216 $597,821 $458,395 0.57
$425,000 $956,876 $547,055 $409,821 0.57
$450,000 $889,432 $502,064 $387,368 0.56
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16.E.1
12/13/2016
Willis does not recommend the purchase of Aggregate Excess coverage due to the fact that historically
there is a 99% probability that the aggregate deductible will never be exceeded. Therefore, the purchase
of aggregate reinsurance is not recommended.
Sun Life carries a Best's "A" (Superior) financial rating. Coverage will commence January 1, 2017 for a
one year period.
FISCAL IMPACT: The recommendation to increase the self insured retention from $400,000 to
$450,000 results in a rate reduction of 10.3% when compared to the current rate and results in a premium
decrease of$102,262 annually. The estimated cost of group health reinsurance in calendar year 2017 is
$889,432 based upon an average enrollment of 2,029 employees. The composite rate per enrolled
employee is $36.53 per month. Premiums are remitted monthly based upon actual enrollment. There are
sufficient funds available in Fund 517, Group Health and Life Insurance for this purchase.
GROWTH MANAGEMENT IMPACT: There is no growth management impact associated with this
item.
LEGAL CONSIDERATIONS: This item has been approved as to form and legality and requires
majority vote for approval. -CMG
RECOMMENDATION: That the Board approves the purchase of Group Health Reinsurance as
outlined in the Executive Summary and authorizes the County Manager or designee to sign the documents
necessary to commence coverage effective January 1, 2017.
PREPARED BY: Jeffrey A. Walker, CPCU, ARM,Division Director, Risk Management Division
ATTACHMENT(S)
1.Willis Towers Watson 2017 CCG Stop Loss Report (PDF)
2.Willis Towers Watson$450,000 Retention Quotation (PDF)
3.Willis Towers Watson Market Summary(PDF)
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16.E.1
12/13/2016
COLLIER COUNTY
Board of County Commissioners
Item Number: 16.E.1
Item Summary: Recommendation to approve the purchase of Group Health Reinsurance coverage
through Sun Life effective January 1, 2017.
Meeting Date: 12/13/2016
Prepared by:
Title: Division Director-Risk Management—Risk Management
Name: Jeff Walker
10/25/2016 3:11 PM
Submitted by:
Title: Division Director-Risk Management—Risk Management
Name: Jeff Walker
10/25/2016 3:11 PM
Approved By:
Review:
Administrative Services Department Pat Pochopin Level 1 Division Reviewer Completed 10/27/2016 8:53 AM
County Attorney's Office Colleen Greene Level 2 Attorney Review Completed 10/27/2016 1:29 PM
Administrative Services Department Len Price Level 2 Division Administrator Review Completed 11/14/2016 2:03 PM
Office of Management and Budget Valerie Fleming Level 3 OMB Gatekeeper Review Completed 11/15/2016 8:16 AM
Office of Management and Budget Laura Wells Additional Reviewer Completed 11/15/2016 12:09 PM
County Attorney's Office Jeffrey A.Klatzkow Level 3 County Attorney's Office Review Completed 11/16/2016 3:06 PM
County Manager's Office Leo E.Ochs Level 4 County Manager Review Completed 11/28/2016 9:40 AM
Board of County Commissioners MaryJo Brock Meeting Pending 12/13/2016 9:00 AM
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16.E.1.a
Collier County Government October 21,2016
2017 Medical Stop Loss Marketing Report
Introduction
Each year Willis Towers Watson (WTW) assists the Collier County Government (CCG) in obtaining
quotes, analyzing the responses and placing stop loss protection for the medical and pharmacy plans w
offered to the employees of the Collier County Government and its constitutional affiliates.
WTW sought quotes for specific stop loss coverage which provides reimbursement of medical and
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pharmacy claims for an employee, spouse or dependent whose total claims exceed a specified
deductible in any one year. The current retention level is$400,000. o
a)
Employers can also purchase aggregate stop loss coverage. Aggregate stop loss would protect the CCG
in the event that total claims for all covered individuals exceed a predetermined amount in any one
year. The CCG does not currently purchase aggregate stop loss as past analysis of the terms has shown
that purchasing this coverage in conjunction with specific stop loss would offer little real protection and
represented a poor value. o
The CCG had two claimants with total dollars exceeding the specific stop loss deductible in 2015, with
reinsured losses totaling$1,243,752. Through August of 2016,there has only been one claim exceeding °
the stop loss attachment point. Willis Towers Watson has obtained quotes from three carriers in o
addition to the incumbent Sun Life, but none of the alternative quotes are competitive.
Marketing Summary and Recommendation
WTW requested terms for the specific medical stop loss program from the current carrier Sun Life. In
addition, a request for proposal document was prepared, approved by the CCG and distributed to select
carriers. Quotations were requested for specific retention levels of$375,000, $400,000, $425,000 and
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$450,000. Specific terms were requested on a 12/24 basis which means the coverage operates on an
incurred versus a paid basis. This is consistent with past practice and provides the CCG with superior
o.protection in the event claims are not submitted or paid within the policy year.
Specific stop loss quotations were requested from the following carriers: o
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b Arch (declined) o
b Beacon Risk (quote received) 0
b Symetra (declined)
b Sun Life (incumbent) r`
Voya (declined)
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• AIG/ National Union Fire Insurance Co. (quote received)
HM Life (declined)
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▪ Munich Re (declined)
1::a Miller/ PartnerRe (quote received) y
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b Optum (declined)
E=> Zurich (declined) E—
All these carriers are rated A or better by A.M. Best. Carriers that declined to quote did so because their
manual rates were not competitive. The renewal quote submitted by Sun Life is 6.5% higher than
current rates. The next most competitive quote is from Beacon/Companion life for a 21.5%increase
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16.E.1.a
Collier County Government October 21,2016
2017 Medical Stop Loss Marketing Report y
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^ from current rates. Beacon's quote is subject to disclosure and lasers may be added. Sun Life's proposal
this year as well as last includes a guarantee of no lasers at renewal and that guarantee and a 50% rate
increase cap.
To aid the CCG in making a selection of what level of coverage to purchase,Wills completed three
separate analyses. The purpose of each is summarized below:
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1. A standard spread sheet analysis which shows what was quoted at the stated retention levels by 0
each carrier. o
2. Stop loss claims history
3. A stochastic forecast model which used detailed claims data to forecast the expected amount of
claims at each quoted retention level to assist Bedford in selecting the most appropriate level. a
Based on the above analysis WTW believes the risk management needs of the CCG are best met by
renewing coverage with Sun Life and raising the retention level to $450,000.
Any decision to increase the retention level should consider an assessment of the CCG's risk tolerance
during 2017. The following analysis provides the detail supporting these recommendations to assist the °
CCG in reaching a decision. o
ca
Aggregate stop loss quotes were not sought since past analyses have determined that this coverage is a
poor value relative to the cost. This is examined in more detail in the last section of this report.
Quote Cost Analysis d
The attached document labeled CCG Stop Loss Marketing Analysis outlines what the carriers quoted at
each retention level. AIG/ National Union Fire Insurance, Beacon/Companion Life and Miller/ PartnerRe
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America all provided quotes at the current$400,000 deductible. Only Beacon quoted at$425,000 and
$450,000. Sun Life provided a quote at$375,000. Sun Life quoted the lowest rates at each level.
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The 6.5%renewal increase is very reasonable. Stop loss renewal increases typically range from 20% up o
to 40%due to two factors. The first is the carriers' risk expectations based on a review of emerging high a
cost claims and trigger diagnoses. The second is called leveraged trend. Leveraging is what happens to
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the amount of claims exceeding a fixed specific level ($400,000 in the CCG's case) when claim costs are 0
increasing.
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Here is an example of levered trend. Assume a covered member with cancer has total claims of
$500,000 in a policy year. In this case, the CCG would receive$100,000 back from the reinsurer. Now
let's assume costs increase 5% (which is consistent with medical CPI). Next year the same claim would
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cost$525,000. Under this scenario,the amount collected under the reinsurance would be $125,000
instead of$100,000. This represents an increased payment by the reinsurer of 25%.
As in the past, all quotes were made assuming a 12/24 basis. This means coverage applies to all claims
incurred in 2017 and paid by December 31, 2018,so there is no concern at the end of the year about
getting claims paid so they will be included against coverage.
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16.E.1.a
Collier County Government October 21,2016
2017 Medical Stop Loss Marketing Report
C.3
Retention Level Analysis
WTW's actuaries developed a Monte-Carlo simulation model using CCG's large claims experience in
2012-2015 to forecast the large claims that are likely to occur in 2017. We used CCG's actual large
claims frequencies over this period to estimate the incidence of large claims, and a larger WTW
database to model the expected distribution of large claim amounts. The WTW database is based on
over 3 million life-years and provides a larger sample for this purpose than we would obtain from CCG's
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large claim experience.
Refer to the attached document labeled CCG-Analysis of Stop Loss Alternatives 2017. The first page
shows the CCG's actual number of claimants that exceeded specific levels and the total amount of claims
at each level from 2012 through 2015. The number of claims exceeding$400,000 ranged from three in
2012 to 1 in 2013 and 2014, and 2 in 2015.The amount of claims in excess of the deductible ranged m
from $266,000 to $1,243,000 during this period. .r
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The third table shows the difference in stop loss recoveries that would have occurred each year under c.
each of the alternative deductibles. We will refer to this table later in the analysis. c
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Page 2 of the exhibit shows the estimated annual premiums at each level and the expected claim
amounts based on our model.The difference between these figures is the expected cost of risk transfer.
Generally,the option with the lowest cost of risk transfer is the best value. According to this analysis,
the $450,000 stop loss deductible represents the best value from a risk transfer perspective.
This analysis also shows that, based on the expected claims at each stop loss deductible level,the CCG
would expect savings of between $99,000 and $167,000 by selecting a higher stop loss deductible. The
second section of the exhibit shows the relative cost savings associated with increasing the specific level ';
and the likelihood that additional claims incurred by the CCG will offset the premium savings. ='
WTW also analyzed the potential benefit of reducing the current$400,000 deductible to the $375,000
To reduce the stop loss deductible to$375,000 the CCG would pay$138,784 more in premium. OurCt
model shows that there is only a 3% likelihood that additional claims recoveries will exceed the o
additional premium paid. Therefore, reducing the specific deducible to $375,000 would likely turn out
to be a poor decision.
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However,the premium savings associated with increasing the deductible will more likely than not result
in a net savings to the CCG. ti
The CCG will save$99,340 in premium by increasing the deductible to $425,000. Our analysis suggests
that there is a 13% likelihood that the additional claims retained by CCG will result in a net loss at this
level. Similarly, in moving to the$450,000 deductible the model suggests a 14% likelihood of a in net
savings.
a)
The bottom chart on page 1 of the exhibit shows the difference in claims between the current$400,000
level and a $450,000 deductible has been no more than $140,000 in the last 4 plan years. The premium
savings of$166,784 would not have been offset by the additional claims retained at the higher
deductible.
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2017 Medical Stop Loss Marketing Report y
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The bottom of page 2 shows the distribution of additional claims that the CCG may incur by moving to a
higher deductible. This modeling shows the premium savings amounts lie between the 85th and 90th c
percentiles of additional claims. Hence, either of the alternative stop loss programs would represent a
"good bet" for CCG.
a)
This coupled with the reserve position of the health fund suggests the CCG is more than able to take on
the additional risk associated with a $450,000 specific deductible. o
Aggregate Stop Loss
a)
The CCG could purchase stop loss coverage which would cap the total cost of the health plan at a set
level. This is called aggregate stop loss coverage.
Most aggregate coverage is set at a level equal to 125%of the expected claims. Past Monte Carlo
simulations forecasting volatility in annual claims has suggested, only a 1%chance of claims exceeding o
the forecasted amount by more than 11%. Based on this purchasing aggregate coverage provides
minimal value.
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