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Agenda 12/12/2017 Item #16E 712/12/2017 EXECUTIVE SUMMARY Recommendation to approve the purchase of Group Health Reinsurance coverage through SunLife effective January 1, 2018. 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 $450,000 per member. Aggregate excess coverage is not purchased. The current Stop Loss coverage expires at midnight, December 31, 2017. Willis Towers Watson (WTW), the County’s benefits brokerage and actuarial consulting firm, marketed the Stop Loss program on behalf of the County. WTW sought quotes for specific excess retention levels (deductibles) ranging from $350,000 per claimant to $500,000 per claimant. WTW approached el even 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 and that they had concerns over two claimants with potential high dollar cost. The incumbent carrier, Sun Life proposed a rate increase of 9% to maintain a $450,000 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 most competitive initial quote for the current retention level was offered by Voya, representing a 1.2% decrease from current rates. MunichRe’s quote holds rates at the current level and American Fidelity quoted a 0.1% i ncrease. However, the three price competitive quotes were contingent upon additional claims data and ultimately resulted in amended terms that include higher deductible levels (lasers) on two members, making these proposals uncompetitive with the SunLife proposal. In order to determine the level of self-insured retention to purchase, WTW 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 $450,000 to $500,000 would reduce premium cost $124,661. However, in each of the past two years, two claimants have exceeded the $500,000 level. Given the high likelihood that two members, currently known, will exceed the $500,000 threshold in 2018, the net savings to Collier County is effectively reduced to $24,661. Should a 3rd claimant arise, the county would lose money. For this reason, WTW recommends a risk averse approach that does not increase the retention from the current $450,000 level. Finally, WTW does not recommend the purchase of Aggregate Excess coverage since historically there is a 99% probability that the aggregate deductible will never be exceeded. Therefore, the purchase of aggregate reinsurance is not recommended. 12/12/2017 Sun Life carries a Best’s “A” (Superior) financial rating. Coverage will commence January 1, 2018 for a one year period. FISCAL IMPACT: The estimated cost of group health reinsurance in calendar year 2018 is $969,537 based upon an average enrollment of 2,029 employees. The composite rate per enrolled employee is $39.82 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 reviewed by the County Attorney, raises no legal issue, and requires majority vote for approval. -JAK RECOMMENDATION: To approve the purchase of Group Health Reinsurance as outlined in the Executive Summary and authorize the County Manager or designee to sign the documents necessary to commence coverage effective January 1, 2018. Prepared by: Jeffrey A. Walker, CPCU, ARM, Division Director ATTACHMENT(S) 1. 2018 01 CCG MDSL Mktg Report 11-6 (002) (PDF) 2. 2018 CCG MDSL MKT Report 11-6 (2) (3) (PDF) 12/12/2017 COLLIER COUNTY Board of County Commissioners Item Number: 16.E.7 Doc ID: 4165 Item Summary: Recommendation to approve the purchase of Group Health Reinsurance coverage through SunLife effective January 1, 2018. Meeting Date: 12/12/2017 Prepared by: Title: Division Director - Risk Management – Risk Management Name: Jeff Walker 11/07/2017 8:10 AM Submitted by: Title: Division Director - Risk Management – Risk Management Name: Jeff Walker 11/07/2017 8:10 AM Approved By: Review: Administrative Services Department Paula Brethauer Level 1 Division Reviewer Completed 11/08/2017 7:24 PM Administrative Services Department Len Price Level 2 Division Administrator Review Completed 11/14/2017 1:37 PM Office of Management and Budget Valerie Fleming Level 3 OMB Gatekeeper Review Completed 11/15/2017 8:59 AM Office of Management and Budget Laura Wells Additional Reviewer Completed 11/15/2017 10:42 AM County Attorney's Office Jeffrey A. Klatzkow Level 3 County Attorney's Office Review Completed 11/15/2017 4:03 PM County Manager's Office Leo E. Ochs Level 4 County Manager Review Completed 11/29/2017 12:25 PM Board of County Commissioners MaryJo Brock Meeting Pending 12/12/2017 9:00 AM Collier County Government Collier County Government Presentation Date: October 18, 2017 Stop Loss Renewal and Marketing Presentation Effective Date: January 1, 2018 © 2016 Willis Towers Watson. All rights reserved. Doug Ley Clete Anderson Lisa Whiteman Presented By: Consultant: Account Manager: Placement: . Stop Loss Summary Page 2 Collier County Government STOP LOSS PREMIUM SUMMARY - FIXED COSTS ONLY Effective January 1, 2018 Sun Life Sun Life Sun Life Munich Re Voya Specific Deductible Level Current Initial Renewal Final Renewal Proposed Proposed $350,000 $889,432 DTQ $1,470,619 $1,400,010 $1,262,687 Variance ----65.3%57.4%42.0% Rank ----3 2 1 $400,000 $889,432 DTQ $1,271,696 $1,105,399 $1,034,303 Variance ----43.0%24.3%16.3% Rank ----3 2 1 $450,000 (Current Deductible)$889,432 $1,013,851 $969,537 $889,432 $878,963 Variance --14.0%9.0%0.0%-1.2% Rank --3 2 1 $500,000 $889,432 $889,432 $844,876 $771,588 $759,414 Variance --0.0%-5.0%-13.2%-14.6% Rank --3 2 1 $550,000 $889,432 $782,788 $738,231 $620,144 $675,414 Variance ---12.0%-17.0%-30.3%-24.1% Rank --3 1 2 Actual rates will be based on final underwriting/enrollment Stop Loss Summary w Lasers Page 3 Collier County Government STOP LOSS PREMIUM SUMMARY - WITH ADDITIONAL LASER LIABILITY Effective January 1, 2018 Sun Life Sun Life Sun Life Munich Re Voya Specific Deductible Level Current Initial Renewal Final Renewal Proposed Proposed $350,000 $889,432 DTQ $1,570,619 $1,800,010 $1,787,687 Variance --76.6%102.4%101.0% Rank --1 3 2 $400,000 $889,432 DTQ $1,321,696 $1,455,399 $1,459,303 Variance --48.6%63.6%64.1% Rank --1 2 3 $450,000 (Current Deductible)$889,432 $1,013,851 $969,537 $1,189,432 $1,203,963 Variance --14.0%9.0%33.7%35.4% Rank --1 2 3 $500,000 $889,432 $889,432 $844,876 $1,021,588 $984,414 Variance --0.0%-5.0%14.9%10.7% Rank --1 3 2 $550,000 $889,432 $782,788 $738,231 $820,144 $800,414 Variance ---12.0%-17.0%-7.8%-10.0% Rank --1 3 2 Actual rates will be based on final underwriting/enrollment Deductible 450k Page 4 Collier County Government STOP LOSS MARKETING ANALYSIS - $450,000 (Current Deductible) Effective January 1, 2018 Sun Life Sun Life Sun Life Munich Re Voya Current Initial Renewal Negotiated Renewal Proposed Proposed Specific Stop Loss Contract Provisions Covered Benefits Medical, Rx Medical, Rx Medical, Rx Medical, Rx Medical, Rx Lasers None None None Member A: $750,000 Member A: $650,000 Member B: $575,000 Contract Type 12/24 12/24 12/24 12/24 12/24 Deductible $450,000 $450,000 $450,000 $450,000 $450,000 Max Annual Reimbursement Unlimited Unlimited Unlimited Unlimited Unlimited Max Lifetime Reimbursement Unlimited Unlimited Unlimited Unlimited Unlimited No New Lasers at Renewal Provision Included Included Included Included Included Renewal Rate Cap Provision Included Included Included Included Included Maximum Renewal Increase 50%40%40%49%50% Retiree Coverage Included Included Included Included Included Simultaneous Reimbursment Option Included Included Included Included Included Specific Stop Loss Rates Lives Composite 2,029 $36.53 $41.64 $39.82 $36.53 $36.10 Estimated Monthly Premium $74,119 $84,488 $80,795 $74,119 $73,247 Total Annual Premium $889,432 $1,013,851 $969,537 $889,432 $878,963 % Change --14.0%9.0%0.0%-1.2% Additional Laser Exposure $300,000 $325,000 $889,432 $1,013,851 $969,537 $1,189,432 $1,203,963 % Change --14.0%9.0%33.7%35.4% Notes Firm offer through 11/30/2017 Firm offer through 11/23/17 Quote includes experience refund Firm offer through 11/23/17 Quote includes experience refund Annual Premium Plus Laser Liability This comparison is intended to illustrate the carrier's proposed services and rates and should not be relied upon to fully determin benefits and rates. Refer to carrier's renewal/proposal for a complete representation of terms and conditions. Deductible 550k Page 5 Collier County Government STOP LOSS MARKETING ANALYSIS - $550,000 Deductible Effective January 1, 2018 Sun Life Sun Life Sun Life Munich Re Voya Current Initial Renewal Negotiated Renewal Proposed Proposed Specific Stop Loss Contract Provisions Covered Benefits Medical, Rx Medical, Rx Medical, Rx Medical, Rx Medical, Rx Lasers None None None Member A: $750,000 Member A: $650,000 Member B: $575,000 Contract Type 12/24 12/24 12/24 12/24 12/24 Deductible $450,000 $550,000 $550,000 $550,000 $550,000 Max Annual Reimbursement Unlimited Unlimited Unlimited Unlimited Unlimited Max Lifetime Reimbursement Unlimited Unlimited Unlimited Unlimited Unlimited No New Lasers at Renewal Provision Included Included Included Included Included Renewal Rate Cap Provision Included Included Included Included Included Maximum Renewal Increase 50%40%40%49%50% Retiree Coverage Included Included Included Included Included Simultaneous Reimbursment Option Included Included Included Included Included Specific Stop Loss Rates Lives Composite 2,029 $36.53 $32.15 $30.32 $25.47 $27.74 Estimated Monthly Premium $74,119 $65,232 $61,519 $51,679 $56,284 Total Annual Premium $889,432 $782,788 $738,231 $620,144 $675,414 % Change ---12.0%-17.0%-30.3%-24.1% Additional Laser Liability $200,000 $125,000 Annual Premium Plus Laser Liability $889,432 $782,788 $738,231 $820,144 $800,414 % Change ---12.0%-17.0%-7.8%-10.0% Notes Firm offer through 11/30/2017 Firm offer through 11/23/17 Quote includes experience refund Firm offer through 11/23/17 Quote includes experience refund This comparison is intended to illustrate the carrier's proposed services and rates and should not be relied upon to fully determin benefits and rates. Refer to carrier's renewal/proposal for a complete representation of terms and conditions. Deductible 500k Page 6 Collier County Government STOP LOSS MARKETING ANALYSIS - $500,000 Deductible Effective January 1, 2018 Sun Life Sun Life Sun Life Munich Re Voya Current Initial Renewal Negotiated Renewal Proposed Proposed Specific Stop Loss Contract Provisions Covered Benefits Medical, Rx Medical, Rx Medical, Rx Medical, Rx Medical, Rx Lasers None None None Member A: $750,000 Member A: $650,000 Member B: $575,000 Contract Type 12/24 12/24 12/24 12/24 12/24 Deductible $450,000 $500,000 $500,000 $500,000 $500,000 Max Annual Reimbursement Unlimited Unlimited Unlimited Unlimited Unlimited Max Lifetime Reimbursement Unlimited Unlimited Unlimited Unlimited Unlimited No New Lasers at Renewal Provision Included Included Included Included Included Renewal Rate Cap Provision Included Included Included Included Included Maximum Renewal Increase 50%40%40%49%50% Retiree Coverage Included Included Included Included Included Simultaneous Reimbursment Option Included Included Included Included Included Specific Stop Loss Rates Lives Composite 2,029 $36.53 $36.53 $34.70 $31.69 $31.19 Estimated Monthly Premium $74,119 $74,119 $70,406 $64,299 $63,285 Total Annual Premium $889,432 $889,432 $844,876 $771,588 $759,414 % Change --0.0%-5.0%-13.2%-14.6% Additional Laser Liability $250,000 $225,000 Annual Premium Plus Laser Liability $889,432 $889,432 $844,876 $1,021,588 $984,414 % Change --0.0%-5.0%14.9%10.7% Notes Firm offer through 11/30/2017 Firm offer through 11/23/17 Quote includes experience refund Firm offer through 11/23/17 Quote includes experience refund This comparison is intended to illustrate the carrier's proposed services and rates and should not be relied upon to fully determin benefits and rates. Refer to carrier's renewal/proposal for a complete representation of terms and conditions. Deductible $400k Page 7 Collier County Government STOP LOSS MARKETING ANALYSIS - $400,000 Deductible Effective January 1, 2018 Sun Life Sun Life Munich Re Voya Current Renewal Proposed Proposed Specific Stop Loss Contract Provisions Covered Benefits Medical, Rx Medical, Rx Medical, Rx Medical, Rx Lasers None Member A: $450,000 Member A: $750,000 Member A: $650,000 Member B: $575,000 Contract Type 12/24 12/24 12/24 12/24 Deductible $450,000 $400,000 $400,000 $400,000 Max Annual Reimbursement Unlimited Unlimited Unlimited Unlimited Max Lifetime Reimbursement Unlimited Unlimited Unlimited Unlimited No New Lasers at Renewal Provision Included Included Included Included Renewal Rate Cap Provision Included Included Included Included Maximum Renewal Increase 50%40%49%50% Retiree Coverage Included Included Included Included Simultaneous Reimbursment Option Included Included Included Included Specific Stop Loss Rates Lives Composite 2,029 $36.53 $52.23 $45.40 $42.48 Estimated Monthly Premium $74,119 $105,975 $92,117 $86,192 Total Annual Premium $889,432 $1,271,696 $1,105,399 $1,034,303 % Change --43.0%24.3%16.3% Additional Laser Liability $50,000 $350,000 $425,000 Annual Premium Plus Laser Liability $889,432 $1,321,696 $1,455,399 $1,459,303 % Change --48.6%63.6%64.1% Notes Sun Life's laser is equal to the current deductible. Firm offer through 11/30/2017 Firm offer through 11/23/17 Quote includes experience refund Firm offer through 11/23/17 Quote includes experience refund This comparison is intended to illustrate the carrier's proposed services and rates and should not be relied upon to fully determin benefits and rates. Refer to carrier's renewal/proposal for a complete representation of terms and conditions. Deductible $350k Page 8 Collier County Government STOP LOSS MARKETING ANALYSIS - $350,000 Deductible Effective January 1, 2018 Sun Life Sun Life Munich Re Voya Current Renewal Proposed Proposed Specific Stop Loss Contract Provisions Covered Benefits Medical, Rx Medical, Rx Medical, Rx Medical, Rx Lasers None Member A: $450,000 Member A: $750,000 Member A: $650,000 Member B: $575,000 Contract Type 12/24 12/24 12/24 12/24 Deductible $450,000 $350,000 $350,000 $350,000 Max Annual Reimbursement Unlimited Unlimited Unlimited Unlimited Max Lifetime Reimbursement Unlimited Unlimited Unlimited Unlimited No New Lasers at Renewal Provision Included Included Included Included Renewal Rate Cap Provision Included Included Included Included Maximum Renewal Increase 50%40%49%50% Retiree Coverage Included Included Included Included Simultaneous Reimbursment Option Included Included Included Included Specific Stop Loss Rates Lives Composite 2,029 $36.53 $60.40 $57.50 $51.86 Estimated Monthly Premium $74,119 $122,552 $116,668 $105,224 Total Annual Premium $889,432 $1,470,619 $1,400,010 $1,262,687 % Change --65.3%57.4%42.0% Additional Laser Liability $100,000 $400,000 $525,000 Annual Premium Plus Laser Liability $889,432 $1,570,619 $1,800,010 $1,787,687 % Change --76.6%102.4%101.0% Notes Sun Life's laser is equal to the current deductible. Firm offer through 11/30/2017 Firm offer through 11/23/17 Quote includes experience refund Firm offer through 11/23/17 Quote includes experience refund This comparison is intended to illustrate the carrier's proposed services and rates and should not be relied upon to fully determin benefits and rates. Refer to carrier's renewal/proposal for a complete representation of terms and conditions. S&R + Comp Med Page 9 CARRIER STATUS LINE OF COVERAGE COMMISSION SCHEDULE SUB BROKER / WILLIS PANEL ADDITIONAL COMPENSATION FATCA COMPLIANCE MARKET SECURITY Sun Life Incumbent Stop Loss Net of Commission 2017: Willis Panel 2018: Willis Towers Watson Stop Loss Collaborative 6%Compliant Approved Voya See Analysis Stop Loss Net of Commission Willis Towers Watson Stop Loss Collaborative 6%Compliant Approved Munich Re See Analysis Stop Loss Net of Commission Willis Towers Watson Stop Loss Collaborative 6%Compliant Approved American Fidelity See Analysis Stop Loss Net of Commission ----Compliant Approved HM Insurance Group Quote Received +2% over Current Stop Loss Net of Commission --5%Compliant Approved Tokio Marine Quote Received +5% over Current Stop Loss ------Compliant Approved Symetra Quote Received +13% over Current Stop Loss Net of Commission Willis Towers Watson Stop Loss Collaborative 6%Compliant Approved QBE Quote Received +17% over Current Stop Loss Net of Commission --3%Compliant Approved Berkely Quote Received +51% over Current Stop Loss Net of Commission Willis Towers Watson Stop Loss Collaborative 6%Non-Compliant, In Progress Approved for use with agreed group carriers only Berkshire No Quote Received Stop Loss ----3%Compliant Approved Spectrum (Zurich)No Quote Received Stop Loss ------Non-Complant, Not Contracted RPO Approval Required Collier County Government MEDICAL STOP LOSS CARRIERS SOUGHT & RECEIVED COMPENSATION DISCLOSURE Dear Jeff and the CCG Team, Above is a high level summary of the markets we approached on your behalf. We have indicated which quotes are included in the detailed summary based on what most aligns with the strategic direction you provided us in our pre-renewal strategy discussion. If you would like a copy of any quote received, please let us know and we will provide it to you. Please review the details of the proposals included to ensure that these meet your expectations. The proposals may differ from your current policy, so we recommend that you read the specifications from the carrier in their entirety and compare them to your current policy. Should you have any questions about the proposals or concerns about what is included in this summary, please let us know at once. Please provide us with your selection of coverage. We will confirm the details of this selection in writing with you and the carrier. Please note that the quote[s] from the above noted insurer[s] was/were obtained through the Willis Panel Process. This proposal is presented in conjunction with the Standard Terms and Conditions for Human Capital Accounts which is enclosed. Collier County Government 2018 Medical Stop Loss Marketing Report November 6, 2017 1 November 6, 2017 Willis Towers Watson Confidential Introduction Each year Willis Towers Watson assists the Collier County Government (CCG) in obtaining quotes, analyzing the responses and placing stop loss protection for the medical and pharmacy plans offered to the employees of the CCG and its constitutional affiliates. In early October, Willis Towers Watson sought quotes for specific stop loss coverage on behalf of the CCG. Specific stop loss provides reimbursement of medical and pharmacy claims for an employee, spouse or dependent whose claims exceed a specified deductible in any one year. The current retention level is $450,000. Aggregate stop loss would protect the CCG in the event that total claims for 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 offers limited protection and represented a poor value. Recommendation Willis Towers Watson recommends that the CCG renew with Sun Life at the current $450,000 specific retention level. The final negotiated terms offered by Sun Life represent a 9% increase or $80,000 annually from the current program, which expires on December 31. Although a lesser rate was obtained from MunichRe, their terms required that one individual with a known condition have a higher specific deductible of $750,000. This individual has a medical condition that requires ongoing treatment with a medication that costs $51,000 per month or $612,000 annually. There is no possibility that the person may not need the medication at a future date. Therefore, the additional claims paid would exceed the additional cost of the Sun Life program, which does not include any lasers. The Sun Life offer is firm through November 30. The CCG should advise Willis Towers Watson by that date if it wishes to accept this offer. Accepting the offer after November 30 may result in the request for additional information and revised terms. As in the past, acceptance can be provisional contingent on board approval. Willis Towers Watson also analyzed whether it would be prudent to increase the retention level from its current level. We recommend against this for the following reasons: 1. Two large claimants will offset most of the savings. Based on an assessment of emerging claimants, it is likely there will be two claimants that reach or exceed $450,000. 2. Over the past two years, the CCG has raised its specific deductible. The level is now at the high end of expected values for a population the size of the CCG. 3. It is best to be fiscally prudent and keep the stop loss level at a lower level until the CCG has more experience at the higher level. 2 November 6, 2017 Willis Towers Watson Confidential 4. There has been a significant upswing observed by the reinsurance industry in the frequency and number of large claimants, especially at the $1.0 million level, due to increasing cost and ever advancing technology. Marketing Summary Willis Towers Watson worked to secure renewal 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 11 select carriers. Quotations were requested for specific retention levels of $350,000, $400,000, $450,000 and $500,000 respectively. Specific reinsurance terms were requested on a 12/24 basis. This coverage is based on when a claim is incurred versus paid, providing an additional 12 months for Allegiance to pay claims that were incurred within the policy year in the event there is a delay in submission or payment of claims. This is consistent with past practice. Specific stop loss quotations were requested from the following carriers:  American Fidelity (quote received)  Berkely (not competitive)  Symetra (not competitive)  Sun Life (incumbent)  Voya (quote received)  Berkshire (declined)  HM Insurance Group (not competitive)  Munich Re (quote received)  Tokio Marine (not competitive)  QBE (not competitive)  Spectrum/ Zurich (declined) All of 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 or concerns over two claimants that are likely to have large ongoing claims. The initial renewal quote submitted by Sun Life was 14.0% higher than current rates. The most competitive initial quote for the current retention level was offered by Voya representing a 1.2% decrease from current rates. MunichRe’s quote holds rates at the current level and American Fidelity quoted a 0.1% increase. All of these quotes include a guarantee of no new lasers at renewal and a cap on the renewal increase. However, the three more completive quotes were contingent on additional claims data. Upon review of this data, the terms were amended to include higher deductible levels (lasers) for select individuals. 3 November 6, 2017 Willis Towers Watson Confidential MunichRe’s revised terms included a laser on one individual of $750,000. The two other carriers requested lasers on the same person as well as another individual. Following negotiations, Sun Life agreed to reduce their renewal to 9% with no lasers Sun Life’s revised terms of 9% represent an annual increase of just over $80,000. The one individual for whom the three other carriers requested the highest laser has a rare condition. The medical issues associated with this individual where discussed with Community Health Partners and Dr. Mike Neren, a physician retained by Willis Towers Watson to assist in analyzing the cost and prognosis of large claimants. Their medical condition requires that they take a medication that has a cost of $51,000 per month or $612,000 annually before factoring in any other medical costs. There is no possibility that the person may not need the medication at a future date. Therefore, it is certain that the laser will result in additional costs of $162,000 annually (the annual cost of the medication less the stop loss deductible of $450,000 versus the $750,000 laser) if the offer made by MunichRe were accepted versus Sun Life’s revised quote, which does not contain any lasers. The two remaining carriers wanted an additional laser on a different person. This person is waiting to undergo a procedure that could cost between $300,000 and $800,000. Supporting Analysis To aid the CCG in making a decision concerning its stop loss coverage, Wills Towers Watson completed two separate analyses. The purpose of each is summarized below: 1. A standard spread sheet analysis, which shows what was quoted at the stated retention levels. 2. A stochastic forecast model, which used detailed claims data to forecast the expected stop loss claims at each retention level to assist the CCG in selecting the most appropriate retention level. Any decision to increase the retention level should be based on an assessment of the CCG’s risk tolerance during 2018. The following analysis provides the detail supporting these recommendations to assist the CCG in reaching a decision. Willis Towers Watson did not request aggregate stop loss quotes since past analyses have determined that this coverage is a poor value relative to the cost. Past modeling suggested only a 1% probability that the CCG would ever benefit from aggregate stop loss protection. Quote Cost Analysis The attached document labeled CCG Stop Loss Marketing Analysis outlines the terms that were finally offered by each carrier. The carriers with the best initial quotes; Voya, Munich Re and American Fidelity all provided quotes at each deductible requested. The initial 14.0% renewal increase offered by Sun Life is not surprising. Stop loss renewal increases typically range from 15% to 30%, due to two factors. First, the carriers’ risk expectations based on a review of emerging high cost claims/trigger diagnoses. Second, a factor called leveraged trend. 4 November 6, 2017 Willis Towers Watson Confidential Leveraging is what happens to the amount of claims exceeding a specific level ($450,000 in the CCG’s case) when claim costs are increasing. For example, assume a claim of $550,000 occurred. 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 cost $577,500. Under this scenario, the amount collected under the reinsurance would be $127,500 instead of $100,000. This represents an increase of 27.5%. All quotes were made on a 12/24 basis. This means coverage applies to all claims incurred in 2018 and paid by December 31, 2019, so there is no concern at the end of the year about getting claims paid as they will be included against coverage. Retention Level Analysis Willis Towers Watson actuaries developed a Monte-Carlo simulation model using CCG’s large claims experience in 2013-2016 to forecast the large claims that are likely to occur in 2018. We used CCG’s actual large claims frequencies over this period to estimate the incidence of large claims, and used a larger Willis Towers Watson database to model the distribution of large claim amounts. The Willis Towers Watson database is based on over 3.8 million life-years and provides a larger sample for this purpose than we would obtain from CCG’s large claim experience. The attached document labeled CCG- Analysis of Stop Loss Alternatives 2018 summarizes the results of the modeling. 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 2013 through 2016. The number of claims exceeding $450,000 ranged from 1 in 2013 and 2014, to 2 in 2016 and 3 in 2015. The amount of claims in excess of the deductible ranged from $165,000 to $1,113,000 during these years. The third table shows the difference in stop loss recoveries that would have occurred each year under each of the alternative deductibles. We will refer to this table later in the analysis. 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 offers the best value. According to our analysis, the $500,000 stop loss deductible represents the best economic value. However, the improvement in the cost of risk transfer is only $40,000. This analysis suggests that based on the expected claims at each level, the CCG would expect savings of $124,661 by choosing a higher stop loss deductible or, pay an additional $352,159 to $601,802 (including the additional liability on the lasered individual) for a lower 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. In moving from the current $450,000 deductible to the $350,000 level, the CCG would pay $601,082 more in premium. In order to recoup this premium with additional claims, CCG would need to incur at least 13 additional claims of $350,000 or more. Referring to the bottom table on the previous page, CCG had 5 claims exceeding $350,000 in 2016. A similar result occurs if the retention level were lowered to $400,000. 5 November 6, 2017 Willis Towers Watson Confidential Our model also shows that there is a low probability that additional claim recoveries at the lower retention levels would offset the additional cost of lowering the stop loss level to $350,000 or $400,000. In both instances there is over an 80% chance that paying the additional premium will turn out to be a poor decision. CCG could reduce premium cost $124,661 by increasing the deductible to $500,000. In each of the past two years, 2 claimants have exceeded $500,000 level. If history repeats itself, the net savings to Collier County is $24,661. Should a 3rd claimant arise, the county would lose money. Although the model suggests the possibility of a small saving by increasing the retention to $500,000 such a change is not recommended at this time for the following reasons: 1. Two large claimants will offset most of the savings. Based on an assessment of emerging claims it is likely there may be two claims that reach that level. 2. Over the past two years the CCG has raised its specific deductible. The level is now at the high end of what would be expected for a population the size of the CCG. 3. It is best to be fiscally prudent and keep the stop loss level at a lower level until the CCG has more experience at the higher level. 4. There has been a significant upswing observed by the reinsurance industry in the frequency and number of large claimants especially at the $1.0 million level due to increasing cost and ever advancing technology.