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Board directs actuary to model equalizing retiree rate ratios, citing excise-tax risk and potential impact on dependents
Summary
After a lengthy debate, the Health Service System board instructed its actuary to model three options — status quo, immediate equalization and a three-year phase-in — for equalizing rate relativities for early retirees, to assess exposure to a future federal excise tax and the cost impact on members with dependents.
The Health Service System board on Thursday instructed its actuary to prepare detailed scenarios showing how equalizing "rate relativities" — the formulas that determine retiree-only, retiree-plus-one and retiree-plus-two premiums — would affect members and the system's exposure to a future federal excise ("Cadillac") tax.
Board members and Aon Hewitt consultants said the current structure for Kaiser and Blue Shield early-retiree tiers departs from longstanding industry ratios and may accelerate excise-tax exposure for some groups. Aon presented three modeling options for the board to consider: maintaining the status quo, applying immediate equalization across all members, or phasing equalization in over three years to soften near-term premium shocks.
Director Catherine Dodd, who helped frame the recommendation, said the proposal is an "advanced look" to limit possible tax impacts two to three years out. She asked the actuary to return with three modeled rate sets based on 2016 rates so the board could see the comparative impact before any decision. "That's precisely what is being asked for so that we can take a look at the numbers," Dodd said during the meeting.
Several commissioners warned that equalizing relativity could sharply increase premiums for early retirees who still have dependents. Commissioner Breslin told the board that some early retirees with two dependents currently face monthly bills in the range of "about $1,100 a month" in Blue Shield, and that any large increase would be "a very big hardship" for that group. Other members asked staff and the actuary to pull historical minutes and data to determine when and why the relativity divergence occurred.
Aon and the actuary agreed to produce illustrations applying the 2016 rate base to show the potential direct effect of equalization and a three-year glide path; staff said they would also calculate the system-level impact on the employer contribution. An actuary presentation earlier in the meeting flagged a roughly $3.8 million reduction that a rate-stabilization reserve would apply to 2017 rates as a rebate, illustrating how reserve mechanics interact with rate design.
The board voted to instruct staff and the actuary to complete the one-time 2016 analysis and to present the three scenarios at the next meeting. The actuary said he would aim to deliver the requested materials by the next monthly meeting so the board would have them before finalizing 2017 rate recommendations in April.
What happens next: The actuary will return with scenario-level numbers and member examples (including retiree-only and retiree-plus dependent illustrations) so commissioners can weigh trade-offs between limiting excise-tax exposure and imposing higher costs on early retirees with dependents.
