Board hears Kaiser/Aon presentation on funding options, directs actuary to model three alternatives

Aon Hewitt and Kaiser Permanente spent most of the Health Service Board’s January session outlining three alternative funding structures for Kaiser coverage and the trade-offs of each, prompting commissioners to ask for a full actuarial comparison before pricing decisions later this year.

The presentation, led by Aon representatives and Kaiser account executives, framed the options as: (1) risk-sharing, where the city pays a Kaiser-set premium and reconciles actual experience 180 days after the plan year; (2) a FlexFund or premium-equivalent approach that creates a premium-equivalent and returns funds to the trust in near real time; and (3) full self-funding, which removes insurer profit but requires third‑party administration and stop‑loss coverage.

"We're at a fully insured structure and what we want to propose to the Board is consideration of whether or not to take risk as a way to reduce margins, increase cash flow and increase the net admitted assets to the trust," Aon representative Anil Khosrow told the board during the executive summary.

Kaiser’s senior vice president Peter Andrade told the board, "We understand your concerns around affordability," and pledged a more engaged relationship with HSS after a difficult prior renewal process. Aon and Kaiser also described efforts to expand clinical performance guarantees and develop a collaborative care engagement pilot for 2015 to target areas such as diabetes and obesity screening.

Aon presented early estimates for the ICM (integrated care management) component — citing a working average near 16 percent of claims, or roughly $30 million annually for the HSS Kaiser population — and said final numbers depend on what the parties agree belongs in the ICM "box." Commissioners pressed on that point: Commissioner Scott said elements of the ICM appeared administrative rather than clinical and vowed to raise rigorous comparability questions during the rates-and-benefits process; Commissioner Fraser warned that moving from capitated payment models toward fee‑for‑service incentives could increase utilization.

The consultants highlighted several concrete trade-offs: self‑funding offers maximum data transparency and avoids premium taxes, but shifts administrative work to HSS and requires stop‑loss coverage; risk‑sharing provides delayed reconciliation and possible dividends but defers gains into the following rate cycle; FlexFund offers similar economic benefits with earlier cash flow into the trust and easier comparability to other plans.

After the presentation and discussion, Commissioner Scott moved that the board "direct our actuary to complete an analysis on the fully funded option, the self funded option, and the Flex option" so commissioners could see side‑by‑side comparisons before the April/May pricing cycle. The motion was seconded and approved unanimously.

Several public commenters raised operational complaints about Kaiser communications and billing during the public comment period; one retiree said he received inconsistent billing information and urged improved coordination between hospital and billing operations. Diane Ehrlich, speaking as a retiree, asked whether paperwork requirements would change under a self-funded EPO; staff replied the funding mechanism would be invisible to members and "would be invisible to you," meaning member-facing processes would not change.

The board instructed staff and the actuary to return with clear, graphic side‑by‑side analyses of the fully insured, FlexFunded and self‑funded alternatives ahead of the rates-and-benefits schedule. The actuarial work will use up to 36 months of utilization data through the end of 2013, Aon said. The next formal pricing steps are scheduled in April and the board will review a fully insured quote and comparative analyses as part of the 2015 renewal process.