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Health Service Board recommends moving Blue Shield active coverage to flex-funded model; supervisors send rate package to Board
Summary
The Health Service Board recommended a move to a flex-funded (self-insured/managed) Blue Shield product for active employees and early retirees to lower premium increases and increase transparency; Catherine Dodd and actuaries presented stochastic modeling, reserve targets and trade-offs that the Budget Committee sent to the full Board without recommendation so members can review.
The Budget and Finance Subcommittee reviewed a Health Service System rate package and a major policy shift recommended by the Health Service Board: moving Blue Shield active and early-retiree coverage from a fully insured arrangement to a flex-funded (managed self-insured) model.
Catherine Dodd, Health Service Board staff, presented the board’s recommendation and actuarial work. She said the aggregate rate increase for city benefit plans is roughly 1.4% and that moving Blue Shield to a flex-funded model reduces the active/early-retiree premium increase while shifting some claims risk to the Health Service System. The board recommended applying $5 million from Blue Shield’s 2% pledge to stabilize dependent coverage and establishing an initial reserve target of $7 million, with a goal to build reserves to $20 million.
Aon Hewitt actuaries and other analysts presented stochastic modeling indicating a worst-case aggregate exposure of roughly $31 million above the premium equivalent and a low probability (about 0.2%) of reaching that extreme. The plan includes a $1 million per-claim stop-loss and an aggregate attachment that limits the HSS liability to 125% of aggregate premium under the managed model; catastrophic claim amounts above the per-claim stop-loss are insured to protect the trust fund.
Chair Chu and committee members asked for succinct summaries of maximum liability, probability and reserve coverage. Staff summarized that the $7 million initial balance and short-term incurred-but-not-reported (IBNR) collections should create a >$20 million buffer in the early months of flex funding and that the board would set rates again next March to reflect actual utilization. The committee voted to refer the HSS rate package to the full Board without recommendation to allow supervisors to consider the trade-offs.
Next steps: the items were referred to the Board of Supervisors; Health Service staff will be available on Tuesday to answer member questions and will work with staff to explain modeling details to Board members ahead of the hearing.
