Then who were the people that influenced you to do that? Because Council is not among the influential folks, and I'd like to know who were.
I believe the suggestion was made by -- I know that Capital Management Enterprises made the suggestion that we look at that. Lynda Orfanelli made the suggestion that we look at that. Her Benefits Administrator, Dennis Norwood, made the recommendations that we look at that. And we explored it.
So if we got the same people to raise the question about the fact that unrepresented employees of retirement age do not 38 12/11/02 - LAW AND GOVERNMENT - RES. 000476 obtain the same benefits if they stay on as current workers or as they would for their families if they retired, they would be the appropriate people that might have influence that would convince you that you were authorized to raise it?
I believe, Councilman Cohen, that is a very separate issue.
It's a separate issue. The issue of parity for retiree benefits is a very separate issue.
Because it has impacts beyond, as you can probably imagine, those enrolled in the City-administered health plan.
The issue of parity has come up and might come up again in labor negotiations. It has certainly come up in arbitration. It has impacts beyond those individuals enrolled in the City-administered health plan. It is a labor management issue, and I am not prepared to address that here. 39 12/11/02 - LAW AND GOVERNMENT - RES. 000476
Ms. Berkowitz, we're going to only have a few more questions of you because your answers are so unsatisfactory that there doesn't seem to be any purpose in spending time with someone who either has no real power or has the power but who may not understand the requirements of her office. I don't know. You call this a labor management problem, yet we're talking about unrepresented employees who are not represented by labor, so it can't be a labor management question at all. You tell us something is not within your purview, yet in a comparison to us that seems totally relevant, is felt by you to be totally irrelevant and you dismiss it as being just a different kind of question. We find that very unsatisfactory because we don't think we're being given answers properly. And we have to consider what we may have to do with respect to subpoena because you're not testifying today under subpoena and we may in the future want testimony from you only under subpoena so that in the event it's not fully -- your answers do not seem to be responsive, that we're able to take further 40 12/11/02 - LAW AND GOVERNMENT - RES. 000476 action in court. But we had such respect for your office and for the Administration, we felt that with respect to something of this kind of concern that we get full answers. And the only full answer we can get is that apparently that Council doesn't have any rights to these questions. I think you're raising the question of subpoena power. And for the first time in maybe 50 or more years, we may have to pursue the subpoena question in court. But let's try in some other areas briefly whether we can get responses. From the documents you submitted this afternoon, we note that the vision care, the enhanced vision care in some box form where the cost of it would indicate to whom it was going to be charged indicates Capital Management. Was that the body that negotiated the improvement, the enhancement of expanded vision care?
And we note that there is an indication that the increased cost seems not to be borne by anybody.
I'm sorry, the increased cost is borne by the other funds, and the other 41 12/11/02 - LAW AND GOVERNMENT - RES. 000476 funds such as the Water Fund for its employees, aviation for its employees, the other grants funds for its employees. It is certainly borne by the City, the enhancement costs are borne by the City, not by the employees because, as you know, those enrolled in the City-administered health plan do not contribute for the cost of their dental, optical, or prescription coverage.
What is the role of Capital Management in this proceeding, in the proceeding with the City on healthcare? Are they a consultant?
They are. And Capital Management was the entity that developed and issued the RFP for vision benefits on the City's behalf, did the initial evaluation of the respondents, and made recommendations to the City about the award for coverage.
Now, the coverage was the same except in this one area?
And the total cost to the City, however it's being divided, is $42,000?
No. Councilman, if 42 12/11/02 - LAW AND GOVERNMENT - RES. 000476 you'll note in the information that I have given you, under vision it's the annual cost is approximately $58,000 for the enhancement with -- and the estimated impact on the General Fund is approximately $46,000, with the remainder divided among the other funds.
And what is the cost to the City for the services of Capital Management?
As we discussed during the last set of hearings, Capital Management is compensated by the dental, vision, and prescription coverage providers.
So the money he gets comes from the companies that perform the services that he recommends?
That is correct. And as you will also note, I should mention to you -- I'm 43 12/11/02 - LAW AND GOVERNMENT - RES. 000476 sorry. It's not in the document that you have. But I should note that because we received a significant increase in the cost of our prescription coverage this year, Capital Management is holding its compensation at its 2002 levels as opposed to receiving additional compensation because of the 2003 rate increase. But you said Capital Management gets its compensation from the providers.
Why do you regard it as such a great thing that they have not increased their charges to the companies that provide the services? How does the City benefit from that?
They wanted to ensure that because there was a significant increase in the cost of prescription coverage that in no way would any additional compensation to them be built into our increased rate.
So that means they are sensitive to the concern expressed by many, many people, that to get paid by the provider rather than 44 12/11/02 - LAW AND GOVERNMENT - RES. 000476 the City means they do the work of the provider and not the work of the City.
I believe that they do the work of the City, and I have expressed that in this forum before.
I said I believe that they work on behalf of the City, that they represent the City's interests, and I have expressed that in this forum before.
Even though they get paid by the provider because their compensation is approximately 1 percent of the City's annual payments.
And even though they themselves understood that it's a basis for suspicion and concern to the point that they decided not to apply, your understanding of their payment procedure, to the enhanced income that they otherwise would have been entitled to, right? Under their normal procedure, they would have gotten 45 12/11/02 - LAW AND GOVERNMENT - RES. 000476 increased compensation as a result of the increased income to providers?
I believe that they are sensitive to the fact that we, like many other employers nationally -- well, all providers nationally who provide health coverage for their employees are experiencing double-digit inflation in the cost of those benefits. I think, yes, they are sensitive to that.
Well, I don't know what you're indicating they're sensitive to. As I see it, they're sensitive to the notion that employees generally have and it makes good common sense and is the only interpretation I know of that makes any sense at all is that he who pays the bill 17 is the person that's worked for. And if Capital Management pays the bill for these services, it is not good management by the City of Philadelphia to be able to say, "We don't pay the cost of this consultant, we let the provider pay for it," so that the reason the provider says you should have one instead of two of something or you should cover or shouldn't cover may well be influenced by the provider; when the influence should come only from 46 12/11/02 - LAW AND GOVERNMENT - RES. 000476 the City. And therefore, to make that suspicious less effective says the middle man, in this case, Capital Management, whoever that may happen to be, says, "I'm going to try to serve both masters. I will serve the company by getting them more money and then I will make it look as if that never influenced me because they're paying me enough already. And to make it look good, I won't charge anything for the extra money." I mean, to me that's clear evidence of their conscious knowledge that what they do is under severe question as to ethics and propriety. I don't know how the City of Philadelphia can be so gullible as to believe that Capital Management is interested in anything other than in the people who pay their bills; and that's the providers, not the City of Philadelphia.
I believe, number one, if that were the case, they would be charging their compensation at the industry standard, which is between 4 and 5 percent. That's number one. Number two, if you look at the cost of our prescription, dental, and vision coverage, on vision and dental, our increases in costs are well 47 12/11/02 - LAW AND GOVERNMENT - RES. 000476 below the national averages. And prescription is right in line with the national averages in terms of double-digit inflation. So I do not believe that the City of Philadelphia is being taken by its coverage providers because they are compensating Capital Management.
Well, they may also be compensating others. But Capital Management as the main provider for which --
In fact, we pay -- under our prescription plan, there is a dispensing fee that is included in our cost for every prescription that is dispensed, and our dispensing fee remains among one of the lowest nationally.
Well, we will at the appropriate time be requesting that you document both that and your previous statement.
But at this point, I'm going to ask Mr. Shapiro to raise a few questions, and then we're going to be done for today, in line with the statement I made previously.
I really only have one question. Ms. Bricklin may have some others. 48 12/11/02 - LAW AND GOVERNMENT - RES. 000476 On the prescription coverage on , your first sentence says that "AdvancePCS originally quoted a 21.38 percent increase in the City's capitation rate for prescription coverage for active employees (eligible retirees are covered under a fee-for-service arrangement in order to lessen the impact on overall prescription costs..." Which retirees are you talking about there?
How is that eligibility different from the eligibility of active employees, when you say fee-for-service? Is that different in your mind from --
There are two cost structures in our agreement with AdvancePCS. One is a capitated rate for active employees, which means we pay them -- as we've stated in here, we pay them a capitated rate of $139.97 for each active enrollee in the City-administered health plan. We pay on a fee-for-service basis, which is the actual cost of the prescription for eligible retirees. And the principal reason for not including eligible retirees 49 12/11/02 - LAW AND GOVERNMENT - RES. 000476 in the capitated rate is, as age increases, the probability of greater utilization of prescription medication increases which increases your capitation rate.
Does the retiree pay themselves, pay in any different manner or any different amounts than an active employee? Are they also paying 35, and 16? 10
Are there any changes made to post-retirees from last year and the rights that they have?
One about the prescription plan. Do we, one, have a set list of the formulary drugs, what they are? My understanding is that they're never well communicated and that our list of drugs that are in the formulary is about half of what District 50 12/11/02 - LAW AND GOVERNMENT - RES. 000476 Council 47's list is. That was something that was discovered by the Controller's Office, which I believe is uncontrovertible. Can we get an a list of those?
Well, I'm not certain that I would use the word "uncontrovertible."
They count it. They count it. That's all they did. There was not anything subjective. They counted the list of the formulary, which means it cost more for our employees because they have less on the formulary, so they have to pay $16 for the non-formulary drugs.
We will get you information on the formulary. And we will certainly request the list of formulary medications from employees.
This is a more general question. Lynda Orfanelli indicated to me that Brokerage Concepts retained an actuary to, I guess, look at our utilization rates and to help with the negotiation of this plan. Do you have the name now of this actuary and how much they were paid? 51 12/11/02 - LAW AND GOVERNMENT - RES. 000476
I will be happy to get you the name of the actuary. The relationship -- it's my understanding that Brokerage Concepts entered into a relationship with an actuary that they use during the regular course of their business. So, I mean, we can certainly ask how much that cost, and we will get you that information.
Because I'm assuming, and correct me if I'm wrong, that they must have played a significant part in analyzing whether the increases based on utilization for this health coverage this year.
Well, that seems to be where the significant increases are.
So they probably did that, and it would be useful to understand the basis upon which these were increased.
The actuary could explain to this Committee the basis upon which these increases were set in motion.
No, I do not believe the actuary could because the rates are set by IBC. And we will be very happy to share with you the formula that Independence Blue Cross has given to us for determining the amount of the increase.
So then you didn't really negotiate if they already had a formula.
Oh, yes, we did, because Independence Blue Cross, as indicated in the material that I gave you, gave us an initial quote that was an 11.26 increase in PPO cost. And through our negotiations with them, based on questions that we had about our plan and their utilization data, they reduced that to 9.76 percent.
Will you be prepared or are you prepared to explain at this time or another time the rationale for the significant increase in the HMO and the Keystone point of service which is double increase for the PPO? 53 12/11/02 - LAW AND GOVERNMENT - RES. 000476
That is correct. And I can say two things right now. Part of it is utilization, and I've addressed that. I've addressed some of the contributing factors on the first page of the material that I gave you. One is that the increase of over percent in HMO and POS 8 rates is consistent with what is happening 9 naturally. That is the fastest rising portion of 10 medical coverage costs are HMO and POS coverage. 11 And in fact, I would be very happy to share, if the 12 Committee is interested, a report I received 13 yesterday. It's Towers Perin (ph) 2003 Healthcare 14 Cost Summary. So we are right in line with what is 15 happening nationally. Utilization is a big part of 16 that. 17 The second contributing factor is that 18 we have -- the number of our employees over the age of 45 is higher than the average nationally. We have an older work force because we have a relatively stable work force. That contributes towards the increase in cost. Again, because there is a direct correlation between age and the amount of healthcare required by an individual.
Wasn't the City committed 54 12/11/02 - LAW AND GOVERNMENT - RES. 000476 at one point to making sure that every employee had a basic health plan such as an HMO at no cost? This may be something you cannot answer if it's too much of policy question. This seems to me at this point that this cost is so -- has the potential of really escalating. For some people it makes healthcare very difficult when they would have been encouraged to go into the HMO in the first place.
That was a very, very difficult thing for us this year. I recommended that we institute a copayment for HMO coverage. Had we not done that, the cost of coverage for those enrolled in a PPO would have increased dramatically. And I should add that we should not assume that everyone enrolled in an HMO is at the lower salary scale. Many of those enrolled in HMOs are comparable in terms of salary to those enrolled in the PPOs. Just as an example, without an HMO contribution, in all likelihood, for the City contribution to live within the confines of the City's five-year financial plan, family coverage in Personal Choice 2010 would probably have had to be increased from $187 a month to $256 a month. And that's untenable. 55 12/11/02 - LAW AND GOVERNMENT - RES. 000476 In addition to that, the amount that we're asking people to contribute towards their HMO is on the exceptionally low side compared to what's happening nationally. And I have some information in the handout that I gave you as well. For example, nationally, the average monthly contribution for HMO coverage for an individual is percent of the cost, which equates 10 nationally to an average of $47. We're asking 11 employees for individual coverage to contribute 12 $14.47 a month. 13
Does that national figure 14 include public and private sector employers 15 combined? 16
I would be interested to 18 know what the figure would be just for public sector 19 employees. 20
I don't know who does a 21 study just for public sector employees. Generally, 22 they are done for national -- they are done for 23 employers across the board. 24 But again, there is no escaping the fact -- and I am an enrollee in the City-administered 56 12/11/02 - LAW AND GOVERNMENT - RES. 000476 health plan. So I pay for coverage just like all the other enrollees. And it is very frustrating to see what's happening. And we have not seen the end of inflation in the cost of health coverage.
What is the percentage of the increase that's coming from the City General Fund?
From your figures, what is the average increase in the cost to employees?
Because I believe you will find that the cost to the City and the increase is lower than what they were charging the employees in the form of the increase.
But I can tell you that in 2002 the City is contributing approximately 93 percent of the total cost of the City-administered 57 12/11/02 - LAW AND GOVERNMENT - RES. 000476 health plan.
It will represent close to 89 percent of the total cost of the health plan. If I can add something on that. In reality, therefore, even though we are asking employees in PPO, in the two PPO plans to contribute percent of the cost of their tiered rate cost, 14 which is single plus one and family, in reality -- 15 that's just for medical coverage -- when you add in 16 dental, vision, and prescription coverage, that 17 equates for a single individual to only 3.3 percent 18 of their cost for their total package. And for a 19 family, only 4.7 percent -- I'm sorry, that's for 20 the HMO. So those enrolled in a HMO will be paying -- instead of zero, they will be asked to contribute approximately 3.3 percent for individual coverage and 4.7 percent for family coverage. Those enrolled in the PPO, their contribution for an individual is approximately 16.8 percent of the cost of their 58 12/11/02 - LAW AND GOVERNMENT - RES. 000476 total package for a family; and for single, a little less than percent, which is very low when you 4 compare that to what's going on nationally. The 5 City continues -- 6
Except at this time 7 of increased health costs, the City has seen fit to 8 reduce the City share of the cost to 89 percent what 9 had been 93 percent, so the City is making the 10 employees bear -- I believe the word 11 "unconscionably" applies -- share of the increase. 12 It would seem to me that the City ought, under these 13 circumstances, to increase its share of payment rather than to decrease it.
Councilman Cohen, if I can share something with the Committee, Monday there was a Philadelphia Inquirer article discussing the rising cost of health benefits in the Philadelphia area and the efforts of local businesses to offer, "more restrictive and less expensive" plans and shift "a greater share of cost to employees." One notable difference between the City and the response of other employers has been the maintenance of benefit levels. We have not decreased our benefit levels, which is one reason 59 12/11/02 - LAW AND GOVERNMENT - RES. 000476 that our costs are increasing to the extent that they are. In fact, for the second year in a row, Independence Blue Cross has tried to convince the City to move away from Personal Choice 210 to Personal Choice 310 because it would cost us less and it would cost them less, and the City has refused to do that because of the Administration's desire to maintain benefit levels. Also, in Towers Parens 2003 Healthcare Cost Survey, it was noted that on average the cost of employers health plans will increase percent, 13 "The highest year over year percentage increase" 14 since they began their surveys 14 years ago. 15 Among the other key survey findings was 16 that employers are relying on "A combination of short-term cost shifting and long-term consumer strategies to address healthcare cost increases which are expected to continue at the same level or higher for the next several years," and that in 2003, employees will be paying a higher percentage of premium cost. And they cited that on average employees nationally will be paying 19.3 percent of the cost of employee-only coverage and 22.2 percent for family coverage, including those for dental and 60 12/11/02 - LAW AND GOVERNMENT - RES. 000476 prescription coverage. Active employees enrolled in the City-administered plan actually contribute between 3.3 percent and 12.8 percent of the total cost of individual coverage, and between 4.7 percent and 16.8 percent of the total cost of family coverage because employee contributions are based solely on the cost of medical coverage. I believe from everything I have read, heard, from any source I have looked at, the City-administered health plan continues to be a cost-effective plan for employees. And I believe that some of the comparisons that have been made in the past with some of the union-administered plans will prove to have been just that, past comparisons, because their costs are already going up and their cost will continue to go up. It is a national problem.
That may be, but there are at least two clear deficiencies in the City's plan of major proportions. One is the belief of whoever it is that makes the decision in the City that employees, whether union represented or unrepresented, and whether the legislative body is involved or not, have no place in the bargaining. 61 12/11/02 - LAW AND GOVERNMENT - RES. 000476 And that is dead wrong, and I speak on that for City Council and that's why it looks as if we are going to be headed into a major problem between the City Council and the Executive Department. The second is that at this time of higher costs, the City is finding a way to lessen its percentage of the cost from 93 percent to 89 percent by its own figures instead of increasing its share to make the burden on its employees less. The City is making the burden on the employees greater than it ought to be. And these two changes are just on the surface. There may well be others, because I have to tell you that it's been my experience that, without exception, when there are efforts made to hide information, there is reason. And that reason is always that there is some information that the hiders of it choose not to make known because they are either ashamed of it or feel they will be embarrassed by its release. And that's the suspicion the City's health plan lends itself to.
Councilman Cohen, in this current calendar year, we are projecting that the next City premium payments will be $58.8 62 12/11/02 - LAW AND GOVERNMENT - RES. 000476 million. That is the City's contribution this year towards health coverage for those enrolled in the City-administered health plan. We are projecting that to increase to $64 million.
And what you said will be 89 percent of the total cost for the health program?
That is correct, because the City does not have unlimited resources.
The City has greater resources than the employees have.
And like employers nationally, we have got to ask our employees to contribute toward the cost of their care.
Only because those in the executive departments are choosing to use funds for purposes other than healthcare. Because if they chose in the proper way, they would place employee healthcare as a prime priority because a City is often judged by the priority it gives to employee rights. How you take care of your own responsibilities acts as a guide and model for all other employers. In the City of Philadelphia, when it increases the share that the employees pay while 63 12/11/02 - LAW AND GOVERNMENT - RES. 000476 it decreases its own share of the costs, moves in the opposite direction. There are fundamental philosophical views that I've just expressed that have been my guiding light. And I believe that the City of Philadelphia ought to be a model for employers and for employees. And the City is not doing that. The City should get credit for bringing in this new financial company that I read about either this morning or in yesterday's paper, the company that's moving into the City. But at the same time the City is offering the kind of inducements of some $3 million to that company, which I think would better be spent, that the City sought to improve the benefit rights of its own employees. Its own employees do fine work. They work very hard under very difficult concerns. And except for a small number of employees that may here and there do the wrong thing, the City of Philadelphia boasts of a group of employees that are dedicated to public service. And instead of being rewarded for it, I think when the City cuts down its share of the health costs, they are not being 64 12/11/02 - LAW AND GOVERNMENT - RES. 000476 properly rewarded for their great duties to the people of Philadelphia. At this point, are there any other questions that need to be asked at this time? We have one question.
It has come to my attention -- I don't use this, but someone pointed out that the flex accounts this year, the maximums have been cut in half. Can you explain what the basis for that decision was? This to me, doesn't cost the City anything and can be very helpful to the employees, particularly those who have high medical costs and want to put in pre-tax dollars into those accounts.
I will get you information on the flexible spending accounts. I have not been involved in that arena. But I can tell you that there is liability for the City because the City is liable to the vendor. If an employee leaves after spending the full amount of what they committed to contribute but actually not contributed, the City has to make up the difference. For instance --
That's not usually how 65 12/11/02 - LAW AND GOVERNMENT - RES. 000476 they work. They usually work that the employee has to invoice the vendor before having any of the money released. Having done this before, I know that's one of the problems with the flex account. You have to spend first. So I don't see where that liability would come in.
You spend and the employee gets reimbursed. But let's say that I'm an employee and I choose to contribute the equivalent of $3,000 a year to my flexible spending account and the City, therefore, is going to take payroll deductions every pay period to make up that $3,000. I incur $2500 worth of expenses, access my flexible spendable account, I am reimbursed for that full amount in February. And then at the end of February, I leave City service. The money is not in -- it's a prospective arrangement. It's not a retrospective arrangement.
Perhaps you can get us information to that effect, documented information to that.
Mr. Kearney. 66 12/11/02 - LAW AND GOVERNMENT - RES. 000476
Good afternoon. My name is Tim Kearney, and I'm the Clerk for the Law and Government Committee. And I just want to make one comment following up on Chairman Cohen's comments. That if the City did follow through and keep the HMO at zero without an out-of-pocket cost to the employees, that it would be a very reasonable, very small of amount of money for the overall City Government. And in keeping with what the Chairman said, that the City could far more easily afford it than the workers. And it would probably be less than $3 million, maybe even less than $2 million to the HMO which people had been guided into at a zero payment, which is in keeping with the original philosophy of an HMO to begin with.
In order to determine effectiveness of that, I would like to receive from you by early next week a report as to whether or not the projection made by Mr. Kearney as to the cost of maintaining HMO which generally covers our lowest income employees. You're right in that it doesn't prove to be so in all cases. Sometimes that's because the employee is also covered by a spouse's insurance where the spouse works somewhere else. 67 12/11/02 - LAW AND GOVERNMENT - RES. 000476 But for whatever reason, we would like to know what the actual savings is being projected by the City and how that can be determined. In other words, give us the figure --
-- that elimination of HMO costs would come to and how you determined that cost.
If we could have that by mid-week, that would be very helpful.
At this point, the Committee will stand in recess until the call of the Chair. Thank everybody for attending. Let me hold back for one moment. Did you wish to testify?
Ms. Berkowitz, you're excused, but I think you ought to stay here to hear the testimony. This is a representative of an 68 12/11/02 - LAW AND GOVERNMENT - RES. 000476 unrepresented group. I don't how to define it otherwise. Thank you. Please identify yourself for the record.
My name is Gail, G A I L; Klein, K-L-E-I-N. And the only comment -- I guess it's more of a comment I have is, when we originally started having these hearings, a lot of the question was about parity. It was health benefits parity. District Council 47 was there, District Council 33, non-reps, retirees, and fair sharers, which, unfortunately, are not represented here today. The City was supposed to look for -- the Committee asked the City to look at the most comprehensive and cost-effective coverage to City employees for premiums paid and whether the City could provide more comprehensive and less costly coverage to the approximately 8,000 employees and retirees currently covered by this plan if other options were pursued. And I have yet to ever hear of other options. That is my comment.
This is straight out of this document. We don't know how many non-reps there are 69 12/11/02 - LAW AND GOVERNMENT - RES. 000476 anymore. We know there's a lot more exempt employees. We don't know what 47's paying. I don't really know, at least, or 33 paying on how much the City pays per employee to them for their coverage. But the testimony in the past has proven that both 47 and 33 -- at least 47 has paid a lot less for their coverage. One of your recommendations as a Committee was that the non-reps, fair sharers and others, retirees, be involved in that bargaining process. Again, it has not happened. I think this is the second year in a row, if I'm not mistaken. And we'd like to know why this is not happening. I don't know if Ms. Berkowitz can answer that today or not. The original questions were asked of the Personnel Director, I believe at the time who is gone now, Linda Seyda. I think Lynda Orfanelli has to be brought into the process, into committee itself also. That's my comment.
All right. Thank you very much for your comments. Is there anyone else wishing to be heard? (No response.) 70 12/11/02 - LAW AND GOVERNMENT - RES. 000476
If not, the Chair will recess the committee until further call of the Chair. Thank you. (Council adjourned at 2:45 p.m.) - - - 71 ¡›î› C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of December 11, 2002, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON LAW AND GOVERNMENT ___________________________ Lisa C. Bradley, RPR and Notary Public