City of Arlington Health Plan Benefit

1. City of ArlingtonHealth Plan Benefit July 2, 2004

2. Overview • Introduction • GASB Impacts • Health Plan Benefit Alternatives

3. Health Benefit Change Drivers • Escalating health care costs • City’s current plan design • Workforce demographics • Accounting and funding for post employment benefits

4. Recommendations • City hired the Hay Group to review the current health benefit and to consider: • How do our current benefits compare? • Where is the market going in the future? • Hay presented recommendations to achieve three goals: • Maintain Market Competitiveness • Reduce Upcoming GASB Liability • Moderate the Projected Increases in Health Benefit Costs to Address the Continuing Structural Deficit

5. Recommendations • Impacts vary based on class of employee • Almost 1,000 active employees will see a net pay increase as their premiums drop • Remaining active employees and retirees will see an increase in their premiums

6. Difficult Balance • Employee Impact • Benefit Competitiveness • Fiduciary Responsibility

7. GASB

8. Governmental Accounting Standards Board - GASB • Under Financial Accounting Foundation which controls GASB and FASB • Set standards for financial reporting for state and local governments • Recognized as authoritative by American Institute of Certified Public Accountants (AICPA) • State law requires that the City have an annual audit and issue financial statements • External auditors follow GASB

9. Failure to Adhere to GASB • Auditors issue a qualified or adverse opinion (vs. unqualified) • Bond underwriters are regulated by SEC and require accurate financial information • City is subject to SEC anti-fraud provisions • City must disclose all material financial information

10. Failure to Fund Retiree Health Benefit • Lack of funding must be disclosed to financial markets and rating agencies • Lowered city bond rating • Higher borrowing cost • As unfunded obligations grow – question as to “going concern” • Unable to issue bonds

11. Health Benefit Alternatives

12. Consideration of Alternatives Total Annual FY FY GASB GASB ’05% ’05$ Current $196M 20M 10% $1.3M All alternatives increase GASB liability and FY 05 cost $121M 11M 3% $300k Proposed

13. Savings Estimates • Annual savings estimates presented in the June 15 presentation are calculated: • In Calendar Year terms • Across all funds • Representing “best case scenario” • Annual savings estimates represented in today’s discussion are calculated: • In Fiscal ‘05 terms • On General Fund impact only • Representing a conservative projection of outcome

14. Savings Estimates • Critical Contributing Factors • Migration analysis (movement from or off respective plans) • Further evaluation of current year claim activity • Final Council decision on recommendations

15. Plan Design Changes Compared to the Hay recommendations, maintaining the current benefit has the following impact: * A blank space indicates neutral or no impact.

16. Prescription Drug Changes Compared to the Hay recommendations, maintaining the current benefit and/or adopting alternatives has the following impact: * A blank space indicates neutral or no impact.

17. Rate Structure Changes Compared to the Hay recommendations, maintaining the current benefit and/or adopting alternatives has the following impact: * A blank space indicates neutral or no impact.

18. Eligibility For Retiree Benefit Subsidy Compared to the Hay recommendations, maintaining the current benefit and/or adopting alternatives has the following impact: * A blank space indicates neutral or no impact.

19. Contribution Philosophy - Employee Compared to the Hay recommendations, maintaining the current benefit and/or adopting alternatives has the following impact: * A blank space indicates neutral or no impact.

20. Contribution Philosophy - Retiree Compared to the Hay recommendations, maintaining the current benefit and/or adopting alternatives has the following impact: * A blank space indicates neutral or no impact.

21. Contribution Philosophy –Retiree Dependents Compared to the Hay recommendations, maintaining the current benefit and/or adopting alternatives has the following impact: * A blank space indicates neutral or no impact.

22. Discussion