1 2 3 4 5 6 7 KERR COUNTY COMMISSIONERS COURT 8 Workshop 9 Wednesday, May 18, 2011 10 9:40 a.m. 11 Commissioners' Courtroom 12 Kerr County Courthouse 13 Kerrville, Texas 14 15 16 17 HEALTH BENEFITS 18 19 20 21 22 23 PRESENT: PAT TINLEY, Kerr County Judge H. A. "BUSTER" BALDWIN, Commissioner Pct. 1 24 GUY R. OVERBY, Commissioner Pct. 2 JONATHAN LETZ, Commissioner Pct. 3 25 BRUCE OEHLER, Commissioner Pct. 4 2 1 I N D E X May 18, 2011 2 PAGE 3 Review and discuss FY 2011-12 budgets and fiscal, capital expenditure and personnel matters related 4 thereto, including, but not limited to, employee health care benefits 3 5 --- Adjourned 71 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 On Wednesday, May 18, 2011, at 9:40 a.m., a budget 2 workshop of the Kerr County Commissioners Court was held in 3 the Commissioners' Courtroom, Kerr County Courthouse, 4 Kerrville, Texas, and the following proceedings were had in 5 open court: 6 P R O C E E D I N G S 7 JUDGE TINLEY: I will now call to order a 8 Commissioners Court workshop posted and scheduled for this 9 date and time, May 18th, 2011, at 9 a.m. It's a bit past 10 that time, of course. The purpose of the workshop is to 11 review and discuss Fiscal Year 2011-12 budget and fiscal 12 expenditure and -- fiscal capital expenditure and personnel 13 matters related thereto, including, but not limited to, 14 employee health care benefits. That, of course, is going to 15 be the emphasis. We have here today -- I saw Mr. Gary Looney 16 earlier. Is he still in the room? There he is. Our 17 consultant of some years now. We also have a representative 18 from Texas Association of Counties, or representatives. Who 19 all we do have here from TAC? 20 MS. KOLODZEY: Kelly Kolodzey. 21 MR. NORWOOD: Bill Norwood. 22 JUDGE TINLEY: Appreciate y'all being here. Y'all 23 have some things that -- 24 MR. LOONEY: I haven't seen you in a long time. 25 (Discussion off the record.) 5-18-11 wk 4 1 JUDGE TINLEY: Morning, Mr. Looney. 2 MR. LOONEY: Good morning, Judge. 3 COMMISSIONER OEHLER: Good morning, Mr. Looney. 4 MR. LOONEY: I have some good news. My 5 daughter-in-law gave birth to my third granddaughter just 6 last week. 7 COMMISSIONER OVERBY: Congratulations. 8 COMMISSIONER BALDWIN: Congratulations. 9 MR. LOONEY: Apparently there was some chingling 10 going on in the Looney house. 11 JUDGE TINLEY: I've not heard that application of 12 that word. (Laughter.) 13 COMMISSIONER OEHLER: Have you insured this child? 14 MR. LOONEY: So, I wanted to bring y'all up to date 15 on -- on some general information first, and I've asked 16 Mr. Malek to give you an update on the financial status of 17 our current health care plan, and give you information based 18 on the runoff from last year. I wanted to bring you up to 19 date on our national health care program. I'm sure that 20 y'all have been watching the news patiently, and seeing 21 what's happening with what we now affectionately call PPACA, 22 the protection -- private -- I can't even remember what it 23 stands for any more, I use PPACA so often. But you remember 24 all the rules and regulations and guidelines that came out of 25 March 23rd, 2010, last year, and all of the things that were 5-18-11 wk 5 1 going to take place and changes that were going to take 2 place. 3 The primary thing that's occurred in the -- and it 4 has now -- in three federal jurisdictions, there have been 5 states, and Florida particularly, where 25 states combined to 6 file a suit with the federal court there. That was to 7 prevent the PPACA from going into existence, to prevent it 8 from occurring. There were two other federal courts that had 9 decisions prior to that where they had exempted parts of the 10 law, saying that parts of the law were not constitutional. 11 But the court in Florida declared the entire act 12 unconstitutional, which was the -- the purpose of all the 13 states filing that suit. At this point, then, it goes 14 through an appellate type process, and eventually seeks its 15 way up to the Supreme Court. There is an appellate -- two 16 appellate courts right now that are listening to appellate 17 information from a federal court decision that was made in 18 New Jersey, and one that was made in -- I believe it was 19 either Wisconsin or Minnesota. So, we got three panels that 20 are hearing that appellate portion of it. 21 So, again, eventually there's going to be another 22 appeal made on the Florida decision. All that, then, 23 eventually is going to go up to the Supreme Court. There was 24 an attempt to be able to fast-track all of the appellate 25 processes, and that failed. They were going to try to 5-18-11 wk 6 1 fast-track that to the Supreme Court and try to get that done 2 actually this year, but that is now projected not to occur, 3 at the earliest, until possibly midyear next year. There's 4 some political, you know, functions in that, in that we have 5 one Supreme Court Justice who may or may not make it till 6 this time next year, who may very well be appointed by the 7 current -- a new judge appointed by our current president. 8 So, there is some delaying. Whether that's the purpose or 9 not, nobody knows. We just know that we've got the appellate 10 process taking place. We know that that occurrence may or 11 may not happen as early as midyear next year. That would be 12 to eliminate the entire bill that was passed. 13 Prior to that, you know, what's happening currently 14 is that we're having certain things that are taking place to 15 modify the law now. Some of the things that are occurring to 16 modify the law, when we -- originally the law was passed, we 17 talked about the possibility or probability of an employer 18 having to provide vouchers for employees based on what the 19 organization would be paying for a premium, that we would 20 have to give that in the form of income to an employee. 21 That's been repealed. That portion of the law was repealed 22 just last month by a new law that took that out of existence. 23 One of the things we were concerned about is grandfathering 24 status, being able to -- one of the things that was occurring 25 is we were having a lot of employers that had part-time or 5-18-11 wk 7 1 seasonal workers, such as people in the restaurant business, 2 people in the trucking business, people in the -- the 3 agriculture, where you have a lot of workers come in. 4 So, there was a question as to whether or not the 5 employer was going to have to provide coverage for all of 6 those individuals. So, last month, Health and Human Services 7 granted 225 waivers on those circumstances. So, if you want 8 to get a waiver in those situations, you go through Health 9 and Human Services, and they grant you a waiver to allow you 10 to function outside the -- the regulatory issues. Funny that 11 the majority of those waivers were issued in Nancy Pelosi's 12 territory, and primarily, some of the large major restaurants 13 that were providing services in San Francisco were granted 14 waivers. Just happened to happen that way. I'm not really 15 sure who got chingled there, but we're -- we're in that 16 process. 17 Some of the other changes that have -- that have 18 taken place are the 1099 reporting that was going to require 19 employers to report anything $600 or greater on the 1099. 20 That's been repealed. That's not going to take place now. 21 Some of the changes that -- let's see. The retiree program; 22 they were going to allow employers to request funds from the 23 federal government to allow employers to early retire 24 employees, and pay for their health care during that time 25 frame. All of those moneys were expended within the first 5-18-11 wk 8 1 120 days, and they're not accepting any more requests for 2 retiree funding. That was all -- that's all done and gone. 3 COMMISSIONER BALDWIN: But some got it. 4 MR. LOONEY: Some got it. Some got it. 5 JUDGE TINLEY: Those that knew to get in line at 6 the right time. 7 MR. LOONEY: Those that -- well, again, if you 8 track -- if you track and see who got it and who didn't, 9 it's -- it's very easily seen that -- the motivation behind 10 the granting. 11 COMMISSIONER BALDWIN: Mr. Looney. (Laughter.) 12 MR. LOONEY: It gets very frustrating sometimes to 13 watch -- to watch these things occur. 14 COMMISSIONER LETZ: Mr. Looney, on these repeals 15 and changes, were they actually repealed by act of Congress? 16 MR. LOONEY: Congress repealed -- 17 COMMISSIONER BALDWIN: Good question. 18 MR. LOONEY: They're -- some of them are 19 congressional repeals. 20 COMMISSIONER LETZ: And some are administrative? 21 MR. LOONEY: And some are administrative. The 22 congressional appeal, one that just happened on congressional 23 appeal was elimination of the vouchers, which was just in 24 April. That was just April 10th, I believe, that that went 25 through. There have been a number of other circumstances 5-18-11 wk 9 1 that have occurred on the federal level that have changed 2 that rule. What's happened on the state level, again, is 3 that the states have combined and then filed suit. Many of 4 the states are just waiting to see what the results of that 5 are. The other thing that -- that the federal regs created 6 was an organization called the exchange. The exchange was 7 supposed to be a state-operated insurance program where those 8 individuals that were required to purchase insurance would go 9 to the state-operated exchange. Well, each state has to go 10 through the process of establishing an exchange, funding an 11 exchange, and then having that in place in 2014 to be able to 12 manage this influx of individuals who supposedly are going to 13 be required to buy insurance. 14 The State of Texas and the Senate, a month ago, 15 voted to not fund the exchange, so we're waiting now on the 16 Republican -- not on the Republican, the House of 17 Representatives side of it to see what's going to happen. 18 So, each state is going through this process of either 19 creating -- and creating the process for funding the 20 exchange, or not creating the exchange. If they don't create 21 an exchange, the federal government will create an exchange 22 on their behalf. So, there's still an awful lot of activity 23 going on. And during this period of time of activity, you've 24 got Mr. Norwood back here pulling his hair out trying to 25 figure out, you know, what -- what's going to happen to us 5-18-11 wk 10 1 and what's going to happen to the insurance industry going 2 forward the next three or four years. 3 One of the big issues on the insurance side of it 4 was the maximum loss ratios, and we're still having battles 5 over what constituted the maximum loss ratio and how that's 6 going to impact the underwriting and so on. What we do know 7 is that, initially, a lot of the insurance companies having 8 no idea where all of this was going eventually, always try to 9 give some Kentucky windage to their rates, so that they try 10 to have some cushioning in their rating structures. As we 11 move forward, we know that they're getting more reality on 12 where rates and costs and expenses are going, so we're 13 getting a better -- our trend numbers are coming down 14 somewhat. They were -- they were as high as 16, 18 percent 15 prior to the law being passed and shortly after the law being 16 passed. Some of those trends now come down to close 10, 12 17 percent, but they're still in that range. We still have 18 trends in that range. The closer we get to the -- to knowing 19 more about where things are going, we'll have a better idea 20 where those actually are. 21 We've had -- I think, you know, our budget last 22 year was very tight, I know, and so part of our obligation 23 was to put on the table the best product we could for the 24 dollars we had available. I don't think that there was a 25 tremendous amount of enjoyment about the plan that we -- you 5-18-11 wk 11 1 know, we ended up with, and there we are. But, you know, it 2 is what it is. Our expenses and our incurred expenses in 3 relationship to our plan of benefits is still in good 4 relationship. If you all want to give me more money next 5 year, then -- then I'll be more than happy to make a lot of 6 employees happier, but the budget won't be as happy. 7 Commissioner Letz, I know, is on the budget side of it. So, 8 when we get more into the -- into the budget process, we need 9 to get a better handle and better feeling on where we're 10 going to be on our overall budget as far as what we're going 11 to have allowances for on the medical plan next year. With 12 that in mind, I'd like to ask Mr. Malek to come up and at 13 least give you a little, you know, short, brief information 14 about the finances where we ended up last year, and where -- 15 and some of the information is very limited because of the 16 time frame. We're only three months into -- only have about 17 three months of reporting information that we're getting, two 18 months maybe, from our current carrier. So, with that, I'd 19 like for him to bring you up to date. 20 COMMISSIONER BALDWIN: Do you want to just hand 21 them all up? And I'll pass them. 22 MR. MALEK: Normally I put them there. I've got 23 another one. 24 (Discussion off the record.) 25 MR. MALEK: Okay. Good morning. My name's Carey 5-18-11 wk 12 1 Malek. 2 JUDGE TINLEY: Good morning. 3 MR. MALEK: I work for Willis. And I represent -- 4 I'm representing Humana in this scenario, and for the County. 5 And, again, I work for you, so understand that; that what 6 you're getting now from Humana is very limited. And this is 7 part of the process of being fully insured with Humana, is 8 that they've given us virtually nothing to look at. We have 9 one month of claims. They have told me that they are 10 changing the way they're starting their reporting; that they 11 are going to be giving us quarterly reports. Initially, they 12 promised us one report during our first 12 months, and then a 13 final report for the renewal. That's -- because of the size 14 that we are and the number of employees in the county, that's 15 their policy for that size group. But that's changed, and so 16 they're now going to start giving them quarterly. And we 17 will be getting another report in June, and that will give us 18 a little more information that we can work with and see kind 19 of, you know, where we stand with Humana. So, I don't know 20 that I can spend a lot of time with that right now, just to 21 tell you that there it is. 22 The other report that I did put in there was the 23 UMR report. Remember, UMR was the T.P.A. that we used prior 24 to Humana, and it does give us where we ended up, and a 25 recovery that we are -- have filed for the aggregate stop 5-18-11 wk 13 1 loss. And if you look at this report, it gives you claims on 2 a monthly basis, how many employees and family members were 3 in the plan, and in the end, we ended up with a recovery 4 of -- or going to end up with a recovery of $155,917. And so 5 that's already been filed with the stop loss carrier, and 6 like their requirements, they get to audit, and as they go 7 through this process, they're going to tell us in the end 8 what we end up with. And we should be expecting a check very 9 shortly, because they've already started and just about 10 completed that process, and so we'll see where we end up with 11 that. 12 JUDGE TINLEY: What percentage of our stop loss 13 claims are going to be paid? 14 MR. MALEK: Well, the ones that we had incurred 15 during the policy year, they've paid them all. I think we've 16 received all the reimbursements that we are due. I will have 17 to go and look, but if there's anything left, it's fairly 18 small. One thing that -- 19 JUDGE TINLEY: Of eligible -- of amounts that would 20 otherwise be subject to claim under the stop loss policy? 21 MR. MALEK: Yes. Our stop loss policy ran from 22 January to December 31st, so any claim that was paid during 23 that period -- incurred and paid during that period -- 24 actually, I take that back. It was anything incurred 15 25 months prior, up until the 31st. It had to be paid by the 5-18-11 wk 14 1 end of the year, so I -- okay, it had to be incurred during 2 that first 15 months, which goes back into the prior year, 3 and then paid during that 12-month period of last year. So, 4 in effect, you get the carryover from the prior year, but at 5 the very end of the year, you miss out on a possible claim 6 that might have happened on the 30th, which we had. And so 7 you miss out on those claims, because you go fully insured. 8 If you would have stayed self-funded, you would have had 9 continuity in coverage for the stop loss, and you would not 10 have had a gap. But we went fully insured due to the cost 11 that was offered by Humana being significantly lower than any 12 kind of -- of self-funded policy that we were able to -- to 13 be able to bring to the table. 14 JUDGE TINLEY: Do you have an approximate dollar 15 amount of late claims that were incurred, but not paid? 16 MR. MALEK: We do. 17 JUDGE TINLEY: Late December -- 18 MR. MALEK: We know every one of those claims that 19 actually came through there. I have a report that I'm 20 waiting on UMR to send us that will give you by a monthly -- 21 as they pay them, they tell us every month how much that was, 22 and so we have that -- that data, and what was the total, and 23 the ones that came in at the end of the year. So, what 24 happens is, as you change from a self-funded to a 25 fully-insured plan, the word gets around that we're going to 5-18-11 wk 15 1 a new plan that's going to have this really high deductible, 2 and so people were rushing to get stuff done at the very end 3 of the year. In fact, we had one claim that was done on the 4 30th of December that was a very significant claim. That 5 should have never happened, but this person thought that they 6 would save the deductible going into the next year. That's 7 generally what happens. So, when you make a major plan 8 change like that, everybody's rushing to try to get 9 everything in at the end of the year that they can get. And, 10 indeed, the last week in December was horrific. 11 JUDGE TINLEY: Do you have an approximate dollar 12 amount of claims incurred, but not paid by December 31? 13 MR. MALEK: We do, but we don't -- I don't have the 14 exact number, what it is right now. Are you just talking 15 about for that last week, or the entire amount? 16 JUDGE TINLEY: Entire amount. 17 MR. MALEK: Yeah, we have the entire amount. We 18 have all that. We'll provide you a report with that. 19 JUDGE TINLEY: Okay. 20 MR. MALEK: It's -- there's still a few dollars 21 sitting out there that are still getting paid. I think we 22 even had a -- a draft run last month for $25,000. Not last 23 month, last week. If I remember -- if I recall. 24 MS. WILLIAMS: Yes. 25 MR. MALEK: I was looking at the report, and was 5-18-11 wk 16 1 surprised to see something of that size come in so late. We 2 are getting back the rest of the money that was in that 3 account, and I believe there was somewhere in the 4 neighborhood of $80,000 left in the account, and that's going 5 to happen here pretty soon. Because we had a six-month 6 agreement for them to pay this runout, and so that ends July 7 1st, basically, so that'll come next month. 8 COMMISSIONER LETZ: All that said, where are we at 9 in our budget? 10 MR. MALEK: That's -- 11 COMMISSIONER LETZ: Do you have a -- I mean, 12 better? Worse? 13 MR. MALEK: I'm not privy to all that part of it, I 14 mean, in terms of what the totals are. I only know what was 15 paid out. And I don't -- I mean, I know what the budget was 16 for last year -- this coming year, but I don't know where 17 that stands. 18 COMMISSIONER LETZ: The Auditor's here; I'll ask 19 her. 20 MR. MALEK: Yeah, that's not for me. 21 MS. HARGIS: I don't have the report directly in 22 front of me. I think we handed that out to y'all with the 23 transfers and all. We had 300,000 left to basically go to 24 the end of the year, so we're going to probably be these 25 claims short, which to us are accumulating anywhere between 5-18-11 wk 17 1 $600,000 and $700,000. So, that's kind of what our shortfall 2 may or may not be. I have to go back in and put in this 155 3 and the 80. But the form that Mindy prepared for you and 4 gave you at the last meeting shows that. 5 COMMISSIONER LETZ: Right. 6 MS. HARGIS: So, it's not good. 7 MR. MALEK: I kind of missed that part of it. But 8 I'm -- are you saying that there's $300,000 left? Or short? 9 MS. HARGIS: Left to the end of the year. 10 MR. MALEK: Okay. 11 MS. HARGIS: Then we have till September. 12 MR. MALEK: For any run-out? 13 MS. HARGIS: To pay the rest of the premiums for 14 the rest of the year. 15 MR. MALEK: Okay. 16 COMMISSIONER LETZ: Okay. 17 MR. MALEK: I'd say that would be a shortfall. 18 Again, the fully insured part is defined. We pay a certain 19 premium every month based on that. But, you know, again, 20 I'm -- I'm not part of the actual budget-making process yet, 21 so I can't really comment on that. 22 COMMISSIONER LETZ: Okay. 23 MR. MALEK: That's kind of where we are. Again, 24 it's not pretty. And it wasn't pretty last year, and I can't 25 imagine it's going to be pretty this year. And I would 5-18-11 wk 18 1 anticipate that Humana would be giving us an increase 2 anywhere from 20 to 40 percent going forward for the next 3 year. That would be my -- you know, again, that's based on 4 just what little I have so far, and what they're telling me 5 is going on. So, think about that in terms of what you're 6 thinking about in terms of budgeting for going forward, if 7 you're planning to stay fully insured and stay with Humana. 8 COMMISSIONER LETZ: Thank you. 9 MR. MALEK: That's what I have for you. If you 10 have any questions, fire away. 11 JUDGE TINLEY: Anybody in the audience got a rope? 12 (Laughter.) I know, you're just the messenger. 13 MR. MALEK: I'm the messenger. 14 JUDGE TINLEY: Thank you, Mr. Malek. Mr. Looney, 15 are you going to -- and if you weren't planning on it, will 16 you give us a -- two things. Kind of where you recommend the 17 County going long-term, being the next one to five years, 18 from fully funded to self-funded, and why we have not -- or 19 maybe we have. I guess explain the ability of counties to go 20 for a three-year -- or longer than a one-year program. 21 Because I know we have some TAC people in the audience, and I 22 have heard from them that the -- an issue was the fact that 23 we change our insurance every year, and that TAC doesn't look 24 favorably at that, and others don't either. And why -- and 25 why we can't -- or why we have not been -- 5-18-11 wk 19 1 MR. LOONEY: We've had that discussion in the past, 2 you know, with conceptually having three-year contracts. And 3 so, as I think your attorney will tell you, you know, we can 4 write a three-year contract, but we always have to have our 5 funding out clauses in the contract. So, the -- but there is 6 no requirement that the County actually go out for bids every 7 year. They can go in for a three-year contract, and then as 8 long as we have our funding-out agreement in it, then we go 9 renegotiate or -- or work with that carrier during that time 10 frame. Carriers do not give us favorable attention if we 11 change plans every year. We did have our plan document 12 established when we were self-funded. Our plan document and 13 the delivery of the health care to the employee was 14 consistent. We changed stop loss carriers underneath that 15 contract, but that was fairly common in the market, is to bid 16 stop loss contracts. Maintaining a T.P.A. relationship and a 17 contractual delivery relationship are the consistency. 18 When you change carriers that go from fully insured 19 to fully insured to fully insured and multiple carriers in 20 that manner, underwriters say that if you have changed every 21 year for the last two years, last three years, not only will 22 they either consider not underwriting it, but they will load 23 it pretty heavily, because a lot of their expenses are 24 incurred in the first 90 to 120 days of a contract, so they 25 -- they need a two- or three-year period really to level 5-18-11 wk 20 1 their -- their profitability over that time frame. So, you 2 know, I agree. One of the things that -- that not getting 3 the information from Humana in the manner in which we've 4 expected it, we've caused a lot of headache with them. We've 5 had to move up the food chain to -- to get our quarterly 6 reports. We've had to let them know that we're not the small 7 kid on the block. You know, so that I'm now waiting for that 8 May report; it will come out in the middle of June. When 9 that comes out in June, I recommend we have another workshop 10 so that we can go over all of that information at that time, 11 and then have more of the projections and the information, 12 'cause I'll have a lot better information and knowledge at 13 that time as to where we stand on that. 14 COMMISSIONER BALDWIN: I agree with you. 15 COMMISSIONER OEHLER: Yes. 16 COMMISSIONER LETZ: Philosophically, where do you 17 see you recommending we go, and where industry's going on 18 fully funded versus self-funded? 19 MR. LOONEY: The industry overall, one of the 20 things that we've watched in the track within the industry 21 itself, is the -- I guess the ability or -- or the influx of 22 cases that are going through third-party administrators and 23 going through A.S.O. contracts, administrative service-only 24 contracts with major insurance companies. What type of 25 frequency are we seeing as far as -- and I'm on, I don't 5-18-11 wk 21 1 know, five advisory boards or whatever, and in all of these 2 board meetings that we have, they talk about moving their 3 contractual agreements on A.S.O. to a lower participation 4 number. In the past, you have companies like, oh, Aetna that 5 would not even talk to a case that had 500 and fewer 6 employees on a self-funded basis. You talk to other major 7 carriers, and their threshold for self-funded would be 8 500,000; it's in that range. What we're seeing now is that 9 threshold dropping to as low as 100, and we're seeing a lot 10 more A.S.O. type categories. We're seeing growth in the 11 third-party administration industry with cases that are 12 ranging in that 100 to 250 range. 13 A lot of it has to do with the fact that the 14 control and maintenance of the contract itself, there's a lot 15 of -- of the new federal regulations that they -- not avoid, 16 but they can better manage within the self-funded process. 17 Plus the rates for the stop loss and the underwriting for the 18 -- the aggregate maximum limits are becoming much more 19 competitive. The market is -- is a more competitive market 20 than it has been in the past, so we're able to do more 21 negotiation and actually make the self-funded plans look, 22 feel, smell, and taste like fully insured, but still be 23 self-funded. So, I think we're going to see a much greater 24 emphasis on A.S.O. type of contracts. The other thing is 25 that it avoids -- for the insurance companies, it avoids that 5-18-11 wk 22 1 maximum loss ratio legislation that they're going to have to 2 deal with under the federal guidelines. So, a lot of them 3 are pushing toward that. 4 COMMISSIONER LETZ: So, you see the trend back 5 towards self-funded? 6 MR. LOONEY: That's what I see. Mr. Norwood? I 7 don't -- he may have a different opinion; I don't know. You 8 know, when he makes his presentation, you may ask him the 9 same question, see what he says. 10 COMMISSIONER LETZ: All right. 11 MR. LOONEY: But I think that bouncing back and 12 forth between fully insured and self-funded has its negatives 13 and positives. You know, obviously, we got caught in the 14 negative with the December 30th big claim. The other side of 15 it, moving from fully insured to self-funded, the 16 fully-insured company is required to create a reserve within 17 their contract so that they pay claims through any claim 18 incurred through the end of the policy year, regardless of 19 when it's paid. They pay all of our own expenses. So -- 20 JUDGE TINLEY: So, it's on claims incurred. 21 MR. LOONEY: On claims incurred. So there's a -- 22 there's a front-end hiatus on that side of it. My timeline 23 at this point, Commissioner, is to get that information in in 24 June, and then actually go into the market the first part of 25 July for the calendar year, for the end of the year. 5-18-11 wk 23 1 COMMISSIONER LETZ: Do you -- I mean, it seems 2 intuitively to me that the problem that we have had -- or one 3 of the problems we have had is the fact that we're a 4 relatively small pool to be self-funded, yet you're saying 5 that the trend is to go down towards employee -- or employees 6 of 100 and self-funded. Seems that the risk of that is huge. 7 You get one or two cases -- 8 MR. LOONEY: Well, it's that offsetting stop loss 9 insurance underlying coverage, that you have to really take a 10 hard look at that to make sure that -- that those numbers 11 match with what your cash flow objectives and obligations 12 are, because that's the underlying insurance program. Even 13 though it's self-insured, the underlying insurance are the 14 specific aggregate coverages, and if those are not properly 15 aligned, then it doesn't make sense to go that direction. 16 There are other -- other organizational structures such as 17 TAC that creates a pool, and you get involved in the pool. 18 And I'm not going to take his -- Mr. Norwood's presentation 19 away from him, but the pooling effect. But regardless of 20 whether it's a pool, whether it's a 50,000-man group or -- or 21 a 100-man group, the -- the cost of the plan is claims. Then 22 you have to add in administrative expense and other 23 underlying insurances. 24 You know, the -- the concept of insurance is almost 25 a misnomer. It's actually a financing of the claims 5-18-11 wk 24 1 circumstances. It's a claim financing function, and so the 2 approach in that type of process, the insuring company -- 3 when you think of insurance, you pay a lot of premium over a 4 period of time, never have a claim. Then, all of a sudden, 5 you have a huge claim. Well, in health insurance, that's not 6 the way it works. Health insurance is an ongoing claim 7 process, and so you try to insure against those maximum 8 losses, and that's really where the insurance really comes 9 in, is that maximum loss process. Under that, you've got 10 ongoing expenses that have to be incurred in the process. 11 June, have another workshop, and be glad to, you know, come 12 up, meet with you before that just so you can give me some of 13 the things on the agenda that you want to make sure I cover. 14 COMMISSIONER LETZ: I think just -- it appears to 15 me -- and I'm certainly not an insurance expert by any 16 stretch. In fact, I can't stand insurance. 17 MR. LOONEY: I was going to get you a license last 18 year. (Laughter.) 19 COMMISSIONER BALDWIN: Yeah. 20 COMMISSIONER LETZ: But I really would like to 21 explore a three-year plan. 22 MR. LOONEY: Sure. 23 COMMISSIONER LETZ: I think it's -- for the 24 employees, it's a huge plus to know year to year, so we don't 25 have these December 30th claims come in, so we -- they can 5-18-11 wk 25 1 plan better. 2 MR. LOONEY: Sure. 3 COMMISSIONER LETZ: And, certainly, we can plan 4 better as a court, good or bad. 5 MR. LOONEY: And part of that process, remember 6 where we are as far as these federal regulatory issues are 7 concerned, because during the next three years, unless things 8 change, you know -- and we know they're going to change; we 9 just don't know where they're going to change. So, we've got 10 this federal legislative issue that -- that is supposed to 11 take place in January 2014, and we've got all these 12 preliminary things that we're doing up to that point. So, a 13 three-year plan taking us to 2014, you know, that's about as 14 close as we're going to be able to get. 15 JUDGE TINLEY: Any other questions for Mr. Looney? 16 Anything else you have for us? Anything else you have for 17 us? 18 MR. LOONEY: No, sir. 19 JUDGE TINLEY: Okay. 20 MR. LOONEY: Not at this point, except that as soon 21 as that June information comes in, I want to get back on the 22 agenda. 23 JUDGE TINLEY: Okay, we'll get you there. 24 MR. LOONEY: Thank you. 25 JUDGE TINLEY: Why don't we go ahead and take about 5-18-11 wk 26 1 a 15-minute recess. We'll get with you folks immediately 2 after that. 3 (Recess taken from 10:15 a.m. to 10:55 a.m.) 4 - - - - - - - - - - 5 JUDGE TINLEY: Okay. Let's come back to order, if 6 we might, for our workshop. We've got with us the 7 representatives from Texas Association of Counties. 8 Mr. Norwood, if you and your running buddy there want to come 9 on up and give us your correct legal name and -- and address, 10 and tell us your take on all this insurance stuff. 11 MR. NORWOOD: My name is Bill Norwood. I'm the 12 manager of TAC's Employee Benefits Pool, and we are from 13 Austin, Texas. One of the three great lines, "We're from 14 Austin here to help you." (Laughter.) And I think -- and 15 this is Kelly Kolodzey; she's in our department, and spends 16 more time out in the counties than I do. I get to stay home 17 and do the math most of the time. 18 COMMISSIONER OEHLER: Should we help you with that? 19 MR. NORWOOD: Any time you'd like, be happy to have 20 help. 21 COMMISSIONER OEHLER: To our benefit? 22 MR. NORWOOD: If I might, before we pass out a 23 handout, this has been a really interesting morning. It's 24 good to get out of the office and hear things, and what I've 25 heard this morning has been some really good questioning and 5-18-11 wk 27 1 some really good information that y'all received. Mr. Looney 2 gave you an extremely accurate, in my view, description of 3 the Patient Protection Affordable Care Act and various 4 possibilities under it. Then you've asked a lot of questions 5 about fully insured and self-funded, and I will tell you that 6 in my mind, the decision whether to fully insure a contract 7 or self-fund a contract, assuming good arrangements either 8 way, is about third or fourth down the list of things I worry 9 about. There's some other things I worry about first, and 10 funding is always number one. If funding is not done 11 correctly and in accordance with the laws of nature, the 12 consequences are absolute. So, that's something that he is 13 well qualified to address you on. I don't even need to worry 14 about it. Just -- I can tell you, I would be willing to bet 15 he would tell you the same thing. 16 Let me tell you a little bit about several things 17 that may be of interest. First of all, the three-year 18 contract thing. You can certainly do a three-year contract. 19 Obviously, your County Attorney's going to want to structure 20 it and approve it, but as long as you've got that out -- 21 because, as you know, Commissioners Court can't obligate a 22 future court. As long as that's in there, it -- counties 23 tend to keep their word. And maybe it's just because we're 24 owned by all the counties and we're a nonprofit and we're not 25 out there being it, or, you know, we don't have shareholders 5-18-11 wk 28 1 up in Connecticut somewhere, but in our dealings with 2 counties, they keep their word. And so we know that out has 3 to be in a three-year contract, but if somebody wants to do a 4 three-year contract, to me, that's a pledge that we're going 5 to ride this -- I saw the Judge do this (wave motion) -- for 6 the next few years. That's exactly what's about to happen. 7 And so a three-year contract is a good way of proving some 8 seriousness. However, it does not have to mean your benefits 9 don't change for that length of time. It's a commitment to 10 that carrier who's going to put a substantial chunk of 11 checkbook at risk. 12 What you want to do is ease their concern a little 13 bit in order to get the most favorable rates. Your stop loss 14 carrier from last year, without even seeing a report, took a 15 hard hit for 2010, and they would have loved probably to have 16 had another year to come back. Or -- well, actually, I know 17 the carrier was -- they're a major carrier, so yes, they 18 probably would have loved to have had that, because the only 19 way you come out in this business is over a three- or 20 four-year period. Any one year can be really bad for no good 21 reason at all. It just -- it just shows up. Second thing 22 is, on PPACA, there's -- everything Gary said is right. And 23 then there's the future. Yesterday we finished structuring 24 language in conjunction with the Texas Municipal League; that 25 was the last thing Kelly and I did before we left, and there 5-18-11 wk 29 1 will be a bill submitted for an amendment to a bill submitted 2 that will allow Chapter 172 pools. And the odd way that that 3 chapter is structured allows an individual county to be a 4 risk pool. I know a pool should be more than one. But if 5 you read the enabling part in the first section, 3 and 4, I 6 believe, it defines who can be covered in the plan and what 7 entities are available or have the chapter available. A 8 county can do it. 9 So, you know, you have to go through some hoops. 10 You've got to have a board of trustees, got to do this and do 11 that. We already do all that. Out of the self-funded groups 12 we administer -- and we have both the fully-funded groups and 13 the self-funded groups in our pool, and they're all in 14 compliance with that. This will allow those to be a health 15 plan, a qualified health plan under any connector or exchange 16 bill that may be introduced and passed. And this is where it 17 gets really interesting. We don't know what's going to 18 happen. We were talking at the break about the likelihood or 19 not of Dr. Zerwas' bill being signed from the House, if it 20 should make it all the way through the Legislature. Probably 21 not going to be, not now. But depending on what happens in 22 various primaries and elections and all kind of things in the 23 next 12 months, we're going to ease up pretty quickly on that 24 1/1/13 date where you need to be ready to administer an 25 exchange on a state level for 1/1/14, the date that was 5-18-11 wk 30 1 mentioned. 2 So, depending on what happens, you're very likely 3 to see a special session called after the November 2012 4 election, or after the primary preceding it, and so bills 5 have to be written and ready to go that can be yanked out of 6 the closet and addressed. Because if you don't do that, you 7 default to the federal control, and I think everybody in that 8 Legislature is pretty sure they don't want to do that, and so 9 is the governor. So, that's why we're doing what we're doing 10 now. Whether you come with our pool or whether you do not 11 come with our pool, you will benefit from that if we're 12 successful in getting it passed. So, that's one of those 13 things that doesn't fall on the standard insurance market, 14 and we'll see how that goes. We'll know more when they 15 adjourn. Carey, on the report y'all got from Humana, are 16 they doing the usual Humana incurred basis report? 17 MR. MALEK: It was actually paid, but it had one 18 month on it. 19 MR. NORWOOD: Okay. 20 MR. MALEK: So, no, it's going to -- 21 MR. LOONEY: They're supposed to give us the paid 22 at the -- in this next report. 23 MR. NORWOOD: What do you think the lag is on the 24 paid? 25 MR. LOONEY: Probably -- I'm going to say probably 5-18-11 wk 31 1 70 days. 2 MR. NORWOOD: Wow, that's long. 3 MR. MALEK: Probably -- 4 MR. NORWOOD: Usually when I see that, the carrier 5 is dropping back to incurred, which means you get fewer 6 months, but you know what actually happened in that month. 7 But you're still assuming a run-out, and that's, you know -- 8 MR. LOONEY: But it's probably -- you know, it's 9 probably going to -- each reporting period is going to reduce 10 substantially over that, because they just established the 11 claim process in the process, so it'll probably end up 12 somewhere in the 40 to -- maybe 40 to 45 range overall. At 13 least that's what I put into it. I don't know what y'all -- 14 MR. NORWOOD: I think, as a general rule, I agree 15 with what was said earlier here. This jumping around 16 carriers every year, it's really tough on the carriers. And 17 not that I have sympathy for stockholders in Hartford, but I 18 have a real interest in the O.P.M. that we manage, because 19 our "other people's money" belongs to 184 Texas county 20 entities, and I've got a board of 11 county officials and an 21 executive director who used to be a judge, and we have a real 22 interest in those 184 county entities and what they think of 23 what we're doing. And we generally don't lose groups. We 24 have -- other than the one group that stopped carrying 25 benefits at all, we've lost one group in the last three 5-18-11 wk 32 1 years, and probably added about a dozen. We've got over 60 2 percent of the counties in the state, and they tend to stay 3 exactly where they are. We haven't had over a single-digit 4 rate increase in eight years; you know, double-digit for the 5 pool as a whole. And I think the highest increase, last year 6 we were at 8.12. The highest increase we gave was a 12 or a 7 13, and they deserved that 20 to 40 that Mr. Malek was 8 talking about, but that's the pooling process. Are there any 9 other questions on -- 10 COMMISSIONER LETZ: Yes. 11 MR. NORWOOD: Yes? Before I get into the TAC 12 specifics, I thought you might have questions on the law and 13 all that. 14 COMMISSIONER LETZ: I guess one question -- and I 15 don't want Mr. Looney to take this the wrong way, but -- 16 MR. NORWOOD: We can switch in and out up here. 17 MR. LOONEY: You've fired bullets at me before, 18 Commissioner. (Laughter.) 19 COMMISSIONER LETZ: The question I have is, if we 20 went with TAC, do we need Mr. Looney? I mean, do you provide 21 the same function that Mr. Looney would? Or will we still 22 retain -- 23 MR. NORWOOD: Does the fifth amendment work in a 24 county court? I'm not sure. You know, let me just give you 25 a factual background on that. Of our 184 groups, slightly 5-18-11 wk 33 1 less than half have a broker or a consultant. Not that many 2 have a true consultant who's not a broker also. And 3 Mr. Looney tends to fall in the -- more in the true 4 consultant category. There's a lot that he can provide you 5 that we can't do for one county at a time all year long. 6 We'll do a real thorough job at renewal. We're renegotiating 7 contracts. You know, I've got close to $170 million running 8 through the pool every year. That gives us enormous 9 purchasing clout on your behalf. But in terms of making some 10 of the decisions we've seen discussed here this morning, I 11 think having a good consultant's somewhat valuable for you. 12 COMMISSIONER LETZ: The -- I guess the other 13 question is, can Kerr County -- from what we know right now, 14 can Kerr County be admitted into the TAC pool? 15 MR. NORWOOD: I don't know. We try really hard to 16 -- last year we declined for a very unusual reason, but we 17 took no new business last year, except before we knew the 18 rules for PPACA, that March 23rd date mentioned earlier. We 19 did not want to take the risk of a non-grandfathered plan. 20 There's so much -- well, there's still a lot that's unknown, 21 but this was all -- what was it? 13th, I think. 22 MR. LOONEY: 13th. 23 MR. NORWOOD: The rules came out, and they were 24 even completed, and some of them were changed before the end 25 of 2010, but they said things like, "If you're fully insured, 5-18-11 wk 34 1 you change carriers, and you have the same benefit plan, you 2 lose your grandfathering." Well, you know, that's not true. 3 However, if you changed carriers before they announced that 4 that was off the table in November -- December, November, you 5 got stuck. And so we just told all of our groups, "We're 6 staying grandfathered; hope you do too." If your budget's 7 really in a tight place, then we'll support you, but 8 please -- you know, in particular, the wellness benefits. We 9 don't know if they're going to put fat farms in there. We 10 don't know if gastric bypass surgery's going to be covered. 11 All those kind of entities that are off the table now 12 routinely are fighting to get covered under preventive care. 13 We have a really generous preventive care. We came 14 out with our no-charge colonoscopy benefits three years ago. 15 We're ahead of them. But, I mean, you know, you pay your $25 16 co-pay or $20 co-pay, whatever your county chooses, and go 17 get your colonoscopy. As we continue doing it, we'll save 18 money, you'll be happier, and you might still be here, so 19 it's just a good deal. And meanwhile, the feds are not 20 giving near the guidance, because there's so many different 21 opinions out there. And when we had to make these decisions 22 last June 16th, three days after that came out, when my board 23 met, and even into July and August, we didn't know the 24 answer. So, when your RFP came and made it clear that, 25 because of budgetary concerns, you were going to go off 5-18-11 wk 35 1 grandfathering, we felt like we could not in good faith offer 2 that model to anybody, so we didn't. We don't -- we know 3 enough now so we can go ahead and make an offer. We're not 4 worried about whether you're staying grandfathered or not. 5 JUDGE TINLEY: I want to be sure -- you said with 6 one exception, you had only single-digit increases to your 7 insured within the last how many years? 8 MR. NORWOOD: Eight. 9 JUDGE TINLEY: Eight, okay. With that one 10 exception that you mentioned? 11 MR. NORWOOD: Well, the one exception was on the 12 county who dropped benefits. That was the one group we lost 13 last year. 14 JUDGE TINLEY: Oh, okay. 15 MR. NORWOOD: Red River County decided not to offer 16 employee benefits. Amazing. 17 JUDGE TINLEY: Okay. 18 MR. NORWOOD: But they did -- 19 JUDGE TINLEY: And that was going to be a 20 double-digit increase, and they just declined? 21 MR. NORWOOD: Had a 116 percent loss ratio, and we 22 were going to give them a 12 percent increase. In terms of 23 groups that got a double-digit last year, they deserved more, 24 but, you know, most of our groups have been with us over 10 25 years. We see the up and down, the good and the bad, and we 5-18-11 wk 36 1 need to ride it out for them, and so we do. And it always 2 works out; it never does not work out. We've got something 3 that I hadn't seen in a while. I don't know if you had. 4 I've got a 500-and-something life group with 154 percent loss 5 ratio, and they were properly rated for their demographics 6 area. They just got so unlucky. It happens. And, you know, 7 I've seen a 155 percent loss ratio, but not on a 500-life 8 group. What are we going to give them? Well, they got a 12 9 last year, 'cause they weren't too healthy then either. 10 They'll get a point or two above the pool, 'cause the pool's 11 running good. I've already got my Blue Cross renewal. Our 12 admin's going up 2.8 percent. Our stop loss is going up 13 zero. Our dental admin is going up zero, so we're happy, 14 they're happy. 15 MR. LOONEY: I think one of the things, though, 16 that -- that -- correct me if I'm wrong, is that any time you 17 operate a pool, you try to protect the entire pool, so you're 18 careful about the, like you say, demographics and everything 19 else when you bring it into the pool. So you don't want to 20 spoil the pool by going out and getting a 155-man loss ratio 21 and offering them a 10 percent, you know, guarantee on rates 22 -- rate to bring them into the plan. So -- 23 COMMISSIONER LETZ: Right. 24 MR. LOONEY: -- there is underwriting that is done 25 from their standpoint to protect the overall pool. 5-18-11 wk 37 1 COMMISSIONER LETZ: Right. 2 MR. NORWOOD: That's initially. The renewal 3 underwriting is very different, because that's where we 4 spread everything out. For instance, we'll know that we'll 5 probably have two, maybe three sets of premies in any given 6 year with the current 40,000 life membership. I can -- I 7 have no clue where they're going to pop up in the state this 8 year. We got $800,000 set up in an appraisal district with 9 three lives. We haven't had any new appraisal districts in 10 close to 10 years, for obvious reasons. But, actually, we 11 have this county's appraisal district, and have for many 12 years. But we'll never see that money again, but that's just 13 the way it works. You know, it's going to be a big county -- 14 one of our 1,600-life counties one year, and a three-life the 15 next, and that's how it works. So, our job is to spread it 16 out. We know you're a TAC-supporting entity; you own us. 17 You have access to the senior management, and no employee is 18 paid commissions or bonuses of any kind related to adding 19 groups to the pool. It's just our job. 20 COMMISSIONER LETZ: Well, how does TAC handle 21 AFLAC-type coverages? 22 MR. NORWOOD: We don't. What we've noticed is that 23 every county has got an AFLAC or Colonial or one of those 24 sort of -- 25 JUDGE TINLEY: Supplementals? 5-18-11 wk 38 1 MR. NORWOOD: Yes, sir, carriers. And rather than 2 get in and try to interfere with the local guy who's making a 3 living doing that, it -- it would take a lot of manpower to 4 do it, and there's just no benefit to us, so we don't. 5 COMMISSIONER LETZ: So, that's just handled 6 off-table? 7 MR. NORWOOD: The counties don't ask us for it, and 8 they've already got one or two on their payroll slots anyway. 9 I'd rather spend our time -- you know, like, if I can get the 10 changes in our prescription drug -- drug contract like we got 11 last year, we picked up close to $600,000 just with two or 12 three little changes in that contract. Well, that worked out 13 to over half a point, and that came straight -- we just 14 passed it straight through to the entire membership, 15 including self-funded groups. 16 MR. LOONEY: Y'all can handle a web-based 17 enrollment? Third-party web-based enrollment? 18 MR. NORWOOD: Well, what we do, we've got -- I 19 think the answer is yes. Let me tell you what we do, and 20 then tell me if this -- we've got an electronic enrollment 21 system called OASys online administration system. We train 22 your people here in the courthouse, and they enter it 23 realtime. It comes in, it's loaded into our system, which is 24 run by the large consulting firm Towers Watson. And we 25 upload our prescription drug and medical and all the disease 5-18-11 wk 39 1 management and all the different people that need to have a 2 membership; we upload that. 3 MR. LOONEY: Okay. 4 MR. NORWOOD: So it's all done electronically. We 5 don't need applications, that sort of thing. 6 MR. LOONEY: That's the way we do it. 7 MR. NORWOOD: We do the same thing on life. You 8 don't -- we don't even send life company applications. We 9 send them how many people and what county, and we have the 10 rate of that county, and they cover them. And when somebody 11 dies, we send them a copy of the application, which is -- 12 usually the original's here in the county. Kelly, would you 13 -- would you mind passing out the handouts? And, Judge, if 14 it's all right with you, may I offer to just take questions 15 as they come? And -- 16 JUDGE TINLEY: Whatever way works for you. 17 MR. NORWOOD: Okay. Otherwise, I'll -- 18 JUDGE TINLEY: If there's any. Okay. 19 MR. NORWOOD: This is just a little summary we put 20 together, and I'd like to direct your attention to the 21 right-hand lower part that says TAC H.E.B.P. Basic. 22 "H.E.B.P." is Health and Employee Benefits Pool. We operate 23 as a self-insured pool, but we do not carry aggregate stop 24 loss; we don't need it at our size. And we've got over 25 $70 million in reserve, which our actuaries think is way more 5-18-11 wk 40 1 than comfortable. We do carry individual stop loss at 2 400,000. If a county comes to us self-funded, we will set 3 that stop loss at whatever level that they wish. We'll take 4 the risk between that and the 400, and then Blue Cross steps 5 in; they are our stop loss carrier at the moment. 6 And I'd like to stop at that point and say 7 something that your County Attorney may want to research, but 8 as the insurance folks in the room know, stop loss is a tough 9 business, and sometimes they can be tough people, and 10 sometimes not. But when you have a really bad year, and some 11 folks don't get real sick and then go off the group; they get 12 real sick and they stay and they're still having claims, you 13 are very likely to have what's called a laser attached, where 14 if your stop loss was 60,000, they may make it 125 or 200, or 15 in one extreme case we saw on about a 100-life group, we saw 16 a million dollar benefit where they put a $950,000 laser on 17 it, so the county only had 50,000 in coverage. And funny 18 enough, that was their attachment point, so there was no 19 insurance. We don't do stuff like that. We do not -- we 20 will occasionally laser in the very beginning, and then pull 21 it off as soon as we can. And we do that rather than 22 declining a group. We'll offer you a choice. We can either 23 -- we can't take the risk, or we'll take it with a separate 24 laser on this individual. But we never, ever laser at 25 renewal. 5-18-11 wk 41 1 JUDGE TINLEY: That's the first year hickey to not 2 burden the pool? 3 MR. NORWOOD: That's right. And if the case is 4 still there -- we had a real tough one out east five, six 5 years ago with a long-term children's disease, and we kept 6 the laser on for a couple of years; two, maybe three, and the 7 county funded for it in the beginning. Paid out one year on 8 it, never happened again. We took it off. We will not 9 laser. The thing about your County Attorney looking at it, 10 though, is it's routine in this business for a stop loss 11 carrier to ask for an update on the claims, either through 12 the plan year or right up until 30 days before or something 13 like that. I think if you look at Chapter 262 of the Local 14 Government Code, the purchasing code, I don't see anywhere in 15 there that that sort of thing can be done, and have a rate 16 change after the award of a contract. 'Cause there is a 17 specific section about modification after award, and this 18 doesn't meet the criteria. It talks about second highest 19 vendor and doing this and doing that. 20 Well, I think there's a problem with a stop loss 21 questionnaire, so we don't have one. What we do is we pull 22 your date -- like, with our 10/1 groups, which is most of 23 them, we'll shut the claims off at the end of April. We just 24 got our big data dump yesterday. We're working with the 25 actuary through the end of the month. We'll allocate them on 5-18-11 wk 42 1 the various groups, including the self-funded groups, and 2 we'll go out with a rate, and if you have an awful claim that 3 happens between when we get your rate out July 4th or so and 4 10/1, then that's why we're providing coverage. We're not 5 going to -- yes, sir? 6 COMMISSIONER LETZ: We're on a calendar year. 7 MR. NORWOOD: That's fine. 8 COMMISSIONER LETZ: How -- it's not a difficult 9 switch? I mean, how would you get the, I guess, actuarial 10 data to get -- shift us to a 10/1? 11 MR. NORWOOD: Well, you don't have to shift to a 12 10/1. Is your fiscal year 10/1 or 1/1? 13 JUDGE TINLEY: 10/1. 14 MR. NORWOOD: 10/1. You might want to have a 10/1. 15 But it's -- 16 MR. LOONEY: You know, we can use either one you 17 want. 18 MR. NORWOOD: You can. Those are the two most 19 common, 'cause as you know, counties can use either one for 20 253 counties, and then Harris is March. 21 COMMISSIONER LETZ: Seems it would be more -- make 22 more -- 23 COMMISSIONER BALDWIN: The state of Harris. 24 COMMISSIONER LETZ: -- sense to go to the 10/1. 25 MR. LOONEY: Only reason we did it, Commissioner -- 5-18-11 wk 43 1 or one of the reasons we did it is because the plan documents 2 themselves for the delivery of the health care product is a 3 calendar-year product. 4 COMMISSIONER LETZ: Mm-hmm. 5 MR. LOONEY: So they were trying to match premium 6 to benefit year. 7 MR. NORWOOD: We -- ours are all -- our benefits 8 are all calendar year, and our A.D.'s, anniversary dates, are 9 mostly 10/1, but we have a -- I don't know. Probably got 10 half a dozen, or eight or nine 1/1's. That's fine. I just 11 let the renewal out a month, maybe two months later. But you 12 will have your renewal in time for your budget. 13 COMMISSIONER LETZ: Okay. 14 MR. NORWOOD: That's -- 15 COMMISSIONER OEHLER: That would be nice. 16 COMMISSIONER LETZ: Okay. 17 MR. NORWOOD: If you're a 10/1, you're going to 18 have your renewal -- self-funded, fully insured, matters not. 19 You'll have your renewal by July 4th or right after that 20 weekend when we mail ours, because our counties want that, 21 and those 11 people on my board will tell me that. That's 22 what happens. But we also have some 11/1's and 12/1's. 23 We're not that picky. As long as you can get it in between 24 10/1 and 1/1, it's pretty easy, 'cause we can do it all. And 25 if I look at my app data and I need to update May and June 5-18-11 wk 44 1 for an 11/1 or 12/1, that's not hard. May 1 kind of messes 2 me up. That means I have to do the whole process for one 3 group. 4 MR. LOONEY: Yeah. 5 MR. NORWOOD: And so sometimes we'll do 15- or 6 18-month contracts for the first time or the first renewal to 7 get them in sync, and that's not hard either if we know up 8 front. So, you know, we know what you're doing and we know 9 that if we clearly understand it, and you're committed to a 10 long-term relationship, normally, unless something really 11 awful is going on that would hurt the rest of the pool, we 12 can take a group first year. Not always, though. But we 13 don't like to decline them; I'll tell you that. 14 COMMISSIONER OEHLER: Just -- you're saying that 15 you would take us this year? 16 MR. NORWOOD: No, sir. 17 COMMISSIONER LETZ: He's saying -- he said they may 18 take us. 19 MR. NORWOOD: I saw that twinkle. 20 COMMISSIONER OEHLER: Well, I had to ask, Gary. 21 (Laughter.) 22 MR. LOONEY: Give it to him right now. 23 MR. NORWOOD: Sign up. We're not going to worry 24 about actively-at-work clauses. I saw that you wanted it 25 waived in your last RFP. That's fine. Talks about the OASys 5-18-11 wk 45 1 administration system, no state premium tax. We -- those of 2 you who knew our just departed general counsel, Bob Lemens, 3 probably don't know, but he worked with Tony Korioth and got 4 a low exemption bill filed about 20 years ago to take care of 5 that. And we know our way around the Local Government Code. 6 Everything we do is going to be in compliance with Chapter 7 172, Chapter 157, Chapter 262. We will not put you in any 8 kind of awkward audit situation due to any state statutes. 9 Coming up to the top left -- well, let's look at 10 the little chart, since it's kind of the pretty part. It 11 just shows our renewals for the last -- well, since '05. 12 And, you know, market trend is a real subjective figure. We 13 were seeing those 14's and 15's and 16's back in 2000 and 14 2001. They were dropping down into the low 10's in '02, but 15 by the time we got to about '04, maybe '03, something in that 16 range, the market was still up in the 10 and a half to 12 17 range, but we were able to get down single digit. One year, 18 the year before is on this chart, we actually had a premium 19 decrease of 2 and a half percent, but I don't ever want 20 someone to expect that. And I'll tell you why we had it, 21 because when we took this pool self-funded -- we were on a 22 minimum premium contract. When we took this premium -- I 23 mean pool self-funded, I went in at full market rates that 24 first year. 'Cause, you know, we started with 10 million 25 bucks or a little less in the bank, and I knew that wasn't 5-18-11 wk 46 1 enough, and so we had to get a lot more, and we needed it 2 quickly. Once we got those reserves up in the 40 to 50 3 million range where they were adequate, we chopped the rates, 4 'cause I had a reserve factor in there, and I didn't need any 5 more. Now we don't have to develop reserves. We depend on 6 the long-term loyalty of the counties to make sure our 7 run-out's covered and that sort of thing. 8 If you leave the pool, you don't take your claims 9 with you. We act just like a fully-insured carrier. If you 10 leave the pool, we take care of the run-out claims. And I 11 will tell you that I set up my stop loss for the pool, that 12 400,000 and up we spoke of; we set that up on a 12/18 13 contract. I'm scared to death of large claims that get stuck 14 in hospital audit, because sometimes you don't know about 15 them. A lot of times you do, but a lot of times -- they 16 don't have to happen on 12/30. They can happen on 11/30 or 17 even 10/30, and they -- they show up four months later for 18 something like that, 'cause they've been in audit. And it's 19 not the little ones that do that. So, we've got a six-month 20 run-out just to protect us against the million dollar ones. 21 We have no stockholders to satisfy, and I think a lot of the 22 reason we're talking about these things, it's the same thing 23 you mentioned early in this meeting about our worker's comp 24 program. Last year, in addition to that 8.1-something 25 percent renewal average, we gave back $5.5 million in renewal 5-18-11 wk 47 1 credit, same kind of credits you're used to getting on 2 worker's comp. It's done one-fourth on longevity since 3 10/1/01, and it's done three-fourths on contribution to 4 surplus. And so the groups with the better records, just 5 like worker's comp, get more money. 6 We took Grayson County on probably five years ago, 7 and we all really -- they were coming off some awful years. 8 And it wasn't anything they were doing wrong. I had no 9 suggestions for them. It's just that our network can buy 10 claims cheaper than your network can, so even if you run 11 awful, you'll run less awful running through the Blue 12 network. And it worked out, and then they got lucky, and the 13 last two years we've sent them over 600,000 a year. And -- 14 but someday that's going to go away. Someday they're going 15 to have another bad year again, and it's going to drop to 16 their longevity credit a year. But we do a three-year 17 average for that, contribution to surplus, so it doesn't 18 react strongly to a really good year or a really bad year. 19 We even it out over 36 months. So, that's something you can 20 count on. 21 COMMISSIONER OEHLER: How long will it be before 22 you're able to make an assessment on whether you would be 23 able to take us or not? 24 MR. NORWOOD: If we had all of your underwriting 25 data, including the report Mr. Malek spoke of -- that's the 5-18-11 wk 48 1 run-out report that's got that 25,000 from last week and 2 everything up to right this instant. If we have that so we 3 can see a solid 24-month picture, we'll know in a week or 10 4 days. 5 COMMISSIONER OEHLER: Okay. 6 MR. NORWOOD: We need details on the high claims, 7 if there are any. But that's one of the changes. You know, 8 the good and bad that was mentioned about going self-funded 9 to fully insured and back and forth and all that. Well, when 10 you are where you are now, which is fully insured from a 11 self-funded, you have to patch things together to get a good 12 look, and sometimes it's hard to do that. 13 COMMISSIONER OEHLER: Mm-hmm. 14 COMMISSIONER LETZ: Is there a -- is it a two-step 15 process or one-step process? Is it one step to see if we can 16 be admitted into the pool? If we can be accepted, and then 17 the second step would be to figure out the exact plan? Or -- 18 MR. NORWOOD: No, sir. 19 COMMISSIONER LETZ: Or done simultaneously? 20 MR. NORWOOD: We would just ask you to give us one 21 or two -- we're pretty flexible on plan. We found out at the 22 break, there's -- somehow, it's been mentioned around here 23 that we only have one plan, or only have a few. For a group 24 your size, we'll suggest some of our standard plans, because 25 we know they work, and we've got the incentives for good 5-18-11 wk 49 1 utilization in the right place. However, if you want to 2 tweak your deductible or your co-pay or, you know, all the 3 stuff people usually want to tweak, that's fine. We can do 4 -- we can administer it. We can do it. We just would rather 5 not get into anything that's going to lead to bad 6 utilization. Like, if you want 100 percent hospital benefit, 7 we'll probably completely decline, but -- 'cause we don't 8 want people in the hospital. The whole idea is to have them 9 not there. So, no, sir, it's kind of a one-step deal. If we 10 get it, then we'll quote on that, and then once you come to 11 court, I've got what's called a declaimant table that has all 12 my factors in it, or most of the things you'll be interested 13 in, and we can adjust on the spot if you need it. 14 MR. LOONEY: Normally what we do, Commissioner, is 15 put this in the RFP process; it wouldn't be just a singular 16 response. It would be part of that RFP process, responding. 17 MR. NORWOOD: That brings to mind one thing I 18 failed to mention when I was talking about the three-year 19 contract, is we don't operate under the three-year contract. 20 We operate under an interlocal with you, because the -- TAC 21 itself is a 501(c)(4) nonprofit, but TAC does not run any 22 pools. The pool is a political subdivision under Texas law, 23 so it contracts via an interlocal with you. And the same 24 with your worker's comp; they're identical in that respect. 25 And there is no renewal other than continuing in the program, 5-18-11 wk 50 1 and adjusting once a year for rates and benefits as you see 2 fit. We've got enormous leverage, obviously, out in the 3 market. And for our prescription drugs, we don't just take 4 our 40,000 to market. We have formed another pool called the 5 Public Employees Benefit Pool. The other primary member is 6 Texas Municipal League, but we have a number of independent 7 cities in the Dallas area, a few elsewhere, and so we take 8 about 85,000 lives to market, and we have a fairly good 9 prescription drug program. And I don't know if you'll agree 10 with this or not, but, you know, at this point in my career, 11 I think I've got most of the money hidey holes figured out in 12 business, but I will tell you that I don't on prescription 13 drugs. There are more places for everything, from the big 14 manufacturers right down to the pharmacy benefit managers or 15 the TPA's who run a PBM contract through their organization. 16 There are more ways to hide money, move money around. It's 17 just amazing. 18 MR. LOONEY: You know, I was on that -- gave 19 testimony in front of the House on the ERS program, about 20 where they were hiding money. I know exactly what you're 21 talking about. 22 MR. NORWOOD: The ERS actuary and our actuary are 23 one and the same people. We were just talking yesterday 24 about the difference in maximum allowable cost for generics 25 at mail-order versus our very aggressive average wholesale 5-18-11 wk 51 1 price discount, and the fact that in many cases, many more 2 than I would have thought, we've been able to figure out that 3 our local drug stores are getting a better deal than our 4 mail-order is. And the PBM will be honest enough, if you 5 beg, to tell you that they make their money on generics, and 6 they especially make their money on mail-order generics. 7 MR. LOONEY: Mail-order. 8 MR. NORWOOD: We just didn't realize. It's -- so 9 we're learning new stuff every day, just like everybody else. 10 COMMISSIONER OEHLER: I tell you with Humana that 11 we've been through some drug research, and most times their 12 mail-order stuff from their pharmacy is higher than H.E.B. 13 MR. NORWOOD: The actual drug cost to the county 14 doesn't surprise me. 15 MR. LOONEY: 'Cause the PBM was the last bastion 16 for insurance companies and everybody else to hide dollars 17 and revenue, and we've been carving it out, you know, 18 whenever we can. 19 MR. NORWOOD: We're on no administration charges. 20 I've got my guaranteed rebates up to an all-time high; I've 21 got my guaranteed dispensing fee. Well, mail-orders, there's 22 not one, but we're at 75 cents on retail. That's better than 23 most folks. And then we find another loophole just a few 24 weeks ago; it's just amazing. So, we'll be in town next week 25 to talk. One of the things we do -- you know, there's only 5-18-11 wk 52 1 two ways to save money on health care. This is probably one 2 thing I'll say that will be worth remembering. You can 3 either pay less for health care, the health care you use -- 4 call it a unit cost, if you will; a day in the hospital, an 5 operation, a pill. You can either pay less for each health 6 care unit that you use, or you can use less health care. 7 That's it. That's the only two ways to save money. 8 And it's a system -- companies like Aetna and 9 United and Blue and the bigger ones have carved most of the 10 discounts out of the docs and hospitals. They're going to 11 get, occasionally -- there's a big pay-for-performance 12 initiative right now that's going on, and that'll change 13 things for a while, 'cause Medicare is going to be involved. 14 But we've still gotten some pretty big discounts, you know, 15 and I don't think there's much ground to be made up there. 16 However, we've got to get people, including all of us, to use 17 less health care. And so we have a three-person full-time 18 wellness staff, and they do everything from health fairs to 19 programs that are statewide that encourage activity, 20 encourage wellness, have contests. They're very creative 21 folks, and they do all kinds of stuff, and we'd be happy to 22 have them available to you, 'cause they're available to all 23 pool members. We pay for a lot of it. 24 As part of that, we have what's called Medicine 25 Match, which is our fancy name for a value-based benefit 5-18-11 wk 53 1 design. We think that medication is not being -- you know, 2 you think we'd want you to take less drugs, but for certain 3 things like heart disease, high blood pressure, cholesterol 4 meds, asthma, choles -- I already said cholesterol, pardon 5 me. We want you taking your medications. So, we did a 6 survey four years ago, and we learned that our medication 7 possession ratio was in the 30-something percent, depending 8 on which category you're talking about. That's horrible. If 9 you can get it above 80, you're doing pretty well, 'cause 10 that allows for folks that are stopping and starting and all 11 that. Most of the theorists in this area don't think you can 12 get too far above 80. Well, we've got them all above 80 now. 13 Because if you have one of those conditions, and if 14 you will participate in our Blue Care Connections condition 15 management program, they'll let you talk with a nurse, and if 16 you do things that they say, watch your diabetes conditions 17 and that sort of thing -- if you'll do those things, very 18 simple things, we will pay for half of your prescription 19 drugs, whether they're generics or brand name. We don't tell 20 you which to choose. That equation stays between you and 21 your doctor. But whatever it is you buy in those categories, 22 the pool will cover half of it, because it's a lot cheaper 23 than amputating something for a diabetic. All we have to do 24 is to save a couple of hospitalizations a year, and we've 25 saved $400,000, $500,000 on those type things, and that's 5-18-11 wk 54 1 good for everybody. 2 We also think it's a neat service for the county 3 employees, 'cause they don't always make as much as everybody 4 on the Court would like them to make. I mean, we've all got 5 to deal with these budgets. This is a way of helping them in 6 a way that they find meaningful when they need it. We've 7 seen our per-participant, per-month cost come down in those 8 categories. We have no upward trend in those categories; we 9 have a decrease, because our people are properly taking their 10 medication and doing other things they should do. Is it 11 everything that it should be? No, not even close. I know 12 we've got a lot of identified, but nonparticipating 13 diabetics. We -- we have no idea why more people aren't 14 signing up in that, so that's going to be one of our focus 15 areas. 16 MR. LOONEY: Blue Cross is putting a lot of 17 emphasis in that area right now statewide. 18 MR. NORWOOD: What we do is combine with Blue Cross 19 for their condition management that we buy, and we add our 20 money and our program for the medicine match, and they're 21 working beautifully. We have no-cost allergy shots. You 22 know, you go in, have the workup, spend the co-pay, get all 23 identified and figured out, and if you're bad enough, they 24 have you take shots periodically. You know, you don't see 25 the doctor. You go in, somebody gives you the injection, and 5-18-11 wk 55 1 you're back out. We've arranged our plan designs where 2 there's no charge for that. Our standard prescription drug 3 program encourages tobacco cessation. We'd like you to take 4 that -- what is it, Kelly, 120 days? 5 MS. KOLODZEY: Pardon? 6 MR. NORWOOD: Is the tobacco cessation, the initial 7 duration 120 days? 8 MS. KOLODZEY: 120 days, set fee. 9 MR. NORWOOD: We hope that it's having an effect. 10 We only started that a couple years ago. But, you know, it's 11 sort of like losing weight; it takes some repetitive 12 activity, from what we're understanding. But we think that's 13 worthwhile. 14 JUDGE TINLEY: Once a year? 15 MR. NORWOOD: Sir? 16 JUDGE TINLEY: Once a year? 17 MR. NORWOOD: No, it's any -- I mean, it's not a 18 campaign. 19 MR. LOONEY: A one-time -- 120 days, one time. 20 JUDGE TINLEY: Yeah, per policy year. 21 MS. KOLODZEY: I was going to say -- I said set 22 fee. What we do is we changed the co-pay. It doesn't go 23 with your prescription drug plan, whatever you choose. It's 24 a set $30 per month for your medications, whether it's 25 Chantix or whatever. 5-18-11 wk 56 1 MR. NORWOOD: Per fill. 2 MS. KOLODZEY: Per fill -- well -- 3 MR. NORWOOD: Don't we give them the 120 at once? 4 MS. KOLODZEY: 120 days up front, then $30 co-pay 5 for your 30 days after that. So, what we've done is set that 6 so it doesn't matter whether it's brand name or not. It's 7 kind of a -- a combined co-pay, so it's more affordable. And 8 if they'll work the program and take these medications, it 9 works pretty well. They constantly work on our return on 10 investment on those things. But we know people personally 11 who've done it; they tell us about it, and so we think it's a 12 good program. 13 MR. NORWOOD: By the way, on the medicine match, 14 now we finally get to this self-insured versus fully insured. 15 On the medicine match program, where we're paying half of 16 those critical prescription costs, if you're self-funded, you 17 put up the money for the half. If the pool is paying the 18 claims, we put it up. The reason for that is the return on 19 that investment comes in the lower claims. So, we'll provide 20 you with the data; we'll show you how successful it's been. 21 You won't have to take a leap of faith like we did three 22 years ago. And we hope if you choose to come in self-funded, 23 we hope that you'll go that way, because it's not something 24 you're spending. You're investing, and you will get a return 25 on it. At least that's been our experience. But believe it 5-18-11 wk 57 1 or not, we have a couple of self-funded groups that have 2 chosen not to do that. I think that's 'cause we haven't had 3 this kind of discussion with them. 4 Our medical network, you've already referenced Blue 5 Cross/Blue Shield. Our pharmacy is CVS Caremark; eligibility 6 is Towers Watson. We had to build it custom for us, didn't 7 buy it off the shelf. It's set up for county people to be 8 able to do it easily in their offices, and we have trainings 9 periodically, and if a new group comes on, we'll come out and 10 train them, or we'll bring the person into Austin and train 11 them, pay the expenses for doing that. We want you 12 proficient in that. Life insurance, if you elect that, we do 13 through Dearborn National. We just got a 10 percent across 14 the board. But, of course, for those in the room who know 15 the business, what they really want to know is how hard we 16 had to work for that. Not hard at all; it was way too easy. 17 That meant we've been paying too much. Well, at least we're 18 not now. 19 JUDGE TINLEY: What's is that -- what's that rate 20 currently? 21 MR. NORWOOD: It varies by county. 22 JUDGE TINLEY: Okay. 23 MR. NORWOOD: See, our average age -- our average 24 county age is between 47 and 48, so we're about four years 25 older than the state, which makes us a great candidate for 5-18-11 wk 58 1 testing disease management or condition management programs, 2 because we're going to not be quite as healthy as a 3 38-year-old -- you know, pick your business around here that 4 has an average 38 age. So -- even the state. But our claims 5 are running very competitive compared with the state, 'cause 6 we've been a lot more aggressive than ERS has in some of the 7 things we've done. To be fair with them, you mentioned -- 8 MR. LOONEY: You don't have to be fair with them. 9 (Laughter.) 10 MR. NORWOOD: Well, they have the Legislature to 11 deal with, and we don't. Not always, anyway. And it -- that 12 is such a difference. 13 COMMISSIONER LETZ: Gary, what's our average age? 14 Do you know? 15 MR. LOONEY: The last time I looked, I think it was 16 43. 17 MR. NORWOOD: That's really good. So, what happens 18 -- let's say it is 43. That would mean that it's an extra 19 percent below us, and so we would look to that demographic 20 factor, and we do adjust everything we propose to -- 21 AUDIENCE: Forty-eight. 22 MR. NORWOOD: -- write. 23 MR. LOONEY: We were getting ready to relieve a lot 24 of the people off the group, though, that were in that range, 25 so that's going to lower the average age. 5-18-11 wk 59 1 MR. NORWOOD: Do y'all keep retirees on your plan? 2 MR. LOONEY: It's a -- 3 MR. NORWOOD: Do they go off on a supplement? 4 JUDGE TINLEY: We've chopped them off now. 5 MR. LOONEY: Yeah, we chopped them off. 6 JUDGE TINLEY: But we -- no, going forward, we've 7 still got some. Fourteen? 8 MR. NORWOOD: Chop them off Medicare eligibility, 9 or -- 10 MS. HARGIS: Four. 11 JUDGE TINLEY: Ms. Hargis, we got four? 12 MS. HARGIS: Four. 13 JUDGE TINLEY: Okay. 14 MR. NORWOOD: Well, they will be your four sickest 15 ones, probably. But -- so, to the question about the age and 16 the factors, if a group is a lot older, they're going to cost 17 more, and we're going to adjust for that. And what I want to 18 do is get everybody priced fairly, according to every 19 reasonable standard I know, actually, so that when they have 20 a bad year, I don't have to do the insurance company thing. 21 I don't -- I don't ever want to give a 20 to 40 percent 22 increase to a member. You know, we'll -- we'll allocate 23 reserves; we'll do anything we can do. If that member is 24 staying in the pool for all the right reasons, then we 25 have -- it's our responsibility to rate them right. And 5-18-11 wk 60 1 we're never going to be the cheapest deal in town every year. 2 There's always somebody that can come in and buy your 3 business, 'cause we will not buy business. I can't do that 4 with my members' money. It's that O.P.M. thing again. 5 MR. LOONEY: That's why you keep me around, 6 Jonathan, 'cause I beat him up all the time. 7 MR. NORWOOD: That's right. But I'm not as 8 beatable as a commercial carrier is, because when I got to go 9 sit with those board members, and they go, "You gave them 10 what?" And in -- and, honestly, we will not -- we will not 11 buy a piece of business to get it. I don't want any business 12 bad enough to do something that our other members would find 13 unfair. 14 COMMISSIONER LETZ: Sure. 15 MR. NORWOOD: Always have to be able to answer that 16 question properly. 17 COMMISSIONER BALDWIN: Bill? 18 MR. NORWOOD: Yes, sir? 19 COMMISSIONER BALDWIN: I want you to talk just 20 briefly about how TAC is set up. I think that that -- I 21 think that that is an important issue, how the executive 22 board is made up of elected officials, clerks, J.P.'s, 23 commissioners, judges, and everybody, and how that -- that 24 board basically oversees the pool and works in that pool. 25 MR. NORWOOD: Okay. TAC, the nonprofit, the major 5-18-11 wk 61 1 organization that all of us work for -- the pools don't have 2 any employees; we all work for TAC. It is governed by -- 3 in-house, we call it the big board, and every county office 4 is on there, normally represented by the heads of the 5 different organizations. As you mentioned, the treasurers, 6 the tax assessors, the clerks, commissioners and judges. And 7 for some of the larger groups where there's multiple -- like 8 a court, where there's five members, we'll have the north and 9 east and the south and the west, that sort of thing. And 10 then we have some ex-officio members who are longtime board 11 members who are very experienced in county government. They 12 won't vote, but they're there to guide and just be helpful, 13 and they are. And that group employs our Executive Director, 14 Judge Gene Terry, and Rex Hall, our Associate Executive 15 Director, and they hire and fire the rest of us. And we have 16 a management contract with each of the pools. 17 And the pools, we have the unemployment pool, which 18 is really more of a pass-through organization. And then we 19 have the risk management pool, which is all the stuff besides 20 health. It's the liabilities, the property, the auto, and 21 importantly, the worker's comp. They used to be separate, 22 but now it's under one board. I forgot how many are on it. 23 We've got 11, and I think there are 13 or 15. And those 24 county officials set policy for those boards, and so does my 25 H.E.B.P. board. Judge John Thompson from Polk County is the 5-18-11 wk 62 1 chair. And I don't know if y'all know this or not; Lee 2 Dildy -- Commissioner Lee Dildy from Bastrop is the vice 3 chair; he passed away last Friday suddenly, and we really 4 miss him. You know, terrific board member. And so we have 5 those 11 people. They make operating decisions on a policy 6 level for the board. And then our staff, who operates with 7 the management contract from TAC, implements what the board 8 and the Executive Director instructs us. 9 Fast forward to the budget season. We submit 10 department budgets that are rolled into the TAC budget. Each 11 of the pool boards looks at those -- like, my board comes in 12 in early November and they look at the H.E.B.P. budget. 13 Those are then given to the service board, which is a small, 14 but very intense, group of folks that are the chairs of each 15 of the boards, and they look at the whole thing and they make 16 recommendations. And then in early December, that goes to 17 the big board which we spoke of earlier that governs TAC, and 18 they approve, disapprove, or modify our entire budget, and we 19 go forward into the next fiscal year. And those fiscal years 20 are our calendar years. Did that -- 21 COMMISSIONER BALDWIN: That's exactly -- you hit 22 the nail on the head. It's just -- basically, the thing is 23 run by guys like you and me. Which is a -- 24 MR. LOONEY: That's a scary thought. 25 COMMISSIONER BALDWIN: That's a scary thought. 5-18-11 wk 63 1 (Laughter.) Maybe Gillespie County. 2 COMMISSIONER OEHLER: That's exactly what I was 3 thinking. 4 COMMISSIONER BALDWIN: Maybe Gillespie County. 5 That may be -- you know. 6 MR. NORWOOD: Well, we have training. If you -- if 7 you look in Chapter 172.01, I think, or something like that, 8 there are four areas of training, four hours each. I don't 9 like the way they wrote the statute, 'cause I don't have 10 flexibility -- I mean, we have to do four hours on fiduciary 11 responsibility, other legal aspects. That -- you know, short 12 of a law school class, that's a long time for a board. And 13 the exciting one is four hours on actuarial principles and 14 underwriting. Anyway, they suffer through all this, and 15 they're pretty well prepared to be board members, especially 16 after the first year or two. It's a lively bunch. We get 17 good decisions from them, and they don't always agree with 18 each other, and they sure don't always agree with us. 19 JUDGE TINLEY: Any more questions for Mr. Norwood? 20 COMMISSIONER LETZ: Very informative. Thank you. 21 MR. NORWOOD: Okay, thanks very much. 22 JUDGE TINLEY: Thank you. We appreciate it. 23 MR. NORWOOD: And if you think of other questions, 24 we're at the 800 number, and be happy to take the calls. 25 JUDGE TINLEY: Mr. Lemens? 5-18-11 wk 64 1 MR. NORWOOD: Bob retired. 2 JUDGE TINLEY: I wasn't aware of that. 3 MR. NORWOOD: He retired the end of January. Out 4 at his ranch now, and -- but you knew he wouldn't really 5 retire, so he is of counsel, especially during the 6 legislative season, and you can find him in the law library 7 about three days a week. 8 JUDGE TINLEY: Okay. 9 MR. NORWOOD: And our new General Counsel, Karen 10 Gladney, who's been Associate General Counsel for something 11 over 10 years, and that's who we were working with yesterday, 12 and Paul Sugg, our Legislative Director, to get that 13 legislation written. 14 JUDGE TINLEY: Okay. Thank you, sir. We 15 appreciate it. 16 MR. NORWOOD: You bet. Thank you. 17 JUDGE TINLEY: Mr. Ward Jones has filed a 18 participation form relative to -- I believe it says medical 19 insurance. I assume we're talking health benefits? 20 MR. JONES: Yes, sir. 21 JUDGE TINLEY: Okay. 22 MR. JONES: Thank you, Judge and Commissioners. I 23 think I briefly met each one of you, but just to give you a 24 very brief background, I celebrated my 43rd year in the 25 insurance business, the last 17 of which I've owned an 5-18-11 wk 65 1 employee benefits firm called Benefit Choices Company, which 2 is based here in Kerrville. I believe I'm the only one 3 speaking today who's actually -- from an insurance 4 standpoint, is actually a taxpayer in both Kerrville and Kerr 5 County. So, I don't have a dog in the hunt from the 6 standpoint that I am receiving any remuneration from the 7 current programs, but I do have a dog in the hunt from the 8 standpoint that I pay taxes here. And so I wanted to make 9 some remarks based on my background, and these certainly are 10 not reflective of anybody you currently have on your team or 11 have had on your team. These are just observations from 12 conversations I've had with several of you, and several of 13 the meetings I've attended, and the look that I've had in the 14 past couple of years at your insurance programs from outside 15 in. 16 First of all, I'd agree with everything that's been 17 said as far as the federal law is concerned, and I'll add one 18 thing to it. The State of Indiana has just applied for a 19 waiver of the -- the maximum loss ratio provision of the act, 20 so we've gotten to the point where the waivers are, at this 21 point, defeating what was the original purpose of the act. 22 So, where we're going, nobody knows. I agree totally with 23 that. As far as trend is concerned, self-insured to fully 24 insured, this has been cyclical over a number of years. You 25 can go back and see where self-insured was the hot thing 10 5-18-11 wk 66 1 or 15 years ago, and it went all the way down to groups of 2 100 employees. I've even seen as many -- or as few, rather, 3 as 50 employees in different locations in the state go to 4 that type of an approach. Then it fell out of favor for 5 various reasons. The -- the stop loss insurance market 6 hardened, et cetera, et cetera. We went to fully insured, 7 and then we're back now to self-insured again. So, those 8 things are going to change regardless of what plan you go 9 with, regardless of what carrier you go with. 10 But I think, from my observation, that maybe the 11 cart has been put before the horse. I don't see the 12 establishment of a set of priorities in this area, which I 13 think is basic to what kind of plan you adopt. And let me 14 explain what I mean. You can either take a defined benefit 15 approach -- I'm going to use an analogy of pension 16 planning -- or you can take a defined contribution approach. 17 Your defined benefit approach says, "This is what we're going 18 to do for our employees. These are the limits to the plan 19 that we're going to provide." The defined contribution 20 approach says, "We've got this much money to deal with, so 21 what can we buy for this amount of money based on our 22 budget?" Where you get into complications is where you try 23 to provide a combination of those two. And I would suggest 24 that certain areas of your current program that have what 25 would I call hard and fixed applicability, such as paying 5-18-11 wk 67 1 portions for maybe your dependent costs -- I'm not saying you 2 should do that or not, but these are things that I think you 3 need to look at in terms of the marketplace, in terms of the 4 ramifications of doing those types of things. That is the 5 job of your broker or consultant, to help lead you through 6 that. 7 I would say that you need a mini task force put 8 together to determine, do you want to go defined benefit, or 9 do you want to go defined contribution, and what are the 10 ramifications for the employees and the taxpayers in that 11 regard? Again, this is not to speak of anybody on your 12 current team, but it is extremely unusual to have both a 13 consultant and a broker, and to be paying both. You're 14 paying double for the same -- same information, okay? I 15 think that until you get those definitions down, that 16 definitive approach as to where you want to be and where you 17 want to go, and where you want to take your employees in 18 terms of benefits, then this constant back and forth of, "Are 19 we going to go defined benefit or are we going to go 20 self-insured? Are we going to go fully insured? Are we 21 going to go with a pool? Are we going to go with a carrier?" 22 It -- it's reactionary, rather than proactionary. And I 23 thank you for your time today. That was my input. And I -- 24 I admire the time you've put in on this, because this is a -- 25 this is the most difficult area that I see from not only a 5-18-11 wk 68 1 public entity, but from corporate entities as well, and I 2 deal in it every day. There is no one easy solution or 3 answer. 4 COMMISSIONER BALDWIN: Thank you. 5 JUDGE TINLEY: Thank you, Mr. Jones. It's a big 6 chunk of money, Mr. Jones, that -- of the taxpayers that 7 we're spending, and we need to be as informed and as cautious 8 as we can, but still try and obtain the best benefits for our 9 employees. 10 MR. JONES: I appreciate that. 11 JUDGE TINLEY: Any questions for Mr. Jones? 12 COMMISSIONER LETZ: This has been a good meeting. 13 Appreciate everyone. 14 JUDGE TINLEY: Ms. Hargis? 15 MS. HARGIS: I do have some preliminary numbers 16 sheets that we did for y'all that I thought you might be 17 interested in. The first one I'm going to give you is the 18 major funds that we have, and what so far has been ex -- 19 budgeted. The revenue is still last year's, 'cause I haven't 20 done that yet. Then at the bottom are the capital items that 21 the people have asked for. 22 COMMISSIONER LETZ: Wait until you hand them all 23 out before you explain them. 24 MS. HARGIS: All right. I'm sorry. 25 JUDGE TINLEY: Yeah. 5-18-11 wk 69 1 COMMISSIONER LETZ: Okay. 2 JUDGE TINLEY: Okay. 3 COMMISSIONER LETZ: Start over. 4 MS. HARGIS: Let me gather the remainder over here, 5 if Buster will let me have those. 6 COMMISSIONER BALDWIN: Now, where did you get this? 7 COMMISSIONER LETZ: Out of the computer. 8 COMMISSIONER BALDWIN: Looks like out of the 9 budget, doesn't it? 10 MS. HARGIS: Okay. I need one; then I'll -- let me 11 get one. I only have one left, y'all. I'll get them out. 12 This is -- the first one is Fund 10; that's our major fund. 13 Right now, with the expenses that have been loaded by the 14 department heads, they have not been changed or moved, 15 18,371,208. That's based on last year's revenue, which is 16 not going to change a whole lot. Leaves you a $34,000 17 deficit. That does not include the new amounts for the city, 18 'cause I -- I am not putting those in until y'all give me 19 that permission. 20 JUDGE TINLEY: So it does not include any increase 21 in interlocal agreement amounts over this current year? 22 MS. HARGIS: No, it does not. 23 JUDGE TINLEY: Okay, thank you. 24 MS. HARGIS: The Fund 15 is Road and Bridge. Fund 25 50, I wanted you to see there that that's fund -- that's our 5-18-11 wk 70 1 Indigent Health, and we don't really have a reserve there to 2 spend from any more. Your 76 is your Juvenile Detention, so 3 those are our four major areas. All the other little funds, 4 as you know, are just kind of in and out. These -- the 5 bottom ones are the capital items, the capital amounts of 6 money that each department has requested. So, this is just 7 a -- a snapshot that I thought you might like to have, 8 because you've asked for different things. 9 Now, the next -- the next one that I'm going to 10 hand out is the capital sheets that -- as of today, so that 11 you'll all know how much capital money is left in both 12 issues. These are just tools for y'all to use. And we will 13 try to hammer down on the budget. We've been kind of 14 waiting, hoping that -- for the numbers on the -- waiting for 15 the numbers on what you're going to do with the City to 16 actually roll it out. So, we're available for any of you, 17 and if you'd like the explanations on the capital, we'll send 18 those out, put them in your box or e-mail them, however you'd 19 like. And -- but this gives you an early snapshot. We do 20 know our sales tax is doing better. This last month it was 21 about a $25,000 increase, which is wonderful. And if you 22 look over the -- this fiscal year so far to-date, there's 23 only one month we've lost money, and it was only $800, so I 24 think that's really good. We don't have our preliminary roll 25 yet. I was kind of hoping we'd have that by now, but we 5-18-11 wk 71 1 don't. Diane, do you know when we're getting our preliminary 2 roll? 3 MS. BOLIN: Should be by the middle of June, 4 they're hoping. 5 MS. HARGIS: So it's kind of hard to predict the 6 revenues till we get -- till we get that. So, it's not -- I 7 think it looks a little bit better than I had anticipated, so 8 I thought y'all would be glad to see that. And, again, we're 9 there to help in any way if any of you would like. We will 10 -- we just didn't want to copy the department requested 11 budget over to y'all's until we -- we got the city/county in. 12 I mean, if you give me direction today to enter what you sent 13 so you can kind of get a look at it... 14 JUDGE TINLEY: Hopefully we'll know something 15 pretty quick, so why don't we sit tight for a minute. 16 MS. HARGIS: Okay. All right. That's all I have. 17 COMMISSIONER BALDWIN: Just for a minute? 18 JUDGE TINLEY: Thank you, ma'am. Any questions for 19 Ms. Hargis on any of the information that she's given us? We 20 appreciate having the current info. We thank you. 21 COMMISSIONER OVERBY: Thank you. 22 JUDGE TINLEY: Anything else? The workshop is 23 adjourned. 24 (Commissioners Court workshop adjourned at 11:41 a.m.) 25 - - - - - - - - - - 5-18-11 wk 72 1 STATE OF TEXAS | 2 COUNTY OF KERR | 3 The above and foregoing is a true and complete 4 transcription of my stenotype notes taken in my capacity as 5 official reporter for the Commissioners Court of Kerr County, 6 Texas, at the time and place heretofore set forth. 7 DATED at Kerrville, Texas, this 2nd day of June, 2011. 8 9 JANNETT PIEPER, Kerr County Clerk 10 BY: _________________________________ Kathy Banik, Deputy County Clerk 11 Certified Shorthand Reporter 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5-18-11 wk