PORT OF SEATTLE 
MEMORANDUM 

COMMISSION AGENDA  STAFF BRIEFING 
Item No.          7a 
Date of Meeting        April 27, 2010 
DATE:    April 15, 2010 
TO:      Tay Yoshitani, Chief Executive Officer 
FROM:    Tammy Woodard, Sr. Manager, Total Compensation 
Jeff Hollingsworth, Risk Manager 
SUBJECT:  Briefing  Update Self-Funding of Port Medical and Dental Benefits 

INTRODUCTION: 
The Port is continuing to explore the possibility of adopting a self-funded approach for the Port
sponsored Premera medical and Washington Dental Service dental plans as a cost containment
strategy. These plans cover approximately 1020 of the Port's 1580 current employees as well as
approximately 163 retired employees or surviving spouses. All non-union and approximately 120 
union employees are covered by these plans; remaining employees are covered by other plans as
specified in collective bargaining agreements of union employees. Under this approach, the Port
would not make any changes to the existing Group Health medical benefits plan. 
This briefing will summarize the costs, benefits and risks of self-funding the Port's Premera and
Washington Dental Service plans, provide an update on the work of the self funding benefits team
since the January briefing, and detail the remaining work and decisions necessary to move the Port
to a self-funded arrangement for these plans. 
BACKGROUND: 
The Port of Seattle currently maintains a fully insured medical and dental benefits program.
Adopting a self-funded approach would mean that a claims administrator would process claims,
determine appropriate payment to providers, and then pay claims with funds provided by the Port.
In this type of funding arrangement the Port will assume some risk (currently assumed by insurance
carriers) that actual claims are greater than expected and conversely realize the benefit of claims
that are less than expected. This risk can be mitigated through the purchase of stop loss insurance
coverage. Adopting a self-funded medical benefits program also permits the Port to realize savings
on claims administration costs as described more fully below. 
Self-funding health benefits is fairly common among mid-sized to large employers. Data from the
Kaiser Family Foundation's 2009 survey indicates that 48% of employers with 200 to 999
employees self-fund their benefits programs while 80% of employers with 1000 to 4,999 employees

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
April 15, 2010 
Page 2 of 6 

self-fund their programs. The same survey indicates that self-funding is common among employers
in industries similar to the Port  76% of employers in transportation/communication/utilities selffund
their benefit programs while 59% of state and local government employers self-fund theirs.
Overall, this survey indicates that 57% of all employers self-fund their benefit programs. Within
Washington State, the Office of Financial Management  Risk Management Department's web site
lists 16 cities, 6 counties, as well as multiple school districts, public utility districts, and public
hospitals that self-fund at least a portion of their health insurance programs. 
Self funding is ultimately a cost containment strategy. The Port previously implemented a cost
savings strategy utilizing the Wellness Rewards Program which offered employees covered by the
Port plans an opportunity to earn a 10% reduction in their share of annual medical premiums. The
10% reduction in 2009 permitted employees to receive their medical insurance with no premium
sharing. Beginning in 2010 all employees covered by the Port plans pay a portion of their medical
premiums and those participating in the Wellness Rewards Program still earn a 10% discount on the
premium they pay. Another cost containment strategy implemented in 2010 was the elimination of
the subsidy for retiree medical premiums. 
Adopting a self-funding program for medical and dental benefits will have minimal impact on
employees covered by the Port's plans. If the Port contracts with Premera for medical claims
processing and administration services and Washington Dental Service for dental claims processing
and administration services, employees' claims will be processed like they are with the current fully
insured plans. Decisions about plan design changes like increasing or decreasing deductibles and
co-pays will be carefully considered and made independently from a change to a self-funded
program.
ADVANTAGES: 
A significant advantage of self funding medical and dental benefits is cost savings compared to
fully insured plans. Cost savings generally result from the elimination or reduction of charges 
embedded in insurance premiums to cover overhead, profit and taxes. Comparing fully insured to
self-funded programs, if claim payments were equal in both scenarios, the Port could realize savings
in the following ways.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
April 15, 2010 
Page 3 of 6 

Estimated Self-Funding Savings 
(does not include any potential savings from lower than expected claims costs) 
Potential
Fully      Self-
Item                          Annual             Comments 
Insured     Funded 
Savings 
Fully Insured amount is included in our
Medical Claims
$1,230,000    $970,000     $260,000   premium; Self-Funded amount would be
Administration Fee 
paid in lieu of the premium 
Fully Insured amount is included in our
Dental Claims
$220,000     $140,000     $80,000    premium; Self-Funded amount would be
Administration Fee 
paid in lieu of the premium 
Premium, High
Risk, and B&O      $390,000     $10,000     $380,000   Port would pay $10,000 B&O tax only 
Taxes 
Fully Insured amount is included in our
Stop Loss
$980,000     $730,000    $250,000   premium; Self-Funded amount will be paid
Coverage 
directly to a selected insurer 
Premera currently shares the pharmacy
rebate with all their customers as part of
Pharmacy RX
$0       -$114,000    $114,000    their administration fee. With a Self-Funded
Rebate 
arrangement we expect to receive all of the
rebate associated with Port claims 
Savings result from the Port holding claim
Cash Flow           $0       -$22,000     $22,000    payment funds until they are actually
needed to pay claims 
Additional cost  needed to establish
Actuarial Services        $0        $15,000     -$15,000    expected claims and required reserve
amounts 
Additional cost with a Self-Funded
State Fees            $0        $13,000     -$13,000    arrangement  fees required by the State of
self-funded public employers 
Total           $2,820,000   $1,742,000   $1,078,000 
It should be noted, however, that even with these cost savings relative to a fully insured plan, the
Port expects to face continued increases in healthcare costs over the foreseeable future. 
A self-funded program would also permit the Port to link the Wellness Rewards Program with plan
design components in ways that could reward employees for activities or actions that are proven to
directly affect claims costs and result in improved employee health. 
Additional cost savings may be realized if actual claims are below expected levels as the Port would
pay only actual claims. With a fully insured program any savings resulting from lower than
expected claims are maintained by the insurance company. Although lower than expected claims in
a fully insured program may be passed on to the Port in future years through lower premium

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
April 15, 2010 
Page 4 of 6 

increases, this savings would be less than the savings the Port could realize with a self-funded
program. 
COSTS AND RISKS: 
The principal risk of a self-funded benefit program is the risk that actual claims in any year are
greater than anticipated. The Port plans to purchase stop loss insurance to mitigate this risk (under
an insured plan the insurer purchases stop loss coverage). The Port also plans to continue
promoting and enhancing the Wellness Rewards Program as a way of supporting healthy employees
and families. The expectation is that, over time, this emphasis will have a positive impact on health
insurance claims. 
A self-funded benefit program also increases the number of contracts to administer. The Port
currently administers one contract with a benefits consultant. In addition to this contract, a selffunded
arrangement will require contracts with medical and dental claims administrators and the
stop loss insurance provider. 
There will also be somewhat more time required of Port staff beyond the time required to
administer additional contracts.
In addition, the self-funded benefits team has confirmed with the Port's legal staff that the Port will
not be exposed to any further legal liability with a self-funded benefit program than currently exists. 
ACTIONS SINCE JANUARY COMMISSION MEETING: 
Meetings with Other Employers: 
Since the January 12 Commission meeting Port staff have been continuing to explore aspects of self
funding. Staff attended a meeting of the State Employer Advisory Board to understand the revised
WAC regulations that will guide administration of self-funded health insurance plans by public
employers as well as the perspective of other public employers who are currently self insured. Port
staff also met with benefit managers at King County, the City of Seattle and the City of Tacoma to
understand how they manage their self-funded benefit programs, and how these organizations' work
varies from the Port's current benefit management processes.
Meetings with Impacted Port Departments: 
Members of the benefits self funding team met with representatives from Accounting and the Port
Treasurer to discuss processes necessary to manage cash flow and fund claims payments.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
April 15, 2010 
Page 5 of 6 

These meetings and discussions indicate that some new tasks will need to be performed requiring
additional time from Port staff. These new task s will include: 
Weekly review and payment of medical and dental claims, 
Monitoring claims reserves, 
Preparing and filing annual self-funded reports to the State, and 
Payment of stop loss premiums. 
The additional time required to complete these tasks will be partially offset by simplified reporting
to claims administrators compared to current reporting to insurers. The net additional time required
to administer a self-funded benefit program is estimated at 10 hours per month once new processes
are fully implemented and have been performed for several months. 
Commission Resolution: 
Port staff has also begun drafting the self-funding resolution required as part of the state selffunding
application process. The Commission will consider the self-funding resolution at the May
4 and May 11 meetings. 
Benefits Consultant Selection: 
The self-funding benefits team also selected, through a competitive process, a benefits consultant
and has begun negotiating with the selected consultant.
Timeline Review and Claims Administration Competition Waiver: 
The self-funding team has also reviewed the self-funding conversion timeline. The original
timeline was quite aggressive. The additional time required to complete the benefit consultant
contract (it was targeted for completion by April 1st) together with a greater appreciation of the
complexity of the competitive selection process for the self-funded claims administrators resulted in
a decision to request a competition exemption under RCW 53.19.020(5) for the 2011 claims
administration contracts on the basis that competition will not be cost effective. The Commission
will consider this request at the May 11 meeting. 
If the exemption is granted, one year claims administration contracts will be negotiated with
Premera and Washington Dental Service, the Port's current medical and dental insurance providers.
Modifying our current arrangements with Premera and Washington Dental Service to a claims
administration arrangement will permit the Port to begin realizing savings associated with selffunded
benefits program while minimizing the potential impact of changing firms on Port processes
and communications. This approach will also minimize potential impacts on employees by
maintaining the existing provider networks for at least one more year. A competitive process to
select medical and dental claims administrators will be initiated late in 2010 and completed in 2011
with sufficient time to implement any changes that may be required as a result of selecting claims
administrators other than Premera and Washington Dental Service.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
April 15, 2010 
Page 6 of 6 

Impact of Health Care Reform: 
Port staff has also been reviewing health care reform legislation. While a few provisions will take
effect in January 2011, many provisions of the new legislation will not become effective until 2014
or later. The information available at this point indicates that the impacts to the Port will be the
same regardless of whether the Port adopts a self-funded benefit program or stays with the fully
insured program. 
REMAINING SCHEDULE: 
Several actions are still required to adopt a self-funded program for the current Premera and WDS
plans. The following is the proposed schedule. 
Action                 Proposed Date             Who 
First reading, Self-Funded Resolution                May 4, 2010              Commission 
Second reading, Self-Funded Resolution             May 11, 2010             Commission 
Competition exemption request and
authorization to execute one year claims             May 11, 2010              Commission 
administration contracts with Premera and WDS 
Complete negotiations with selected benefits
May 15, 2010         Self-funded benefits team 
consultant and finalize contract 
Negotiate and execute one year claims                              Self-funded benefits team 
June 15, 2010 
administration contracts with Premera and WDS 
Select stop-loss insurance provider                 August 1, 2010         Self-funded benefits team 
Complete and file self-funded application with
October 1, 2010        Self-funded benefits team 
the State of Washington 
Finalize self-funded processes                   October 15, 2010        Self-funded benefits team 
Convert to self-funded program                  January 1, 2011 
CONCLUSION: 
Self-funding the Port's Premera and Washington Dental Service plans continues to a viable
alternative to the current fully insured program. The savings, primarily in administration costs,
should be sustainable over time. It will likely take three to five years to before sufficient data is
available to substantiate the savings associated with a self-funded program. Port staff will, if self-
funding is adopted, conduct an analysis of the Port's self-funded benefits program after three to five
years and report the findings of the analysis to the Commission. In the unlikely event that savings
are not realized, the Port can return to a fully insured program at any time. The self-funding
benefits team recommends the Port adopt a self-funded benefit program effective January 1, 2011,
negotiate one year claims administration contracts with Premera and Washington Dental Service,
select a stop loss insurer and begin a competitive claims administration selection process late in
2010 for contracts to be effective January 1, 2012.