PORT OF SEATTLE 
MEMORANDUM 
COMMISSION AGENDA 
Item No.  6b 
Date of Meeting  January 12, 2010 
DATE:     January 12, 2010 
TO:       Tay Yoshitani, Chief Executive Officer 
FROM:    Jeff Hollingsworth, Risk Manager 

SUBJECT:   Benefits Consultant Service Agreement 
Self Funding of Medical and Dental Benefits 

AMOUNT OF THIS REQUEST: $810,000 
SOURCE OF FUNDS: General Funds 

ACTION REQUESTED: 
Request authorization for the Chief Executive Officer to execute contract for a benefits
consulting firm. The consultant will assist the Port transition to a self funded program for
medical and dental benefits and then assist the Port in managing this program for the ensuing
four years and serve as the Port's benefit broker for its fully insured benefit programs. The
estimated cost for these services is $810,000 over five years starting in 2010 and ending in 2014. 
A competitive selection process will be used.

SYNOPSIS: 
The purpose of this memorandum is to get authorization for the Chief Executive Officer to
execute a contract with a benefits consulting firm.  The Port is moving towards a self-funded
approach for its medical and dental benefits.  The self-funded approach will require the
assistance of a benefits consulting firm to help the Port transition in 2010 so that the self-funding
of benefits can start in 2011. The cost for the work to be done in 2010 is estimated at $150,000. 
The consultant will then assist the Port in years 2011 to 2014 in managing the self funding
program. The consultant will also provide actuarial services for the self funding program as well
as other actuarial work involving benefit programs. The selected consultant will also serve as the
Port's broker for its fully insured benefit programs. The move to self funding benefits will allow

COMMISSION AGENDA 
T. Yoshitani, Chief Executive Officer 
January 12, 2009 
Page 2 of 3 

the Port to achieve savings as part of the overall benefit cost containment effort. The work the
consultant will perform in years 2011 and 2014 will replace the work that is currently being
performed under contract by Watson Wyatt.

BACKGROUND: 
The Port of Seattle has historically fully insured its medical and dental benefits. Insurance plans
are renewed annually with the calendar year as the plan year. In recent years the coverage has
been with Premera, Group Health, and Washington Dental Service. Benefits were procured by
Mercer through 2008 when the Port retained Watson Wyatt through a competitive selection
process to procure and negotiate insurance on behalf of the Port. Watson Wyatt negotiated the
Port's insurance renewal for year 2010 on behalf of the Port. The contract with Watson Wyatt
will end in 2010. The work of the consultant who will be selected under this authorization will
help the Port set funding rates for its medical and dental programs starting in 2011 and also
negotiate coverage in 2011 for the benefits programs that will remain insured which includes the
Group Health plan. 

SCOPE OF WORK REQUESTED:
The work in the transition year, 2010, includes the planning necessary to ensure all requirements
to be a self funded entity are in place. This includes: 
selection of a medical and dental claims third party administrator, 
selection of a stop loss insurer; 
assistance in establishing self funding rates based on actuarial analysis, 
completion of the documentation required by the State of Washington for approval as
a self-funded public entity, 
assistance with other compliance and regulatory requirements as needed, 
assistance with notifications to the current medical and dental providers of the change
to a self funded plan and the close-out of the Port's fully insured program, 
work with current insurance carriers on closing out any claims that remain open and
assisting with the return of unused claim reserve and premium stabilization reserve
funds to the Port,

COMMISSION AGENDA 
T. Yoshitani, Chief Executive Officer 
January 12, 2009 
Page 3 of 3 

In years 2011 through 2014 the consultant will assist the Port in managing the self funded
program as well as negotiating coverage on behalf of the Port for the programs that remain fully
insured which include: life insurance, accidental death and dismemberment, and long term
disability. The consultant will also perform actuarial work to support Port benefit plans which
include the Warehouse Pension Trust and Other Post Employment Benefits for retirees.

FINANCIAL IMPLICATIONS: 
The estimated cost of this agreement is $810,000 for five years. We estimate services at
$150,000 to $165,000 per year.  There are other costs associated with this procurement. These
include medical and dental claims administration services estimated at $4.44 million over four
years (2011 to 2014) and stop loss insurance estimated at $2.92 million over four years (2011 to
2014). 

OTHER DOCUMENTS ASSOCIATED WITH THIS REQUEST: 
-January 5, 2010, memo to the Commission (attached for reference). 
-Power Point 

PREVIOUS COMMISSION ACTION: 
The Commission briefing scheduled for the January 5, 2010 meeting on this issue was
postponed.

PORT OF SEATTLE 
MEMORANDUM 

COMMISSION AGENDA  STAFF BRIEFING 
Item No.          7e 
Date of Meeting     January 5, 2010 
DATE:    December 28, 2009 
TO:      Tay Yoshitani, Chief Executive Officer 
FROM:    Jeff Hollingsworth, Risk Manager 
Tammy Woodard, Sr. Manager, Total Compensation 
SUBJECT:  Briefing  Self-Funding of Port Medical and Dental Benefits 
INTRODUCTION 
The Port is moving towards a self-funded approach for its medical and dental benefits.
The Port of Seattle has approximately 1,700 employees, and slightly less than half are
represented by a labor union.  Approximately 1,000 employees (all non-union and
approximately 200 union) are covered by the Port'smedical and dental plans that are
being  proposed for self-funding.  The self-funded approach will require several
procurements, which the Port will do under the guidance of the Central Procurement
Office. This briefing outlines the overall plan to move to a self-funding program and the
self-funding benefits team will be returning to request Commission authorization to
execute these procurements. The move to self-funding benefits will allow the Port to
achieve savings and it also supports overall cost containment efforts in the area of health
care. In accordance with the Port's Salary and Benefit Resolution Section IX, this memo
serves as notice to the Commission of the Port's move to implement a self-funding
program for medical and dental benefits. 
BACKGROUND 
The Port of Seattle has historically fully insured its medical and dental benefits. Insurance
plans are renewed annually with the calendar year as the plan year. In recent years the
coverage has been  with Premera, Group Health, and Washington Dental Service.
Benefits were procured by Mercer through 2008 when the Port retained Watson Wyatt
(through a competitive selection process) to procure and negotiate insurance on behalf of
the Port. 
Historically, the Port has paid 100% of premium cost for employees and dependents.
Beginning in 2008, employees who participated in the Port Wellness Rewards Program
and earned a targeted 1000 points continued to receive their health insurance in 2009

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
November 3, 2009 
Page 2 of 7 

without paying a portion of their premiums. Employees who earned the target 1000
points in 2009 will receive a significant reduction in their 2010 medical insurance
premiums although all employees will be paying some portion of their premium. 
Through 2009 the Port subsidized retiree insurance premiums. Eligible retirees in 2010
may continue their Port medical coverage however they will be paying the full cost of
their medical coverage. Retire coverage is available for both pre- and post-Medicare
eligible retirees. Approximately 180 retirees and surviving spouses are covered on the
Port's retiree plans.
The Port's 2009 Premera premiums (Heritage and Foundation) were $14.1 million
covering 1,127 active and retired employees. The fully insured 2010 premiums for this
same group will be approximately $14.8 million (a 4.2% increase). In 2010, employees
will be contributing about 5% of total premium, or roughly $700,000. Dental premium
for 2010 will be approximately $1,582,750 and rates will be unchanged from 2009.  The
Port's Group Health Cooperative members (274) would not be impacted by a switch to
self-funding of benefits as the Group Health coverage will remain fully insured. Group
Health premium for 2010 will be approximately $ 2,000,000. In addition to Group
Health, the Port purchases  insurance for life insurance, accidental death and
dismemberment, and long-term disability.  The premiums for these three insured
programs totaled $1,400,000 in 2009. These programs will remain insured and will not be
impacted by the self-funding of medical and dental benefits. 
BENEFITS: 
The positive factors associated with a self-funded approach include: 
1.  Direct cost savings versus paying a fully loaded premium. S tudies show this can result in
Port savings of 6% - 8% (of total premium dollars). This is the most significant benefit
of a self-funded approach. Annual savings could be as much as $1 million, and even
more savings may be possible depending on the actual claims levels and if the Port
chooses to self-fund pharmacy claims. These cost savings (compared to a fully insured
model) can be sustained on an annual basis. 1 
2.  Direct negotiations with the selected claims administrator (medical/dental). 
3.  Direct rebates from the pharmacy manufacturers; (currently do not get). 

1 Watson Wyatt completed a self-funded feasibility study on March 25, 2009 that provided a financial analysis on
the costs and savings of a self-funded approach.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
November 3, 2009 
Page 3 of 7 

4.  Future inclusion of employee Health Savings Accounts (HSA) or Health Reimbursement
Accounts (HRA) in conjunction with a high deductible plan offering. 
5.  Port Spirit and Wellness initiatives could link directly with plan design and funding,
including employee incentives in which the Port would contribute to a potential employee
Health Savings Account. 
6.  The Port would achieve a tax savings since as a self-funded entity the Port avoids paying
the 2.5% premium tax that is included in its current fully insured premium it pays to
Premera. 

RISKS AND CHALLENGES: 
There are also some risks and challenges the Port would have to address in adopting a selffunded
model. These include: 
1.  The risk of being underfunded in the event actual claims experience is worse than the
projected for a given year. This is mitigated by stop loss and aggregate stop loss
insurance as well as conservatively projecting future claims. 
2.  Regulatory conditions imposed upon self-insurers in Washington as defined in RCW
48.60 and WAC 82-60 including annual reports to the State Office of Financial
Management. 
3.     Additional contracts to administer in addition to the overall benefits consultant. These
include the selected third party claims administrator and the stop-loss insurer.  The
current fully insured model requires only one contract with a benefits broker who
negotiates renewal rates directly with insurers on behalf of the Port. 
4.     There would be new demands on Port staff related to the procurement processes to select
the various contactors/vendors, overseeing the contracts, monitoring the financing to
ensure solvency for claims payments, ensuring proper benefits accounting, and
establishing funding rates for each forthcoming (or renewal) year. The new demands on
staff will handled by a team approach consisting of staff from Human Resources, Risk
Management, Accounting, Health/Safety, and Legal. No additional staff will be hired.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
November 3, 2009 
Page 4 of 7 


POTENTIAL SAVINGS:
The annual potential fixed cost savings by adopting a self-funded approach are shown in the
table below. 2 These costs do not reflect the additional potential savings in the event actual
claims in a given year are below the actuarially determined forecast.
Table One  Fixed Cost Savings 
Item              Fully Insured     Self-Funded    Fixed Costs Savings Per Year 
Premera Admin Fee     $1,620,000      $970,000      $650,000 
Dental Admin Fee      $220,000       $140,000       $80,000 
Stop Loss Coverage     $980,000       $730,000       $250,000 
Pharmacy RX Rebate    $0           ($114,000)     $114,000 
Cash Flow           $0           ($22,000)      $22,000 
Actuarial Services       $0             $15,000        ($15,000)
State Fees             $0             $13,000        ($13,000) 
Consultant Fees        $150,000        $150,000       $0 
Total               $2,970,000      $1,882,000      $1,088,000/Year 
Note 1: Port would receive a rebate of about $1,000,000 in 2012 from Premera to cover the
remainder of the IBNR (see footnote) reserve and the balance owed from the premium
stabilization reserve for both dental and medical. 
Note 2:  In 2010, the Port would still be under a fully insured plan and continue the existing contract
with Watson Wyatt (which is paid on commission) and a separate contract will be
executed with a consultant to cover the transition items and other procurements needed
relative to starting the self-funded model in 2011. 
Note 3:  Reference Watson Wyatt: Self Insurance Feasibility Study March 25, 2009. 
Note 4:  The Premera and Washington Dental Administration fees includes premium taxes. 
Note 5:  Actuarial service fees are for other benefit related programs. 
Footnote : IBNR stands for Incurred But Not Reported claims, meaning claims that have happened
in the calendar year, but have not yet been reported to the insurer (or self-funding entity). 




2 Reference the Watson Wyatt feasibility study of March 25, 2009

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
November 3, 2009 
Page 5 of 7 

REGULATORY REQUIREMENTS: 
Several key items required by the Revised Code of Washington (RCW) 48.62.071 will be needed
by the State Office of Financial Management for the initial review and approval of the Port's
application to become a self-funded employer. Annual reports must be submitted in subsequent
years. These are highlighted below. 

Table Two  Regulatory Requirements Summary 
Item              Who To       WAC or RCW  Notes 
Provide        Reference 
Description of how     Port with the     RCW         To be submitted with the
program will be        assistance of the   48.62.071 and   application to the State OFM and
administered internally;   selected benefits   RCW         annually thereafter; 
consultant       48.62.091 
Description of self      Port with       RCW         To be submitted with the
insured program       assistance of     48.62.071 and   application to the State OFM and
elements including      selected benefits  RCW         annually thereafter; 
coverage, claims       consultant       48.62.091 and 
handling, and appeals                 WAC 82-60-
process                           050 
Listing of all           Port with        RCW          To be submitted with the
consultants, stop loss     assistance of     48.62.071 and    application to the State OFM and
provider, actuary, and    selected benefits   RCW         annually thereafter; 
claims administrators     consultant       48.62.091 
Financial analysis of     Port with       RCW         To be submitted with the
funding, claims        assistance of     48.62.071 and   application to the State OFM and
projections, and funding  selected benefits   RCW         annually thereafter; 
reserve policy.          consultant and    48.62.091 
actuary 
Annual summary of     Port with      RCW        Annual application must be
plan and funding to be    assistance of     48.62.071       submitted to the State. 
submitted to the State    general
OFM           consultant and 
actuary 
Annual Fees To State     Port pays these   WAC 82-60-    The fees are assessed on self
direct to the      100            funded entities by the State. 
State.

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
November 3, 2009 
Page 6 of 7 

KEY PROCUREMENTS NEEDED: 
There are several procurements needed to adopt a self-funded model effective on January 1,
2011. Work has already begun with the Central Procurement Office on the selection of a benefits
consultant to assist with the transition year in 2010 and the first four years of the self-funded
program, through 2014.
Table Three  Procurement Costs 
Procurement       Resource Type    Date     Start CPO   Estimated Cost    Duration 
Needed    Work 
Select Benefits        Outside         January 1,   October,     $150,000 2010     5 years 
Consultant to assist    consultant to      2010 is     2009        $165,000 2011 
with transition and     assist with: third   when RFP              $165,000 2012 
initial coverage plan    party claims      is to be                $165,000 2013 
documents and      administrator     released              $165,000 2014 
procurements and to    selection;                           $810,000 
negotiate future       actuarial work for                       Note  Current
coverage for the non    setting funding,                        contract with
self funded plans.      state application,                        Watson Wyatt (in
Will also consolidate   and selection                          force for 2010)
all actuarial work for    process for a stop                        does not include
benefit program.       loss provider.                          these services in
its scope. 


Select Third Party    Claims         January 1,   April 2010    $970,000 2011     4 years 
Medical Claims     management     2011               $970,000 2012 
Administrator       services such as                     $970,000 2013 
Premera                            $970,000 2014 
$3,880,000 

Select Third Party    Claims         January 1,   April 2010    $140,000 2011     4 years 
Dental Claims      management     2011                $140,000 2012 
Administrator       services such as                     $140,000 2013 
Washington                      $140,000 2014 
Dental Service                         $560,000 

Select Stop Loss      Stop loss        January 1,   May 2010    $730,000 2011     4 years 
Provider           protection is     2011                 $730,000 2012 
needed to protect                       $730,000 2013 
against large                           $730,000  2014 
single claims.                            $2,920,000 

Totals                                          $150,000  2010 
$2,005,000 2011 
$2,005,000 2012

COMMISSION AGENDA 
Tay Yoshitani, Chief Executive Officer 
November 3, 2009 
Page 7 of 7 

Table Three  Procurement Costs 
$2,005,000 2013 
$2,005,000 2014 
$ 8,170,000 Total 
Note:  The current cost of these services is included in the premiums paid to Premera and Washington Dental
Service (Refer to Table One). The costs for these services if paid over four years through Premera and
Washington Dental Service would be approximately $11,880,000 (excludes $150,000 of fees in 2010 and cash
flow savings on projected reserves held by the Port). Starting in 2011, the consultant fees shown above include
the $15,000 in actuarial service fees identified in Table One. 
SCHEDULE 
The table below lists the tentative schedule for the work to be done in 2010 in order to meet the
project timeline required to implement a self-funded program on January 1, 2011. 

Activity                                           Date 
RFP Issued for a Self-Funding Benefits Consultant             January, 1, 2010 
Commission Briefing on Overall Self Funding Plan              January 5, 2010 
Commission Request to Execute Self-Funding Benefits Consultant   January 12, 2010 
Proposal Submission Deadline for Self-Funding Benefits Consultant  January 31, 2010 
Written Proposals Scored by Port for Benefits Consultant         February 14, 2010 
Interviews with Finalists Completed for Benefits Consultant        February 28, 2010 
Contract Effective Start Date for Benefits Consultant             April 1, 2010 
Issue RFP for Dental/Medical Claims Administrators            May 1, 2010 
Issue RFP for Stop Loss Provider                        June 1, 2010 
Select Dental and Medical Claims Administrator               July 1, 2010 
Select Stop Loss Provider                             August 1, 2010 
Self Funding Rates Established for 2011                    September 1, 2010 
Application Document Submitted to State Office of Finance        October 1, 2010 
CONCLUSION 
The move to a self-funded plans for medical and dental benefits will allow the Port achieve
direct savings compared to the current fully insured approach.  At the same time, the Port will
assume additional risk in ensuring its self-funded rates remain adequate to cover projected claim
costs. This risk is mitigated by purchasing stop loss insurance. The State Office of Financial
Management, which requires annual documentation to ensure the plan is solvent and has the
money to play claims, will provide oversight of the program. A self-funded approach is common
among public entities and during the analysis phase of this project site visits were made to the
City of Bellevue, the City of Kent, and the City of Everett to learn from these public employers
how they have set up and manage their self-funded medical and dental programs. The self
funding benefits project team believes the Port of Seattle is a good candidate for using this
approach which will achieve cost savings not only in the first year of the program, but on a
sustainable basis in future years.