RESOLVED, that the proper city officials are hereby authorized to execute a supplemental agreement with the city of Duluth Confidential bargaining unit represented by Unite-Here Local 150, which is on file in the office of the city clerk as Public Document No. _____________, which, beginning October 1, 2007, modifies the 2007-2009 collective bargaining agreement language to encourage the utilization of generic prescriptions to provide a cost savings to the group health fund.

STATEMENT OF PURPOSE:  This resolution authorizes the amendment of the 2007-2009 labor agreement with the confidential bargaining unit, which has been ratified by the union. It requires the group health plan participant to be responsible for an increased drug co-pay for non-preferred brand name prescriptions, while reducing the drug co-pay for generic prescriptions and prescribed over the counter medications to zero.

This drug co-pay structure is recommended by the prescription drug sub-committee of the labor management insurance committee as a means to increase cost savings to the group health fund in two specific areas.

First, the supplemental agreement is designed to increase generic drug utilization whenever possible. Generic drugs are far less costly to the plan than name brand prescriptions. Based on actual prescription drug claims paid in 2006, the city would have realized a projected net savings of $642,200 by moving from a $5 generic co-pay to a $0 generic co-pay at the industry-wide goal of 65% utilization, or approximately 17% of the 2006 prescription drug expenditures.

Second, the supplemental agreement shifts the co-pay benefit design from a drug make up design to a formulary based design, which encourages generic utilization while also managing the use of brand name drugs. The formulary based design creates three tiers where the participant pays an increased co-pay if they choose a brand name prescription over a generic equivalent.

The financial savings to this approach to formulary management, not including generic utilization covered above, includes a slight increase in co-pays received and availability of prescribed over the counter medications. Based on total actual prescription drug claims paid in 2006, the city would have realized a projected net savings of $437,857 or approximately 11% of the 2006 prescription drug expenditures.

If the supplemental agreement had been applied, based on the city’s 2006 prescription drug expenditures, a projected total savings of $1,080,057 or approximately 28% would have been realized.