ITEM TITLE:
Approval of Contracts Comprising the City and School Health Insurance Benefit Plan for the Twelve Months Beginning April 1, 2018.
SUBMITTED BY: Brian Carlson, Finance Director
FISCAL NOTES:
Expenditure Required: $3.43MM through 2018
Unencumbered Balance: $3.14MM
Funding Source: Pro-rated by Department; Cost code 41300 - Benefits
RECOMMENDATION:
Approve three contracts comprising the City/School Health Insurance Benefit Plan for the 2018-2019 plan year.
SUMMARY STATEMENT:
• This agenda item is comprised of three contracts:
o Medical Rehabilitation Consultants (MRC) - case management
o Meritain Health - third-party administrator (TPA)
o Sun Life - stop loss insurance
• The Meritain materials also contain the School TPA agreement. This is not for Council to approve, but is included for reference.
• The bottom-line change to premiums is:
o 18% increase in premiums for the new plan-year
§ $14.65 increase in monthly employee contribution
§ $351.70 increase in monthly employer cost
o 14% ($291K) increase over the adopted 2018 budget
• Total monthly premium per employee is $2,383
o $2,288.02 Employer contribution
o $95.33 Employee contribution
• All attached contracts have been reviewed by Legal and are approved as to form
BACKGROUND:
• The Health Insurance benefit is a $6MM annual self-insured plan covering approximately 240 employees (plus dependents), divided nearly evenly between City and School.
• “Premiums” are paid to the plan from City/School payroll contributions, and are calculated based on known fixed costs plus estimated variable costs (claims).
o Fixed Costs reflect services established in the three attached contracts, plus the Broker/Consultant contract with Parker, Smith, Feek, which was approved on January 16, 2018
o Variable costs are covered claims, which flow through to the Health Insurance Fund balance. Fund balance rises and falls based on how actual costs relate to initial estimated costs.
o Variable costs estimates are based on claims history and macro/industry-wide and/or regional trends.
o Stop-loss insurance establishes a ceiling on variable costs. Staff proposes an increase in the stop-loss deductible from $125K to $150K.
• The variance between premiums paid to the plan and actual total plan costs is reflected in the Health Insurance Fund balance ($3.6MM as of 12/31/2017).
o Fund balance has fully recovered from its 2014 deficit. The City-component was in a deficit for the 2017-18 plan year; the School was “in the black”. Each year’s “premiums” are adjusted to absorb prior years’ surpluses or deficits so that the fund balance will be at parity over a multi-year rolling period.
ANALYSIS:
• Based on analysis of claims history, likely exposure, and premium reduction, staff proposes an increased stop-loss deductible to $150K from $125K. This yields a total fixed cost reduction of 4.3% from the prior plan year.
• Staff also proposes a change to the stop loss contract type (from 12/15 to 24/12) so as to expand the claims-coverage period while reducing the City’s/School’s exposure to uncovered claims resulting from untimely administration.
• The City’s prior-year claims history contributes to an increased expected claims estimate, and by extension, increased “premiums”.
o Total “premium” increase is 18%, or $366 per participant per month, relative to the 2017-2018 plan renewal.
§ Note: the attachment provided reflects a 19.7% increase, as it was based on an incorrect (lower) Total Expected Cost figure.
o Employee premium increase is $14.65 per month; Employer increase is $351.70 per month.
o Staff calculates an estimated $291K shortfall in the 2018 Budget. Staff will review Budget/Actual figures in late 2018, and will fund the shortfall with savings from position vacancies via Budget Resolution.
• The School’s prior-year claims history results in a reduction in expected claims, and therefore a commensurate reduction in premiums.
o Total “premium” reduction is 0.4%, or $8.25 per participant per month, relative to the 2017-2018 plan renewal.
CONCLUSION:
Staff recognizes that the formal renewal process seems to preclude Council input. However, the true work of plan design happens many months prior to the plan year-end. Staff has undertaken the first crucial step by engaging a new broker/consultant, who will drive the plan-design scrutiny in the coming months, in conjunction with management and the employee representative group. Staff anticipates a detailed discussion with Council coinciding with 2019 budget hearings, which will be an effective venue to obtain Council input while leaving sufficient time to incorporate changes in advance of the March 31 plan year-end.
ATTACHMENTS (6):
• Health Plan Renewal Figures.pdf - summary and explanation of fixed costs
• Five-Year Renewal History.pdf - City and School renewals and percentage change
• 2017 Health Insurance Fund.pdf - Staff accounting of Health Insurance fund for calendar 2017 (standard quarterly report to council)
• Meritain Proposal, 2 Contracts.pdf - additional detal of TPA cost proposal; City Contract, School Contract
• MRC Renewal.pdf - Case Management one-year contract
• Sun Life 2018.pdf - Stop-loss coverage contract