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Item 4G Contract Renewal with United Healthcare to provide employee medical benefits for plan year October 1, 2015 to September 30, 2016. 4G Madame Mayor and members of the City Council, this presentation will cover Item 4G on the August 4, 2015 City Council Agenda. 1 Item 4G Approve a contract with United Healthcare to provide employee medical benefits for Plan Year October 1, 2015 to September 30, 2016. The purpose of this item to is to request City Council approval of a contract renewal with United Healthcare to provide employee medical benefits for Plan Year October 1, 2015 through September 30, 2016. 2 Critical Business Outcomes CBO1 - Continue to implement Southlake 2030 Plan by focusing on short-term initiatives. CBO2 - Become an employer of choice by developing a plan to recruit, develop and retain employees committed to excellence. CBO3 - Develop long-term strategies to address future financial uncertainties and challenges. CBO4 - Improve mobility by proactively completing traffic analysis of key areas. CBO5 -Optimize resources through collaboration and partnerships to reduce costs and add service value. The City of Southlake provides municipal services that support the highest quality of life for our residents, businesses, and visitors. We do this by being an exemplary model of balancing efficiency, fiscal responsibility, transparency, and sustainability. Deliver on Our Focus Areas Performance Management & Service Delivery C1 Achieve the highest standards of safety & security C2 Provide travel convenience within City & region C3 Provide attractive & unique spaces for enjoyment of personal interests C4 Attract & keep top-tier businesses to drive a dynamic & sustainable economic environment C5 Promote opportunities for partnerships & volunteer involvement Serve our Customers Manage the Business B1 Achieve best-in-class status in all City disciplines B2 Collaborate with select partners to implement service solutions B3 Enhance resident quality of life & business vitality through tourism B4 Provide high quality services through sustainable business practices B5 Enhance service delivery through continual process improvement B6 Optimize use of technology Provide Financial Stewardship Promote Learning and Growth F1 Adhere to financial management principles & budget F2 Invest to provide & maintain high quality public assets F3 Achieve fiscal wellness standards F4 Establish & maintain effective internal controls L1 Ensure our people understand the strategy & how they contribute to it L2 Enhance leadership capabilities to deliver results L3 Attract, develop & retain a skilled workforce L4 Recognize & reward high performers L5 Empower informed decision-making at all levels in the organization C6 Enhance the sense of community by providing excellent customer service and citizen engagement opportunities L6 Foster positive employee engagement City of Southlake Strategy Map Approving the contract with United Healthcare links to the City’s strategy map relative to the focus area of Performance Management and Service Delivery and specifically to the corporate business objective of Attract, develop, and retain a skilled workforce. It also ties to CBO2 – Become an employer of choice. 3 Background 3 Plans: EPO, HDHP HSA, PPO 10/01/2013 to present Bid insurance in 2003, 2006, 2010, 2013 The City’s current healthcare plan is a fully insured plan provided by United Healthcare. With a fully insured plan, the employer pays a monthly per employee premium to an insurance company, and the insurance company assumes the risk and accepts financial responsibility for the enrollees’ medical claims and incurred administrative costs. This provides the City with premiums that are fixed for a one year period. [CLICK] Employees are offered three different plan options: [CLICK] a “base” EPO plan, a “buy-down” High Deductible Health HSA (HDHP) plan, and a “buy-up” PPO plan. The City contributes the same amount to all three plans and employees are able to choose a plan that best meets their own unique healthcare needs. United Healthcare became the City’s medical carrier [CLICK] October 1, 2013 following a competitive bidding process. The City has previously issued an RFP for medical insurance in 2010, and will typically issue an RFP every four to five years depending upon renewal proposals. Prior to changing carriers in 2013, the City had been with the previous carrier, Aetna, for 15 years. Since switching to UHC, the City has been pleased with the service from the carrier and has received very few service complaints from employees. 4 Renewal Process In June of each year, the City receives a proposed renewal offer from the insurance carrier. Carriers base rate renewals on a number of factors, with the two most influential being: [CLICK] the group’s experience for current and past plan years and healthcare industry cost trend. Upon receipt of the renewal, staff will review and analyze the renewal to determine if it is a fair offer. This determination is made following an in depth review of the data available. Over the next several slides, I this process in more detail. 5 Group Experience Total Premium Paid: $8,440,131 Total Claims Paid: $6,877,602 Claims Ratio: 81% 8 Large Claims The first factor an insurance company will review when calculating a renewal proposal is the group’s experience. When considering the group’s experience, the carrier will review past claims data and use it to predict future medical costs. The chart on the screen compares the monthly premium paid by the City to the monthly claims paid over a three year period. The blue line on the chart represents the monthly premium and the gold line represents the claims paid. The claims data represents dollars paid in medical and pharmacy claims; it does not include any administrative or overhead costs. Over the three year period, $8,440,131 were paid in premiums, and $6,877,602 were paid in claims. This equates to a claims ratio of 81% Over the three year period, the City’s claims ratio was 81%. In addition to overall claims costs, the carrier will review the number of large claims within the group. Over the last twelve months, the City has had eight ongoing claims that were in excess of $50,000. Generally, UHC will see three to four large claims in a group the same size as the City. A high number of large ongoing claims impacts the premiums because there is a increased likelihood of high future claims. 6 Industry Trend 6.5% - 9.5%  The next factor taken into consideration during the renewal process is the healthcare industry cost trend. Industry is the predicted change in the cost of healthcare. It includes components such as [CLICK] price inflation, [CLICK] government mandates, and [CLICK] advancements in technology, treatments and therapies. For the new plan year, [CLICK] industry experts such as Pricewaterhouse Coopers’ Health Research Institute, the Society of Human Resource Management and United Healthcare predict a trend increase of 6.5% to 9.5% for healthcare. 7 Proposed Renewal Original: 11% Increase Negotiated: 5% Increase No Plan Modifications Estimated Increase: $91,627 In early June, the City received its medical insurance renewal from United Healthcare. The original proposal was for a 11% increase. To calculate the renewal, United Healthcare reviewed the group’s expereince and healthcare industry cost trend. Following negotiations and with a stipulation that the City accept the renewal without issuing a RFP, United Healthcare reduced the proposed plan increase 5%. The renewal proposes no plan. The chart on the slide shows basic plan design for each plan. The annual estimated increase in the City’s portion of medical insurance premiums is $91,627 for FY 2016 8 Affordable Care Act This year the biggest requirement of the Patient Protection and Affordable Care Act, also known as Healthcare Reform, is a requirement that large employers offer healthcare coverage to their full-time employees or pay a penalty. This is commonly know as the “Pay or Play” mandate. Any employer with 50 or more full-time employees is considered to be a large employer. The City currently has 335 full-time employees. As such, it must offer health care coverage to its full-time employees or pay a penalty. The coverage offered must provide “minimum value” and be “affordable” as defined within the act. Historically, it has been the City’s practice to offer health insurance to all of its full-time employees. This is an important factor when attracting and retaining quality employees. The plan offered by UHC meets the minimum value standard and the employees’ portion of the monthly premium satisfies the ACA affordability requirement.   9 United Healthcare Advantages There are a number of advantages to maintaining medical insurance coverage with United Healthcare. Some of these advantages include: [CLICK] Given the City’s claims history and predicted industry trend, Staff believes the proposed renewal is favorable; [CLICK] Maintaining the current plan design retains the plan’s competitiveness in comparison to our labor pool; [CLICK] Staying with United Healthcare mitigates any disruption employees would experience by changing carriers with changes in network providers, drug formularies, and ongoing treatment plans; [CLICK] United offers a wellness program called “Simply Engaged” that provides onsite biometric screening, a robust wellness website that helps drive long-term behavior change, and incentives to employees for completing a health risk assessment, online health coaching, or telephone based coaching; [CLICK] UHC is the City’s current provider for dental insurance which allows the ability to coordinate medical and dental care for employees and consolidates billing and administrative processes; and [CLICK] Establishing a history with a carrier generally permits plan renewals to be more stable over the long-term because the carrier is able to sustain high claim spikes more easily. 10 Financial Considerations Estimated cost of medical insurance premiums: Funding for medical insurance will be included in the proposed FY 2016 budget. The estimated cost of medical insurance premiums is $263,168 per month, or $3,167,120 annually (combined City and employee premium contributions). The estimated annual cost to the City is $2,534,657 and the annual estimated increase in the City’s portion of medical insurance premiums is $91,627 for FY 2016.   The proposed medical insurance plan costs will be included in the proposed budget for Fiscal Year 2016. 11 Staff Recommendation Approve a contract renewal with United Healthcare to provide employee medical benefits for Plan Year October 1, 2015 to September 30, 2016. Staff recommends City Council Approve a contract with United Healthcare to provide employee medical benefits for Plan Year October 1, 2015 to September 30, 2016. 12 Questions: Stacey Black 817-748-8063 13 If you have any questions regarding this item, please contact Director of Human Resources Stacey Black at 817-748-8063. Thank you for your attention.