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Item 4G ITEM 4G M E M O R A N D U M July 29, 2015 TO: Shana Yelverton, City Manager FROM: Stacey Black, Director of Human Resources SUBJECT:Approve acontract renewal with United Healthcareto provideemployee medical benefits for Plan Year October 1, 2015to September 30, 2016. Action Requested: Approve a contractrenewal with United Healthcareto provide employee medical benefits for Plan Year October 1, 2015to September 30, 2016. Background Information: The City’s current healthcare plan is afully insured plan provided by United Healthcare (UHC). In a fully insured plan, the employer pays a monthly peremployee 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. With UHC, employees are offered three plan options: a “base” EPO plan, a “buy-down” High Deductible Health HSA (HDHP) plan, and a “buy-up” PPOplan. The City contributes the same amount to all three plans and employeesare able tochoose a plan that best meets their unique healthcare needs. UHC became theCity’s medical carrier October 1, 2013 following a competitive bidding process. The City hadpreviously 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 carriersin 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. In mid-June, the City received its medical insurance renewal from UHC.Rate renewals are based on various factors, with thetwomost important factors being: group experienceand healthcare industry cost trend. Shana Yelverton, City ManagerITEM 4G July 29, 2015 Page 2 Group Experience:As part of the renewal process, UHC provided the City with the claims dataused, in part, to determine the proposed renewal. The chart belowcompares the monthly premium paidby the Cityto the monthly claims paid by the insurance companyover a threeyear period. The blueline on the chart represents the monthly premium and thegoldline 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 yearperiod, the City’s claims ratio was 81%. In addition to 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 are in excess of $50,000. Generally, UHC will see three to four large claims in a group the same size as theCity.Carriers will use the group’s claim data to predict future medical costs. Industry Trend:Healthcare industry cost trend is the predicted change in the cost of healthcare. It includes components such as price inflation,government mandates, and advancements in technology, treatments and therapies.For 2015, 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. Shana Yelverton, City ManagerITEM 4G July 29, 2015 Page 3 Based upon the above factors, UHC originally proposed an11% rate increase. However, following negotiations and with a stipulation that the City accept the renewal without issuing a RFP, UHC reduced the proposed plan increase to 5%.The renewal proposes no plan modifications.The graphicon the right summarizes the basic plan design for each plan. It is important to note that beginning this year, the Patient Protection and Affordable Care Act (ACA) requires employers with 50 or more full-time employeestooffer health care coverage to its full-time employees or pay a penalty. The coverage offered must provide “minimum value” and be “affordable”. Historically, it has been the City’s practice to offer health insurance to all of its full-time employees. The plan offered by UHC meets the minimum value standard and the employees’ portion of the monthly premium satisfiesthe ACA affordability requirement. Advantages to maintaining medical insurance coverage with UHC include: Given the City’s claims history and predicted industry trend,the proposed renewal is favorable; Maintaining the current plan design retains the plan’s competitiveness in comparison to our labor pool; The City has been pleased with the service from the carrier and employees have been generally satisfied with the plan coverage; Changing carriers would result in disruption to employees through changes in network providers, drug formularies, and ongoing treatment plans; UHC 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 Shana Yelverton, City ManagerITEM 4G July 29, 2015 Page 4 health coaching, or telephone based coaching; 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 Establishing a history with a carrier generally permits plan renewals to be more stable over the long-termbecause the carrier is able to sustain high claim spikes more easily. Financial Considerations: The estimated cost of medical insurance premiums is $263,926 per month, or $3,167,120annually (combined City and employee premium contributions). The City’s annual estimated cost is $2,534,657. The annual estimated increase in the City’s portion of medical insurance premiums is $91,627for FY 2016. The proposed medical insurance plan costs will beincluded in the proposed budget for Fiscal Year 2016. Strategic Link: Performance Management and Service Delivery: attract, develop and retain a skilled workforce.CBO2: Become an employer of choice by developing a plan to recruit, develop and retain employees committed to excellence. Citizen Input/ Board Review: N/A Legal Review: N/A Alternatives: Deny the proposed contract renewal with United Healthcareand seek alternative options. Supporting Documents: The following supporting documents are attached: United Healthcare Medical Proposed Rates Staff Recommendation: Approve a contract with United Healthcareto provide employee medical benefits for Plan Year October 1, 2015to September 30, 2016. Y CITY OF SOUTHLAKE Medical Proposed Rates UnitedHealthcare Medical Proposed Rates Customer Name: CITY OF SOUTHLAKE 00730063 Medical Policy: October 1, 2015 Renewal Date: • The numbers below are on an illustrative basis. Rates are subject to Underwriting approval. Option 1: Current Option 2: Current Option 3: Current 2J4 Mod (HSA/Emb/PVY/2014) Rx 25T Mod (Premier/Emb/PVY/2014) 2T4 Mod (Premier/Emb/PVY/2014) Plan: 2V-HSARx Plan: 2VRx Plan: 2V Plan Name ProductChoice + Insurance *Choice Insurance *Choice + Insurance * Option2J4 Mod25T Mod2T4 Mod Plan OfferingMultiple OptionMultiple OptionMultiple Option Multiple Option with:Option(s) 2 and 3Option(s) 1 and 3Option(s) 1 and 2 HSANoNo HRA or HSA Network Single/FamilyNetwork Single/FamilyNetwork Single/Family Benefits* Office Copay (PCP/SPC)PCP N/A, SPC N/APCP $35, SPC $35PCP $40, SPC $40 Hospital CopaysOP N/A, IP N/AOP N/A, IP N/AOP N/A, IP N/A UC/ER/Major Diag CopayUC N/A, ER N/A, Maj Diag N/AUC $50, ER $150+30%, Maj Diag N/AUC $50, ER $150+20%, Maj Diag N/A OtherENRP(PCP $0 if <19); ENRP(PCP $0 if <19); ENRP Deductible$3000/$6000 (Emb)$1500/$3000 (Emb)$1000/$2000 (Emb) Coinsurance80%70%80% Out-of-Pocket$6000/$12000$5000/$10000$4000/$8000 $10/35/60; 2.5x for M.O.$10/35/60; 2.5x for M.O.$10/35/60; 2.5x for M.O. Pharmacy Out of Network Single/FamilyOut of Network Single/FamilyOut of Network Single/Family Deductible$5000/$10000 (Emb)N/A$2000/$4000 (Emb) Coinsurance60%N/A50% $10000/$20000N/A$8000/$16000 Out of Pocket Enrollment Employee2110726 Employee + Spouse1173 Employee + Child(ren)4844 Employee + Family5265 3123438 Total Rates (Billed)Rates (Billed)Rates (Billed) ProposedProposedProposed CurrentCurrentCurrent Rates Employee$422.18$443.29$503.93$529.13$563.29$591.45 Employee + Spouse$941.46$988.54$1,123.77$1,179.97$1,256.13$1,318.93 Employee + Child(ren)$831.70$873.29$992.74$1,042.38$1,109.68$1,165.16 Employee + Family$1,380.53$1,449.56$1,647.85$1,730.25$1,841.96$1,934.04 Monthly Cost$20,036.69$21,038.59$199,258.86$209,222.82$32,062.45$33,665.33 $252,463.08$2,510,673.84$403,983.96 Annual Cost$240,440.28$2,391,106.32$384,749.40 5.0%5.0%5.0% Change from Current *High level benefit summary. Please see your plan summary for more detailed benefit description. The numbers above are on an illustrative basis. Rates are subject to Underwriting approval. For markets moving to service fees, current rates (applicable for renewals only) include commission expenses. Proposed rates, for your convenience, include any applicable producer service fees. Producer service fees are not a contingency of obtaining insurance coverage but are fees agreed to between you (client) and your producer/service provider for service rendered on behalf of client. For markets continuing to pay commissions, both the current (applicable for renewals only) and proposed rates include commissions. CITY OF SOUTHLAKE Medical Proposed Rates UnitedHealthcare Medical Quote Assumptions Customer Name: CITY OF SOUTHLAKE 00730063 Medical Policy: October 1, 2015 Renewal Date: The rates quoted here are based on the following assumptions. Changes to these assumptions may result in an adjustment to rates. Medical Quote Assumptions - Rates are guaranteed for the contract period of 10/1/15 through 9/30/16. - Rates are based on your submitted census. UnitedHealthcare reserves the right to adjust the rates from audit date back to effective date if any of the following changes: - Enrollment +/- 10% - Average Contract Size +/- 10% - Area Factor +/- 7.5% - Age/Sex Factor +/- 10% - Any Material Changes - Cobra enrollees are more than 10% of enrollment - Employer contributes a minimum of 99% toward the employee only rates and 10% toward the dependent rates. - Requires a minimum participation level of 75%. - INS-Choice plans are not available for subscribers in AL, AR, AZ, HI, KS, LA, MN, MS, MT, NC, NM, OK. - UnitedHealthcare will work exclusively with the broker designated when an agent of record letter is issued by the prospective client. - Unless otherwise stated, this offer replaces and renders all previous offers null and void. - UnitedHealthcare reserves the right to re-rate if Underwriting has not received written confirmation of renewal by August 01, 2015. - Quote includes UHC fulfilled Simply Engaged. UnitedHealthcare reserves the right to adjust the rates and/or fees (i) in the event of any changes in federal, state or other applicable legislation or regulation; (ii) in the event of any changes in Plan design required by the applicable regulatory authority (i.e. mandated benefits) or by the Plan Sponsor; and (iii) as otherwise permitted in our policy. This premium includes state and federal taxes and fees, including the Insurer Fee (about 3% of premium) and the Reinsurance Fee (about $3 per member per month) under the Affordable Care Act. These estimates will vary based on renewal date and state reinsurance fees. Premium rates and/or product forms included herein are subject to approval by regulators. If rates or product forms offered herein are subsequently modified by regulators we will immediately advise you of the change in plan design and retroactively adjust premium in subsequent billings. Plan design and corresponding premium rates offered herein representa coverage option that is consistent with your current group size (based on most recent census or survey information) and closely matches your current coverage. Additional coverage options may be available to you. A service fee to be paid to your producer/service agent of 4.17% has been added as an expense item in sites where service fees apply. Agents may receive commissions and other compensation from us and these costs may be reflected in your premium or fee. Separately, you may have contracted with producers to provide services directly for your group and have agreed to pay them a 'service fee'. Since 'service fees' are not a contingency of the purchase of health insurance such fees are not part of your premium but may be included in your bill under total amount due. HRA/HSA Assumptions (If Applicable) - Please refer to the vendor bank collateral for HRA/HSA account fee information. - HRA and HSA plans may include a non-embedded deductible and out of pocket. In that instance, no individual family member's deductible or out of pocket is considered satisfied until the full family deductible or out of pocket amount has been met. Pharmacy copays will only apply after the deductible has been satisfied on HRA/HSA plans with integrated medical/pharmacy deductibles. - Rates assume the Employer funds no more than 50% of the HSA/HRA deductible. UnitedHealthcare reserved the right to adjust rates if this assumption changes. - HSA accounts must be paired with qualified HDHPs as determined under section 223 of the Internal Revenue Code - For calendar year 2015, the HDHP annual deductible cannot be less than $1,300 for self-only coverage or $2,600 for family coverage - Medical and pharmacy expenses covered under an HSA program are not eligible for reimbursement under an FSA program - Funds in the HSA account continue to accumulate and are fully portable to another HSA account. - Any unused HRA funds can be rolled over to next year's HRA, but are not portable as a cash out option. - Only medical expenses covered under the medical plan are reimbursable from the HRA.