Item 4ECITY OF
SOUTHLAKE
MEMORANDUM
July 14, 2010
TO: Shana Yelverton, City Manager
FROM: Stacey Black, Director of Human Resources
SUBJECT: Approve a contract with Aetna to provide employee medical benefits for
Plan Year October 1, 2010 to September 30, 2011.
Action
Requested: Approve a contract with Aetna to provide employee medical benefits
for Plan Year October 1, 2010 to September 30, 2011.
Background
Information: In early June, the City received its medical insurance renewal from
Aetna, the current provider. To maintain the current plan designs for
both the "base" HMO plan and the "buy -up" PPO plan, Aetna proposed
a rate increase of 27.8 %.
Rate renewals are based on various factors, with the most important
factors being: (1) actual claims paid for the current and past plan
years, and (2) health industry trends. "Trend" is a forecast of claims
costs that include such things as price inflation, utilization, government
mandated benefits, and new treatments, therapies, and technologies.
In 2010, the predicted trend increase is 10 %.
In regards to claims paid, the City's medical insurance plan had
favorable years in fiscal years 2007, 2008 and 2009, with claims paid
less than expected. However, in fiscal year 2010, the City's plan
experienced unusually high claims and saw an increase in the number
of claims in excess of $25,000. This, coupled with the predicted trend
increase of 10 %, contributed to the high renewal rate from Aetna.
In response to Aetna's proposed rate increase, the City issued a
Request for Proposals (RFP) for its employee medical and dental
insurance benefits. The City last issued an RFP for medical and dental
insurance in 2006, and will typically issue an RFP every four to five
years depending upon renewal proposals. Five carriers submitted
proposals for medical benefits, including the current provider, Aetna.
Shana Yelverton, City Manager
July 14, 2010
Page 2
Each proposal was reviewed and evaluated based on the following
criteria:
• Experience and reputation;
• Proposed schedule of benefits;
• Rates;
• Provider network access; and
• Reporting and cost management.
Staff carefully reviewed each proposal and analyzed proposed plan
alternatives to determine the best option for the City. Following an
initial review, United Healthcare and Aetna were selected as finalists
and invited to meet with staff.
United Healthcare offered a single option, base POS plan which
included a $1,000 individual deductible, $2,000 family deductible and
co- payments comparable to the current plan. Aetna's proposal
retained the current plan design, but reflected a reduction from the
renewal.
Through negotiations, Aetna reduced the increase to 13.2% and by
implementing plan changes the increase dropped to 7.5% on the HMO
plan. Plan changes included the addition of a $500 individual
deductible and a $1,000 family deducible, while all other co- payments
and co- insurance remain unchanged.
The City currently offers a PPO "buy -up" option in an effort to provide
employees with an opportunity to select a plan with out of network
coverage. The City's contribution rate towards the PPO plan is
equivalent to the HMO plan and employees are responsible for paying
the difference between the two plans. Currently, less than 1% of
employees have elected PPO coverage primarily due to the high
premium cost. In an effort to reduce the premium and still offer a
medical plan with out of network benefits, staff recommends
eliminating the PPO plan and offering an Open Access Managed
Choice POS (OMAC -POS) plan instead. The OMAC -POS plan
includes higher deductibles and co- payments than the PPO plan;
however, changing plans will reduce the employee only premium by
27.9 %, making the plan a more viable option to employees.
After meeting with both companies and analyzing each plan, staff has
ultimately selected to recommend Aetna for providing the best plans
combined with the best rates.
Shana Yelverton, City Manager
July 14, 2010
Page 3
In addition to providing the best overall benefit plan and lowest rates,
there are other advantages to maintaining coverage with Aetna:
• The City has received very good customer service and
employees have been generally satisfied with the plan
coverage;
• Changing carriers would result in some disruption to employees
through changes in network providers, drug formularies, and
ongoing treatment plans;
• Less administrative staff time is required to maintain coverage
with the same carrier than if the City changes carriers; and
• Aetna has been the City's provider for medical insurance twelve
of the last thirteen years and during that time has worked with
the City to keep the renewal rate below the predicted trend
increase.
A summary of contract renewals and the predicted trend increase
since 2006 is shown below. As you can see, the average increase
is nearly half the average predicted trend increase.
Plan Year
City Rate Increase
(HMO Plan)
Predicted
HMO Trend
Plan Changes
(Y/N
10 -01 -2006
7.3%
12.0%
Y (2)
10 -01 -2007
9.9%
11.1%
N
10 -01 -2008
0.0%
10.7%
N
10 -01 -2009
5.0%
10.0%
N
10 -01 -2010*
7.5%
10.0%
Y (3)
Average:
5.9%
10.8%
* Proposed
(1) Source (Segal Health Plan Cost Trend Survey, The Segal Company;
www.shrm.org
(2) Plan changes included increased co -pays and co- insurance.
(3) Plan changes included increased deductibles.
The City currently pays the entire premium for employee only coverage
on the "base" HMO medical plan and a portion of dependent medical
coverage. The City's contribution rate towards the "buy -up" OMAC-
POS plan is equivalent to the HMO plan and employees are
responsible for paying the difference between the two plans.
Shana Yelverton, City Manager
July 14, 2010
Page 4
Financial
Considerations: The estimated cost of medical insurance premiums is $201,310 per
month, or $2,241,725 annually (combined City and employee premium
contributions). The estimated increase in the City's portion of medical
insurance premiums is $99,050 for FY 2011.
The proposed medical insurance plan costs will be included in the
proposed budget for Fiscal Year 2010 -2011.
Citizen Input/
Board Review: N/A
Legal Review: The City Attorney reviewed the Request for Proposals (RFP) and
applicable documents.
Alternatives: Deny contract with Aetna and seek alternative options.
Supporting
Documents: The following supporting documents are attached:
• Summary of Medical & Dental RFP Submissions
• Aetna Summary of Renewal /Proposed Rates
• Proposed Medical Insurance Plan Design Options
Staff
Recommendation: Approve a contract with Aetna to provide employee medical benefits
for Plan Year October 1 , 2010 to September 30, 2011.
CITY OF
SOUT'111 ILAKEr
2010 Medical &Dental RFP Submissions
Product Vendor Name Broker
1 Medical
Aetna
2 Medical
Blue Cross Blue Shield
3 Medical
Cigna
4 Medical
TML
5 Medical
United Healthcare
6 Medical
United Healthcare
Product Vendor Name
Lifetime Benefits, Inc
Lifetime Benefits, Inc
Lifetime Benefits, Inc
Lifetime Benefits, I
Lifetime Benefit Inc
Virtual Benefits
Broker
1 Den
2 Dental
3 Dental
4 Dental
5 Dental
6 _Dental
7 Dental
8 Dental
9 De ntal
10 Dental
11 Dental
Aetna
Ameritas
Guardian
Cigna
Blue Cross Blue Shield
Delta
SunLife
TML
MetLife
United Healthcare
United Healthcare
Lifetime Benefits, Inc
Lifetime Benefits, Inc
L ifetime Benefits, Inc
Lifetime Benefits, Inc
Lifeti Benefits, I
Lifetime Benefits, I
Lifetime Benefits, Inc
Lifetime Benefit Inc
Lifetime Benefits, Inc
Lifetime Benefits, Inc
Virtual Benefits
Summary Of Renewal /Proposed Rates
City of Southlake
Effective October 1, 2010
• This exhibit outlines your renewal /proposed rates effective October 1, 2010.
• Please refer to the Financial Conditions and Plan Design Exhibits for an outline of the level of benefits
quoted, as well as the terms and conditions of this proposal.
• Concession to +21.7% - 6/16/2010
• Concession to +13.2% - 6/30/2010
TX - Dallas - HMO
Add Ded $500//2x family, applies to
all except PCP, Specialist,
Preventative Care and ER
Assumed
Coverage Categories Employees
Current Rates
Proposed Rates
%
Change
Proposed Rates
%
Change
Emp Only 128
$388.14
$439.37
13.2%
$417.41
7.5%
Emp + Spouse 27
$865.56
$979.81
13.2%
$930.82
7.5%
Emp + Child(ren) 85
$764.65
$865.58
13.2%
$822.30
7.5%
Emp + Family 36
$1
$1
13.2%
$1
7.5%
TOTAL 276
$183,739.57
$207
13.2%
$197
7.5%
TX - Dallas - PPO
OMAC Preferred
3
Assumed
Coverage Categories Employees
Current Rates
Proposed Rates
%
Change
Proposed Rates
%
Change
Emp Only 4
$617.10
$698.56
13.2%
$439.35
-28.8%
Emp + Spouse 2
$1
$1
13.2%
$979.74
-27.2%
Emp + Child(ren) 0
$1,228.07
$1
13.2%
$865.51
-29.5%
Emp + Family 0
$2
$2
13.2%
$1
-32.9%
TOTAL 6
$5,158.40
$5
13.2%
$3
-27.9%
Current Proposed Proposed
Employees Premium Premium % Change Premium % Change
Monthly Totals 282 $188,897.97 $213 13.2% $201 6.6%
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