Item 4E AudioSOUTHLAKE
0 Item 4E
Approve a contract with Aetna to
provide employee medical benefits for
Plan Year October 1, 2010 to
September 30, 2011.
Integrity
Innovation
Accountability
Commitment
to Excellence
Teamwork
Honorable Mayor and Members of City Council. Item 4E on the agenda is to
Approve a contract with Aetna to provide employee medical benefits for Plan Year
October 1, 2010 to September 30, 2011.
1
Serve Our
Customers
Managethe
Business
Provide
Financial
Stewardship
Promote
Learning
and Growth
Approving a contract for medical insurance links to the City's Strategy map relative
to the focus area of Performance Management and Service Delivery. The specific
corporate objective that is met by this purchase is L3: Attract, develop and retain a
skilled workforce.
2
Live Our Core Values
Integrity • Innovation • Accountability • Commitment to Excellence • Teamwork
The City of Southlake provides municipal services that support
the highest quality of
•
life for our residents and businesses. We do this by delivering outstanding
unrivaled quality in everything that we do.
value and
Oil
■
■
Serve Our
Customers
Managethe
Business
Provide
Financial
Stewardship
Promote
Learning
and Growth
Approving a contract for medical insurance links to the City's Strategy map relative
to the focus area of Performance Management and Service Delivery. The specific
corporate objective that is met by this purchase is L3: Attract, develop and retain a
skilled workforce.
2
Live Our Core Values
Integrity • Innovation • Accountability • Commitment to Excellence • Teamwork
Background
• Medical Insurance Renewal
— 27.8% proposed increase
— Unusually high claims experience
— Health industry trends
• Forecast of claims costs and includes price
inflation, utilization, government mandated
benefits, and new treatments, therapies and
technologies
• 2010 predicted trend increase
0 SOUTHLAKE
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 includes
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 in 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.
3
Background
• RFP Issued in June, 2010
— Responses from 5 carriers
0 SOUTHLAKE
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. A summary of medical submissions is attached.
M
Vendor Name
Broker
1.
Aetna
Lifetime Benefits, Inc
2.
Blue Cross Blue Shield
Lifetime Benefits, Inc
3.
Cigna
Lifetime Benefits, Inc
4.
TML
Lifetime Benefits, Inc
5.
United Healthcare
Lifetime Benefits, Inc
Virtual Benefits
0 SOUTHLAKE
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. A summary of medical submissions is attached.
M
Background
• Proposal Review Process
— Evaluation Criteria:
• Experience and reputation
• Proposed schedule of benefits
• Rates
• Provider network access
• Reporting and cost management
— Finalist Meetings
• United Healthcare & Aetna
0 SOUTHLAKE
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.
5
Background
• United Healthcare
— Base POS single option plan
— $1,000 individual deductible
— $2,000 family deductible
• Aetna
— Dual option HMO / PPO plans
— Current plan design
0 SOUTHLAKE
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. Aetna also proposed a
number of alternatives to the current plan design.
N
Background
• Aetna Post Negotiations
— HMO: Reduced to 7.5% increase
• Plan Changes: $500 individual deductible,
$1,000 family deductible
— PPO Buy -up Option
• Switch to OMAC -POS plan
• 27.9% reduction in employee premium
• More affordable option for employees
• Allows for out of network access
• Staff recommendation: Aetna
0 SOUTHLAKE
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 employees 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.
The City currently offers employees 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 7
Background
• Advantages to staying with Aetna:
— Best plan design with lowest cost
— Good customer service and employee
satisfaction
— Less employee disruption
— Less administrative staff time to maintain
same carrier
— Same carrier for 12 of last 13 years.
0 SOUTHLAKE
In addition to providing the best overall benefit plan and lowest rates, there
are also 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.
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Financial Considerations
• Estimated cost of medical insurance
premiums:
Estimated Annual City Increase:
$ 99,050
Estimated Annual Total Premium Cost:
(City & Employee contributions)
$ 2,241,725
• Funding for medical insurance will be
included in the proposed FY2011
budget.
0 SOUTHLAKE
The estimated increase in the City's portion of medical insurance premiums
for Fiscal Year 2011 is $99,050. The total estimated annual cost of medical
insurance premiums, combining both the City and employee contribution, is
$2,241,725.
The proposed medical insurance plan costs will be included in the proposed
budget for Fiscal Year 2010 -2011.
E
Recommendation
Approve a contract with Aetna to provide
employee medical benefits for Plan
Year October 1, 2010 to September 30,
2011.
USOUTHLAKE
Staff's recommendation is to approve a contract with Aetna to provide
employee medical benefits for Plan Year October 1, 2010 to September 30,
2011.
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SOUTHLAKE
9
Questions?
Stacey Black
(817) 748 -8063
Integrity
Innovation
Accountability
Commitment
to Excellence
Teamwork
If you have any questions regarding this request please feel free to contact me at
817- 748 -8063. Thank you.
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