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MEMORANDUM
August 13, 2007
TO: Shana Yelverton, City Manager
FROM: Kevin Hugman, Director of Human Resources
SUBJECT: Approve renewal of a contract with Aetna for employee medical and dental
benefits
Action Requested: City Council approval of a twelve (12) month contract renewal with Aetna for
employee medical and dental benefits, effective October 1, 2007 through
September 30, 2008.
Background
Information: In May 2006, the City bid out its employee insurance benefits, including
medical and dental benefits. Three carriers submitted proposals for medical
benefits — Aetna, United Health Care and Blue Cross/Blue Shield. Aetna was
chosen for providing the best coverage plan for the best cost and on August 1,
2006 City Council approved a contract for medical and dental benefits. The
contract included a rate increase of 7.3 %, combined with changes in the plan
benefits by increasing employee co -pays and deductibles.
Rate renewals are based on various factors, with the most important factors
being (1) claims paid for the current and past plan years, and (2) health
industry trends. "Trend" is the direction in which medical costs are heading
and includes such things as medical cost inflation, changes in volume of
services used, cost shifting from government entitlement programs such as
Medicaid and Medicare to the private sector, etc. Various sources predict
2007/2008 trend levels ranging from 9.9% (Pricewaterhouse Coopers Health
Research Institute) to 11.4% (AON Consulting and The Segal Company).
In regards to claims paid, the City has incurred higher - than- normal claims this
current year, prompting Aetna to initially propose a rate increase of 12.7%
overall for the medical plan, and 18.0% for dental. Working through our
broker, we were able to ultimately obtain more favorable renewals from Aetna
(by allaying their concerns that claims paid would continue at a high level, and
by our willingness to bid the product again if necessary).
For Plan Year 2008, Aetna has proposed a 9.9% rate increase for the medical
plan and a 9.8 % increase for dental benefits. There are no changes proposed
to the level of benefits (i.e., co -pays and deductibles).
• Medical benefits (HMO): 9.9% increase
• Medical benefits (PPO); 9.9% increase
Overall Medical Plan 9.9% increase
• Dental benefits 9.8% increase
Shana Yelverton, City Manager
August 13, 2007
Page 2
The City currently pays the entire premium for "employee- only" medical and
dental coverage, and a portion of dependent medical coverage.
While the rates proposed are higher than we had hoped for, we also felt it was
not prudent to bid out medical insurance again this year for the following
reasons:
1. In past years, we have been able to achieve rate increases at less than the
national trend, however, our claims paid this current year have been higher
than in past years. Having some history with Aetna, we were able to
convince them that this is an anomaly and not indicative of our employee
experience in general. Were we to bid the insurance, we would be taking a
risk that other providers would base their proposals on this year without the
benefit of some background information to factor into their rate
calculations.
2. Of the three bids received last year, Aetna was the best plan with the lowest
cost. This was also considered in our decision not to re -bid this year.
3. We also consider the potential disruption to employees when changing
providers. Changing doctors can have a huge impact to employees and
their families and we are reluctant to do this unless a reasonable cost
advantage exists.
For these reasons, staff recommends approval of a contract renewal with Aetna
for medical and dental benefits.
Financial
Considerations: The estimated cost of medical insurance premiums is $159,738 per month, or
$1.917 million annually (combined City and employee premium
contributions). The City's estimated increase is $103,500 annually.
The estimated cost of dental insurance premiums is $12,827 per month, or
$153,930 annually (combined City and employee premium contributions). The
City's estimated increase is $7,700 annually.
The proposed medical and dental insurance plan costs are included in the
proposed budget for Fiscal Year 2007 -2008.
NOTE These rates and estimated costs will be reduced upon establishment of
a non - profit Trust as proposed in separate Council action. The Trust will allow
the city to be exempt from payment of insurance premium taxes as mandated
by the Texas Insurance Code. Taxes are an estimated 2.4% of the premium
rates.
Citizen Input/
Board Review: NIA.
Legal Review: The 2006 Request for Proposals (RFP) and the original agreement with Aetna
were reviewed by the City Attorney.
Shana Yelverton, City Manager
August 13, 2007
Page 3
Alternatives: Changes as may be desired by City Council.
Supporting
Documents: Summary of Renewal/Proposed Rates /Concession Only (medical plan)
Dental renewal/Proposed Rates /Concession
Staff
Recommendation: City Council approve renewal of contract with Aetna for medical and dental
benefits.
Staff Contact: Kevin Hugman, Director of Human Resources (817 - 7488193)
Summary Of Renewal/Proposed Rates /Concession Only
City of Southlake
Effective October 1, 2007
Policyholder Number - 57000
This exhibit outlines your renewallproposed rates effective October 1, 2007.
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.
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TX - Dallas - HMO
Coverage Categories
Assumed
Employees
Current Rates
Proposed Rates
%
Chan e
Ernp Only
135
$346.00
$380.25
9.9%
Em + Spouse
16
$771.57
$847.96
9.9%
Em + Child (ren)
60
$681.62
$749.10
9.9%
Em +Famil
35
$1,131.41
$1,243.42
9.9%
TOTAL
246
$139,551.67
1 $153,367.29
1 9.9%
TX - Dallas - PPO
Coverage Categories
Assumed
Employees
Current Rates
Proposed Rates
%
Change
Emp Only
4
$550.0
$604.55
9.9%
Emp + Spouse
3
$1,198.95
$1,317.65
9.9%
Emp + Child(ren)
0
$1,094.72
$1,203.10
9.9%
Em + Family
0
1 $1,908.88
$2,097.86
9.9%
TOTAL
7
1 $5,797.21
$6,371.13
9.9%
Current Proposed
Employees Premium Premium %Chan e
Monthly Totals F 253 1 $145,348.88 $159,738.42 9.9%
(Page 1 of 1)
Dental Renewal/Proposed Rates /Concession
City of Southlake
Effective October 1, 2007
• This exhibit outlines your Renewal /Proposed Rates Effective October 1, 2007.
• 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.
Policyholder Number - 57000
Group Number - 880600
FOC DMOIPPO
Coverage Categories
Current/Assumed
Employees
Current Rates
Proposed/
Renewal Rates
% Change
Employee
140
$25.89
$28.43
9.8%
EE +Spouse
24
$52.87
$58.05
9.8%
EE+ Child(ren)
31
$62.73
$68.88
9.8%
EE +Family
54
$89.71
$98.50
9.8%
Monthly Total
249
$11,682.45
$12,827.33
9.8%
Employees Current Proposed
Premium Premium % Change
Monthly Totals 249 $11,682.45 $12,827.33 9.8%
Financial Conditions
Rates may be adjusted if:
• covered population changes by 15% or more; current enrolled lives are 249;
• legislation or regulation is enacted that affect the benefits payable, eligibility
or contractual provisions;
• there is any other material change in the condition under which the plan operates.
• Commissions payable to a broker or consultant change.
Terms:
• Rates include commissions of 4.5% of premium.
• For Voluntary plans, where permitted by state law, late entrant rules will be applied at
annual enrollment (i.e., no true 'open enrollment') as well as throughout the year.
"Aetna" is the brand name used for products and services provided by one or more of the
Aetna group of subsidiary companies. PPO /PDN is underwritten by Aetna Life Insurance Company,
DMO is underwritten by Aetna Life Insurance Company, except as follows: Arizona, Georgia: Aetna
Health Inc. California: Aetna Dental of California Inc. Maryland, Missouri, North Carolina, Texas:
Aetna Dental Inc. New Jersey: Aetna Dental Inc. and Aetna Life Insurance Company.
7/24/2007 www,aetna.com Dental Renewal Rates