Item 10BCity of Southlake, Texas
MEMORANDUM
August 31, 2004
TO: Billy Campbell, City Manager
FROM: Kevin Hagman, 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 contract renewal with Aetna for employee medical
and dental benefits, effective October 1, 2004 with guaranteed rates through
September 30, 2005.
Background
Information: In September 2003, the City bid medical benefits due to an unsatisfactory rate
increase proposed by Cigna Healthcare, the medical benefits provider chosen
in August 2002. Bids were received from five major carriers for Health
Maintenance Organization (HMO), Preferred Provider Organization (PPO) and
Point of Service (POS) plans. Only two carriers offered an HMO plan, which
92% of employees choose, primarily due to cost reasons. Aetna proposed the
lowest rates consistent with continuing the level of benefits that employees
were being provided, and were 8 -10% lower than the rate renewal proposed by
Cigna. In October 2003, City Council approved a contract with Aetna to
provide medical benefits through an HMO Plan and a PPO plan.
Aetna has proposed rate renewals for its medical and dental plans for Plan
Year 2005. The rate increases proposed are:
• Medical Benefits (HMO): 9.8% increase
• Medical Benefits (PPO): 35.0% increase
• Dental Benefits 8.0% increase
The proposed contract renewal makes no changes to the level of benefits (i.e.,
co -pays and deductibles will remain the same). The City currently pays the
entire premium for "employee -only" medical and dental coverage, and a
portion of dependent medical coverage. The proposed rate increases will result
in an increase to employees who choose dependent coverage and will vary
depending on the type of coverage chosen (children, spouse or family).
Financial
Considerations: The proposed rate increases will result in the following approximate additional
costs to the City. Actual costs will be dependent on the number of employees
who choose dependent coverage.
• HMO Plan (9.8% increase): $83,000 annually
• PPO Plan (35% increase): $11,000 annually i
• Dental Plan (8% increase) $5,000 annually
Billy Campbell, City Manager
August 31, 2004
Page 2
Note (1): The City only pays the premium applicable to the HMO "Employee
only" rate, therefore the City's percentage increase is equivalent to the HMO
percentage increase.
The proposed FY 2004 -2005 Operating Budget includes an additional
$120,000 for employee benefits, which includes medical and dental benefits.
Citizen Input/
Board Review: Not Applicable.
Legal Review: Not Applicable.
Alternatives: Input as desired by Council.
Supporting
Documents: Proposed Rate Table (next page)
Staff
Recommendation: City Council approve renewal of a contract with Aetna for employee medical
and dental benefits, effective October 1, 2004 with guaranteed rates through
September 30, 2005.
Billy Campbell, City Manager
August 31, 2004
Page 3
Proposed Rates - October 1, 2004 throu September 30, 2005
HMO
Number of
employees
enrolled
Coverage Type
Proposed
Total Rate
(Including
EE)
Dependent
Costs
(Total - EE)
Monthly
City Cost
(EE + Part
of Dep)
Monthly
Employee
Cost
Bi- weekly
Employee
Incr (Decr)
116
Employee
$297.30
Costs
$297.30
$0.00
$0.00
56
Child(ren)
$585.68
$288.38
$447.30
$138.38
$7.13
15
Spouse
$662.97
$365.67
$447.30
$215.67
$14.01
33
Family
$972.16
$674.86
$467.30
$504.86
$25.19
9 9
Number of
Coverage Type
Proposed
Dependent
Monthly
Monthly
Bi- weekly
employees
$23.70
Total Rate
Costs
City Cost
Employee
Employee
enrolled
$23.70
(Including
(Total - EE)
(HMO EE
Cost
Incr (Decr)
$23.70
$24.71
EE)
Family
Cost + $150
$58.45
$23.70
$58.45
$2.17
of Dep)
15
Employee
$439.26
$297.30
$141.96
$36.24
2
Child(ren)
$874.11
$434.85
$447.30
$426.81
$122.06
3
Spouse
$957.39
$518.13
$447.30
$510.09
$152.86
0
Family
$1,524.20
$1,084.94
$447.30
$1,076.90
$362.48
Dental:
DMO or
PPO
Proposed
Total Rate
(Including
EE)
Dependent
Costs
(Total - EE)
Monthly
City (EE
only)
Monthly
Employee
Portion
Bi- weekly
Employee
Incr (Decr)
Employee
$23.70
$23.70
$23.70
$0.00
$0.00
Child(ren)
$57.44
$33.74
$23.70
$33.74
$1.25
Spouse
$48.41
$24.71
$23.70
$24.71
$0.91
Family
$82.15
$58.45
$23.70
$58.45
$2.17