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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