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Item 10BCity of Southlake, Texas MEMORANDUM October 24, 2003 TO: Billy Campbell, City Manager FROM: Kevin Hugman, Director of Human Resources SUBJECT: Approval of a contract with Aetna for employee medical benefits Action Requested: City Council approval of a contract with Aetna for employee medical benefits, effective December 1, 2003 with guaranteed rates through September 30, 2004. Background Information: In May 2002, the City bid out the various employee insurance and benefits programs. These programs included medical, dental, group life insurance (including accidental death and dismemberment, life, and long -term disability) and section 125 plan. Cigna Healthcare was chosen to provide medical benefits and a contract was approved by City Council in August 2002. When we received our 2003 -2004 rate renewals from Cigna, the rates were much higher than we expected and we immediately began negotiating to lower the cost. After working with Cigna for several weeks, we were able to reduce the proposed increase to a 19.95 rate increase, from an initial proposal of 30 %. However, based on our recent claims history, we did not believe this high increase was justified, and we immediately took steps to seek new proposals. Sealed proposals were accepted on October 6 from five carriers, who submitted various plans involving Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO) and Point of Service (POS) plans. Submittals and plan types received were: • Aetna — HMO, PPO, POS • Pacificare — PPO(1), PPO(2), PPO(3), PPO(4) • Humana -- PPO(1), PPO(2) • Blue Cross/Blue Shield -- HMO, PPO(1), PPO(2) • Texas Municipal League (TML) -- PPO(1), PPO(2) After review of the various submittals for costs, plan coverage, level of benefits, carrier experience, qualifications and other factors, staff recommends that Aetna be selected as the provider for employee medical benefits. This recommendation is based on: • Aetna provided the lowest rates consistent with continuing the level of benefits that employees are currently provided. • Aetna is the current dental benefits provider, which allows the City to realize a discount in rates for multiple lines of coverage. Billy Campbell, City Manager October 24, 2003 Page 2 • Aetna offers electronic enrollment, which will simplify enrolling employees and save staff time in reconciling premium payments. • Aetna was the City's medical benefits provider for the six (6) years prior to changing to Cigna in 2002. Staff s interaction with Aetna customer service representatives has been very positive. • Aetna is well positioned to respond to the ongoing changes in the healthcare benefits market with new products and benefit plans. This would be beneficial to the City in establishing a long -term relationship with a carrier and partnering to achieve cost savings while still providing adequate medical benefits. Employees with dependent coverage will pay $30 to $70 more per month depending on the type of dependent coverage they choose. However, if the City were to stay with Cigna, employees would pay $53 to $118 more per month for the same level of benefits. Financial Considerations: HMO Aetna's proposed rates are 8% lower than Cigna's 2003 -2004 rates. However, this equates to a 12% increase over 2002 -2003 rates. PPO Aetna's proposed rates are 10.3% lower than Cigna's 2003 -2004 rates. However, this equates to a 9.7% increase over 2002 -2003 rates. Accepting Aetna as the provider for employee medical benefits will result in an approximate savings of $267,962 in total medical premiums over the Cigna 2003 -2004 rates. (This savings is based on the remaining I 0-month period in FY 2004 and assuming current enrollment numbers.) The proposed medical benefits costs are within the amounts approved in the FY 2003 -2004 Budget. Citizen Input/ Board Review: Not Applicable. Legal Review: The City Attorney reviewed the Request for Proposals (RFP) and sealed proposals were accepted in accordance with state law. Alternatives: Input as desired by Council. Supporting Documents: Table 1 -- comparison of Cigna and Aetna rates Table 2 -- Rate structure with City and employee costs Staff Recommendation: City Council approve a contract with Aetna for employee medical benefits, effective December 1, 2003 with guaranteed rates through September 30, 2004. Billy Campbell, City Manager October 24, 2003 Page 3 FY 2002 -03 Cigna - HMO Number of employees enrolled 126 49 13 30 Cigna - POS 13 0 2 0 Table 1 - Comparison of Cigna and Aetna Rates PROPOSED FY 2003 -04 (Cigna 2003 -04 rates are 20% higher than 2002 -03.) Aetna -- HMO Total Rate (incl EE) Dependent Costs (Total - EE) Employee $225.51 $0.00 Child(ren) $491.51 $266.00 Spouse $550.03 $324.52 Family $819.18 $593.67 PROPOSED FY 2003 -04 (Cigna 2003 -04 rates are 20% higher than 2002 -03.) Aetna -- HMO Total Rate (incl EE) Dependent Costs (Total - EE) Employee $296.19 $0.00 Child(ren) $589.41 $293.22 Spouse $645.57 $349.38 Family $1,027.77 $731.58 PROPOSED FY 2003 -04 (Cigna 2003 -04 rates are 20% higher than 2002 -03.) Aetna -- HMO TOTAL Chq 11.9% 11.9% 11.9% 11.9% Aetna -- PPO Total Rate (incl EE) Dependent Costs (Total - EE) Employee $252.42 $0.00 Child(ren) $550.14 $297.72 Spouse $615.64 $363.22 Family $916.80 $664.38 TOTAL Chq 11.9% 11.9% 11.9% 11.9% Aetna -- PPO TOTAL Chq 9.7% 9.7% 9.7% 9.7% Total Rate (incl EE) Dependent Costs (Total - EE) Employee $324.90 $0 Child(ren) $646.53 $321.63 Spouse $708.13 $383.23 Family $1,127.37 $802.47 TOTAL Chq 9.7% 9.7% 9.7% 9.7% Billy Campbell, City Manager October 24, 2003 Page 4 Table 2 -- Rate Structure (City Portion / Employee Portion) FY 2002 -03 Cigna -- HMO Number of employees enrolled 126 49 13 30 Cigna -- POS 13 0 2 0 FY 2003 -04 Total Rate (incl EE) Dependent Costs (Total - EE) Monthly City Portion Monthly Employee Portion Employee $225.51 $225.51 $0.00 Child(ren) $491.51 $266.00 $399.11 $92.40 Spouse $550.03 $324.52 $401.07 $148.96 Family $819.18 $593.67 $435.41 $383.77 Cigna -- POS 13 0 2 0 FY 2003 -04 Aetna -- HMO Total Rate (incl EE) Dependent Costs (Total - EE) Monthly City Portion Monthly Employee Portion Employee $296.19 $225.51 $70.68 Child(ren) $589.41 $293.22 $375.51 $213.90 Spouse $645.57 $349.38 $375.51 $270.06 Family $1,027.77 $731.58 $375.51 $652.26 Aetna -- HMO Aetna -- PPO Total Rate (incl EE) Dependent Costs (Total - EE) Monthly City Portion Monthly EE Portion Employee $252.42 $252.42 $0.00 Child(ren) $550.14 $297.72 $426.02 $124.12 Spouse $615.64 $363.22 $427.98 $187.66 Family $916.80 $664.38 $462.32 $454.48 Aetna -- PPO Employee Change/ month 0 $31.72 $38.70 $70.71 Employee Change/ month $1.80 $30.21 $35.65 $72.69 Total Rate (incl EE) Dependent Costs (Total - EE) Monthly City Portion Monthly EE Portion Employee $324.90 $252.42 $72.48 Child(ren) $646.53 $321.63 $402.42 $244.11 Spouse $708.13 $383.23 $402.42 $305.71 Family $1,127.37 $802.47 $402.42 $724.95 Employee Change/ month 0 $31.72 $38.70 $70.71 Employee Change/ month $1.80 $30.21 $35.65 $72.69