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