Item 4H AudioSOUTHLAKE �
Honorable Mayor and City Council. This presentation will cover Item 4H on the
August 2, 2011 City Council Agenda.
Item 4H
Approve a contract with Aetna to
provide employee medical benefits
for Plan Year October 1, 2011 to
September 30, 2012.
The purpose of this item to is to request City Council approval of a contract renewal
with Aetna to provide employee medical benefits for Plan Year October 1, 2011
through September 30, 2012.
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Approving the contract renewal with Aetna links to the City's strategy map relative to
the focus area of Performance Management and Service Deliver and specifically to
the corporate business objective of Attract, develop, and retain a skilled workforce.
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•
The City of Southlake provides municipal services that support
the highest quality of
life for our residents and businesses. We do this by delivering outstanding
unrivaled quality in everything that we do.
value and
■
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Achieve the C2 Provide travel C3 Provide attractive C4 Attract and keep
highest standards convenience and unique spaces tier businesses to drive
top- C5 Promote
a opportunities for
of safety and within City and for enjoyment of dynamic and sustainable
security region personal interests economic environment
partnerships and
volunteer involvement
B1 Achieve B2 Collaborate with B3 Enhance resident B4 Provide
best select to life high
B5 Improve
performance B6 Optimize"
"
-in -class partners quality of and quality
status in all City implement service business sustainability customer
disciplines solutions through tourism service
of delivery and use of
operational technology
processes
F1 Adhere to financial
F2 Invest to provide and F3 Achieve fiscal
management maintain high quality wellness
F4 Establish and'
maintain effect
principles and budget public assets standards
internal co "
L1 Ensure our people L2 Enhance L3 Attract, L4 Recognize
understand the leadership develop and and
informed decisio
t retain a skilled reward high
workforce performers
making at all
in the orga
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Approving the contract renewal with Aetna links to the City's strategy map relative to
the focus area of Performance Management and Service Deliver and specifically to
the corporate business objective of Attract, develop, and retain a skilled workforce.
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Background
• Current carrier: Aetna
— 10/01/96 — 09/30/02
— 12/01/03 — present
• Bid insurance in 2002, 2003, 2006, 2010
• 2 plans: HMO and POS (Point of Service)
Aetna
The City's current medical insurance carrier is Aetna. Aetna has been the City's
medical carrier for 14 of the last 15 years and medical insurance was competitively
bid in 2002, 2003, 2006, and 2010. Currently, employees are offered two plan
options: a "base" HMO plan and a "buy -up" Point of Service (POS) plan.
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Aetna Renewal History
• Consistently below
trend
• Minor plan
changes in FY06
and FY11
• No plan changes in
FY07, FY08, FY09 or
FY10
Aetna Renewal vs Industry Trend
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
14.5% 13.3% 14.4%
13.3 13.4%
8.7%
7.5%
na
0.0% V
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
—s— Renewal tIndustry Trend — Renewal Average —Trend Average
The chart on this slide illustrates the City's most recent renewal history with Aetna.
The blue line is the actual renewal increase and the green line represents the
renewal average over the six year period. The red line represents the health
industry trend, while the purple line is the trend average. Trend is a forecast of
claim costs that includes such things as price inflation, utilization, government
mandated benefits and new treatments, therapies and technologies. For Fiscal Year
2012, the predicted trend increase is 10 %. As you can see on the chart, Aetna has
provided the City with favorable renewals when compared to the industry trend.
The City made minor plan changes in Fiscal Year 2006 and Fiscal Year 2011. No
plan changes were made in the other four fiscal years.
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Medical Claims Ratio
• Total Premium Paid:
$2,294,792
• Total Claims Paid:
$2,313,527
• Claims Ratio:
101%
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
, , , y 0 , , , , , , . ,
\A , y o L o d o , , d o ay o , , y o
t Monthly Billed Premium --IF-Total Claims
As part of the renewal process, Aetna provided the City with basic claims data. The chart on the
screen compares the monthly premium paid to Aetna to the monthly claims paid by
Aetna. The red line represents the claims Aetna paid each month while the blue line represents the
monthly billed premium. As you can see, the City has seen a high usage of the medical insurance.
Aetna received $2,294,792 in premiums and has paid $2,313,527 in claims. This equates to a claims
ratio of 101 %. Overall, Aetna has paid out more in claims than it has received in premiums. When
compared to the same period last year, the City's plan has experienced a 40% increase in utilization.
This is the second consecutive year in which the plan has experienced high claims
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Premium Paid vs Claims Paid
Aetna Proposed Renewal
• No plan changes: 17.3%
• With plan changes: 10%
• Estimated increase:
$142,000
• Plan changes include
deductible, copayments,
and coinsurance
Renewal Rate increases.
In early June, the City received its medical insurance renewal from Aetna. To
calculate the renewal, Aetna reviewed the premiums paid, claims data and industry
trend. To maintain the current plan design for the "base" HMO plan and the "buy -
up" POS plan, Aetna proposed a rate increase of 17.3 %.
In response to the high rate renewal, staff worked with Aetna to incorporate plan
changes to decrease the renewal. With plan modifications, the renewal increase
changed from 17.3% to 10 %, resulting in an estimated annual cost increase of
$142,000 to the City. The City will continue to pay the entire base HMO employee
premium and the City's dependent contribution will remain unchanged. Plan
changes to the base HMO plan include: increasing the deductible from $500 to
$1,000, modifying the coinsurance level from 80% to 70 %, and increasing
copayment amounts at varying levels. Changes to the buy -up POS plan include
increasing copayment amounts at varying levels; however, the deductible and
coinsurance level remains unchanged.
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High Deductible Health Plan Option
• Third "buy- down"
insurance option for
employees
• Medical plan provided
by Aetna
• HSA Account
administered by 3rd Party
HDHP
• $5,000 deductible
• HSA account
($804 City contribution)
• 80% coinsurance
• Prescription co -pays
• Lower employee
dependent premiums
As one would expect, any increase in medical insurance premiums impacts the
employee portion of dependent premiums. Recognizing that it has become costly
for an employee to cover his or her dependents, staff has worked with Aetna to
develop a third "buy down" medical insurance option: a High Deductible Health Plan
(HDHP) coupled with a Health Savings Account (HSA). The HDHP plan includes a
$5,000 deductible and, after satisfying the deductible, coinsurance and prescription
copayments would become effective. Because the HDHP premium is less than the
base HMO plan, the City will contribute $804 annually towards the employee's HSA
account. The City's HSA contribution is based upon the difference in the monthly
employee premium between the base HMO plan and the buy -down HDHP plan.
The HSA account would be administered by a third party vendor at an approximate
cost of $975 annually. This provides the plan with flexibility should the City choose
another medical carrier in the future. Offering this third option provides employees
with a less costly option for dependent coverage at a very minimal cost to the City.
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Orhinnfnnnc. Wifh Anfnn
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There are a number of advantages to maintaining medical insurance coverage.
These advantages include:
-Given the high claims history, the proposed renewal is favorable;
-Aetna has offered a High Deductible Health Plan coupled with an HSA account as
a third medical plan option;
-The City has received very good customer service and employees have been
generally satisfied with the plan coverage;
-Changing carriers would result in some disruption to employees through changes in
network providers, drug formularies, and ongoing treatment plans; and
-Aetna has been the City's provider for medical insurance fourteen of the last fifteen
years and during that time has worked with the City to keep the renewal rate at or
below the predicted trend increase.
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Financial Considerations
• Estimated cost of medical insurance
included in the proposed FY2012 budget.
The estimated cost of medical insurance premiums is $220,897 per month, or
$2,650,764 annually (combined City and employee premium contributions). The
annual estimated increase in the City's portion of medical insurance premiums is
$142,000 for FY 2012.
The proposed medical insurance plan costs will be included in the proposed annual
budget for Fiscal Year 2012.
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• Funding for medical insurance will be
Staff Recommendation
Approve a contract renewal with Aetna to
provide employee medical benefits for
Plan Year October 1, 2011 to September
30, 2012 to include plan changes to the
HMO and POS plans and to offer a third
High Deductible Health Plan (HDHP)
option.
Staff recommends City Council approve to renew the contract with Aetna to provide
employee medical benefits for Plan Year October 1, 2011 to September 30, 2012 to
include plan changes to the HMO and POS plans and to offer a third High
Deductible Health Plan (HDHP) option.
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SOUTHLAKE
If you have any questions about this item, please contact me at 817 - 748 -8063.
Thank you.
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