Item 4HCITY OF
SOUTH LAKE
MEMORANDUM
July 27, 2011
TO: Shana Yelverton, City Manager
FROM: Stacey Black, Director of Human Resources
SUBJECT: Approve a contract renewal with Aetna to provide employee medical
benefits for Plan Year October 1, 2011 to September 30, 2012.
Action
Requested: Approve a contract renewal with Aetna to provide employee medical
benefits for Plan Year October 1, 2011 to September 30, 2012.
Background
Information: 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. The City currently pays
the entire employee only premium on the base HMO plan and a flat
amount towards dependent coverage. Employees who elect the POS
plan pay the difference in premium between the base HMO and the
buy -up POS plan less the City contribution.
The chart on the right
illustrates the City's most
recent renewal history with
Aetna. The blue line is the
actual renewal increase
received by the City 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.
As you can see on the chart, Aetna has provided the City with
favorable renewals when compared to the industry trend. For Fiscal
Year 2012, the predicted trend increase is 10 %.
Shana Yelverton, City Manager
July 27, 2011
Page 2
As part of the renewal
process, Aetna provided the
City with basic claims data.
The chart on the right
compares the monthly
premium paid to Aetna to
the monthly claims paid by
Aetna. The red line on the
chart represents the claims
Aetna has paid and the blue
line represents the monthly
premium. 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
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.
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.
Shana Yelverton, City Manager
July 27, 2011
Page 3
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.
Advantages to maintaining medical insurance coverage with Aetna
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.
Financial
Considerations: 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 budget for Fiscal Year 2012.
Citizen Input/
Board Review: N/A
Legal Review: N/A
Alternatives: Deny contract renewal with Aetna and seek alternative options.
Supporting
Documents: The following supporting documents are attached:
Shana Yelverton, City Manager
July 27, 2011
Page 4
• Aetna Summary of Renewal
• Proposed Medical Insurance Plan Design Summary
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 option.
Aetna
Summary Of Renewal / Total Amount Due Rates
City of Southlake
Effective October 1. 2011
• This exhibit outlines your Total Amount Due rates effective October 01, 2011
Please refer to the Financial Conditions and Plan Design Exhibits for an outline of the level of benefits
quoted, as well as the terms and conditions of this proposal.
Current rates include Commissions.
Total Amount Due includes Aetna Renewal Premium and Producer Service Fee (5.00%) as outlined in the Billing
and Collection Agreement.
Renewal Rates include adjustments to comply with Federal Healthcare Reform Legislation.
• As part of the Early Renewal Quote, acceptance of this quote must be made by May 26, 2011, with the
contingency not to market at a later date.
• With the forfeiture of this offer, our standard renewal package will be delivered.
TX - Dallas - HMO
Ded: $1 K, OOP: $31K, OV /SP: $30140, Hosp:
30%, Rx: 10/40/60, ER: $200
Coverage Categories
Assumed
Employees
Current Rates
Amount
Due Rates
%
Change
Amount
Due Rates
Change
Emp Only
117
$417.41
$489.62
17.3%
$460.00
10.2%
Emp +Spouse
25
$930.82
$1,091.85
17.3%
$1,023.00
9.9%
Emp + Child(ren)
84
$822.30
$964.56
17.3%
$904.00
9.9%
Em + Famil
37
$1,364.93
$1,601.06
17.3%
$1,500.00
9.9%
TOTAL
263
$191,683.08
$224,844.05
17.3%
$210,831.00
10.0%
POS O en Access (OAM C
Ded: $1K/2K, OV /SP: $30/$40, ER: $150, Rx:
10/30/60
Coverage Categories
Assumed
Employees
Current Rates
Amount
Due Rates
%
Change
Amount
Due Rates
Change
Emp Only
9
$439.35
$515.36
17.3%
$483.00
9.9%
Emp +Spouse
4
$979.74
$1,149.24
17.3%
$1,077.00
9.9%
Emp + Child(ren)
1
$865.51
$1,015.24
17.3%
$951.00
9.9%
Em + Famil
0
$1,436.66
$1,685.20
17.3%
$1,579.00
9.9%
TOTAL
14
$8,738.62
$10,250.44
17.3 %
$9,606.00
9.9%
Current Total Amount Total Amount
Em to ees Premium Due % Chan a Due %Chan e
Monthly Totals 278 $200,839.11 $235,584.11 17.3% $220,897.00 9.99%
OAMC HDHP H.S.A $51K
Coverage Categories
Amount
Due Rates
Emp Only
$393.00
Emp + Spouse
$876.00
Emp + Child(ren)
$774.00
Emp + Family
$1,284.00
HDHP HSA: 80%160%
Ded: $5,000/8,000 (2x family)
OOP: $5,500/$9,000K (2x family)
Rx: 10/25/50 Rx Integrit w /medical
Rates Accepted by:
Date:
Alternated Provided on 5/16/2011
IDSOUTHLAKE
City of Southlake
Aetna HMO
Aetna POS
Aetna HDHP HSA
Rates Effective 10/01/2011
(Recommended Base)
(Recommended Buy -up)
(Recommended Buy -down)
Members Not FSA Eligible
BENEFITS
In-Network
Out -of- Network
In-Network
Out -of- Network
In-Network Out -of- Network
Physician Copay
$30 Copay
N/A
$30 Copay
40% After Ded
20% After Ded 40% After Ded
Specialist Copay
$40 Copay
N/A
$40 Copay
40% After Ded
20% After Ded 40% After Ded
Physician Surgical /Medical
Included in Copay
N/A
Included in Copay
40% After Ded
20% After Ded 40% After Ded
Urgent Care Copay
$75 Copay
N/A
$50 Copay
40% After Ded
20% After Ded 40% After Ded
Emergency Room - Facility
$200 Copay
Same as In- Network
$150 Copay
Same as In- Network
20% After Ded Same as In- Network
Emergency Room - Physician
Included in Copay
Same as In- Network
Included in Copay
Same as In- Network
20% After Ded Same as In- Network
Diagnostic Laboratory
100% if billed by Dr.
N/A
100% if billed by Dr.
40% After Ded
20% After Ded 40% After Ded
Diagnostic x -ray
$40 Copay after Ded
N/A
$30 Copay, Ded Waived
40% After Ded
20% After Ded 40% After Ded
Diagnostic Major
$40 Copay after Ded
N/A
20% After Ded
40% After Ded
20% After Ded 40% After Ded
Inpatient Hospital
30% after Ded
N/A
20% After Ded
40% After Ded
20% After Ded 40% After Ded
Outpatient Surgery
30% after Ded
N/A
20% After Ded
40% After Ded
20% After Ded 40% After Ded
Deductible - Individual
$1,000
N/A
$1,000
$2,000
$5,000 $8,000
Deductible - Family
$2,000
N/A
$2,000
$4,000
$10,000 $16,000
Coinsurance
70%
N/A
80%
60%
80% 60%
Out of Pocket Max - Ind.
$3,000*
N/A
$3,000*
$6,000*
$5,500* $9,000*
Out of Pocket Max - Fam.
$6,000*
N/A
$6,000*
$12,000*
$11,000* $18,000*
* Deductible DOES NOT apply towards Out of Pocket Max
* Deductible DOES NOT apply towards Out of Pocket Max
* Deductible DOES apply towards Out of Pocket Max
Lifetime Maximum
Unlimited
Unlimited
Unlimited
Prescription Drug Card
Rx Integrated w/ Medical
Retail
$10/$40/$60
$10/$30/$60
$10/$25/$50 (After Deductible)
Mail Order
$20/$80/$120
$20/$60/$120
$20/$50/$100 (After Deductible)
No Mandatory Generic
No Mandatory Generic
No Mandatory Generic
MONTHLY PREMIUMS
Current Rates Proposed Rates Employer Rates Employee Rates
Current Rates Proposed Rates Employer Rates Employee Rates
Current Rates Proposed Rates Employer Rates ** Employee Rates
Employee
117 $ 417.41 $ 460.00 $
460.00 $ -
9 $ 439.35 $ 483.00 $
460.00 $ 23.00
n/a $ 393.00 $ 460.00 $ -
Employee /Spouse
25 $ 930.82 $ 1,023.00 $
725.00 $ 298.00
4 $ 979.74 $ 1,077.00 $
725.00 $ 352.00
n/a $ 876.00 $ 725.00 $ 218.00
Employee /Child(ren)
84 $ 822.30 $ 904.00 $
725.00 $ 179.00
1 $ 865.51 $ 951.00 $
725.00 $ 226.00
n/a $ 774.00 $ 725.00 $ 116.00
Employee /Family
37 $ 1,364.93 $ 1,500.00 $
835.00 $ 665.00
0 $ 1,436.66 $ 1,579.00 $
835.00 $ 744.00
n/a $ 1,284.00 $ 835.00 $ 517.00
263
$ 191,683.08 $ 210,831.00
$ 8,738.62 $ 9,606.00
* *Includes City HSA account contribution of $67 per month ($804/ year).
Monthly
Annual
$ 2,300,196.96 $ 2,529,972.00
$ 104,863.44 $ 115,272.00
% Increase
Increase: 10.0%
11
A
Increase: 9.9%
11
Lil
Medical Plan Comparison July 5, 2011