Item 4BITEM 4B
CITY OF
SCOUTH LA K
MEMORANDUM
August 2, 2012
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, 2012 to September 30, 2013.
Action
Requested: Approve a contract renewal with Aetna to provide employee medical
benefits for Plan Year October 1, 2012 to September 30, 2013.
Background
Information: The City's current medical insurance carrier is Aetna. Aetna has been
the City's medical carrier for 15 of the last 16 years and medical
insurance was competitively bid in 2002, 2003, 2006, and 2010.
Employees are offered three plan options a "base" HMO plan, a "buy -
down" High Deductible Health HSA plan, and a "buy -up" Point of
Service (POS) plan. You may recall the City's plan experienced a 40%
increase in utilization during the last renewal period and staff worked
closely with Aetna to incorporate significant plan modifications to
contain costs.
The chart on the right
Illustrates the City's
Aetna Renewal vs Industry Trend
most recent renewal
14.5% 134% 14.4%
history with Aetna.
14.0% - 13.3?fi 12.3%
The blue line is the
12 -0% --
actual renewal
10.045 ;
increase received by
7.5%
the City and the green
line represents the
6.0%
renewal average over
4.0%
the six year period.
The red line represents
2.0%
the health industry
0.0
trend, while the purple
FY 2007 FY 2 0108 FY 2009 =Y 2010 FY 2011 FY 2012
line is the trend
--*-- Renewal tlndustryTrend Average Renewal — Ave rageTrend
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,
Shana Yelverton, City Manager
August 2, 2012
Page 2
ITEM 413
Aetna has provided the City with favorable renewals when compared
to the industry trend. Over the last six years, premiums have
increased an average of 6.1% compared to the average industry
increase of 12.9 %. For Fiscal Year 2013, the predicted trend increase
is 9.1 %.
In early June, the City received its medical insurance renewal from
Aetna. To calculate the renewal, Aetna reviewed the premiums paid,
claims data, industry trend, and inclusion of components required by
the Patient Protection and Affordable Care Act. As part of the renewal
process, Aetna provided the City with basic claims data.
The chart on the right
compares the monthly
Medical Premium Paid us Claims Paid
premium paid to Aetna
to the monthly claims
sq° °.°D°
paid by Aetna. The red
line on the chart
represents the claims
s3,oro°
Aetna has paid and the
blue line represents the
$ay °' ° °°
monthly premium.
52013,000
Claims over the
previous 12 months
$1s °
have been more
si000°° -
—
favorable than the
$s°.00o
previous year and the
cost ratio has
-
May Jun Jul Aug Sep Oct Nov Dec tan Feb Mar Apr
2011 2011 2011 2011 2011. 2011 2011 2 031 201.2 2012 200.2 2012
decreased from 102%
Monthly Billed Premium --M— Monthly Claims
two most recent months again reflect high
to 86 %. However, the
utilization and it is uncertain
if that trend will continue.
Aetna originally proposed a 14.1% increase however, after
negotiation, Aetna's final proposal includes a rate increase of 3.5%
with no plan modifications.
Advantages to maintaining medical insurance coverage with Aetna
include:
• Given the high claims
favorable
• Aetna has offered a High
an HSA account as a third
• The City has received
employees have been
coverage
history, the proposed renewal is
Deductible Health Plan coupled with
medical plan option
very good customer service and
generally satisfied with the plan
Shana Yelverton, City Manager
August 2, 2012
Page 3
ITEM 4B
• 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 fifteen
of the last sixteen 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 $220,248 per
month, or $2,642,976 annually (combined City and employee premium
contributions). The annual estimated increase in the City's portion of
medical insurance premiums is $52,800 for FY 2013.
The proposed medical insurance plan costs will be included in the
proposed budget for Fiscal Year 2013.
Strategic Link: Performance Management and Service Delivery: attract, develop and
retain a skilled workforce.
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:
• Aetna Summary of Renewal
Staff
Recommendation: Approve a contract renewal with Aetna to provide employee medical
benefits for Plan Year October 1, 2012 to September 30, 2013.
Summary Of Renewal /Proposed Rates
City of Southlake
Effective October 1, 2012
Policyholder Number - 57000
s This exhibit outlines your Total Amount Due rates effective October 1, 2012.
s 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.
• Amount Due includes Aetna Premium and and Producer Service Fee (5 %), as outlined in the Billing
and Collection Agreement.
• Refer to the Medical Renewal Assumptions - Financial & Administrative page regarding an explanation
of Producer Service Fee.
• Concessions +3.5 (6/6/2012); Rates rounded to the nearest dollar.
TX - Dallas - HMO
Coverage Categories
Assumed
Employees
Current Amount
Due Rates
Amount
Due Rates
%
Change
Emp only
115
$460.00
$476.00
3.5%
Emp + Spouse
19
$1,023.00
$1059.00
3.5%
Emp + Child(ren)
80
$904.00
$936.00
3.5%
Emp +Family
32
$1,500.00
$1,553.00
3.5%
TOTAL
246
$192,657.00
$199,437.00
3.5%
POS Open Access
Coverage Categories
Assumed
Employees
Current Amount
Due Rates
Amount
Due Rates
%
Change
Emp only
20
$483.00
$500.00
3.5%
Emp +Spouse
5
$1,077.00
$1115.00
3.5%
Emp + Child(ren)
2
$951.00
$984.00
3.5%
Emp +Family
2
$1,579.00
$1,634.00
3.5%
TOTAL
29
$20,105.00
$20,811.00
3.5%
HDHP - H.S.A
Coverage Categories
Assumed
Employees
Current Amount
Due Rates
Amount
Due Rates
%
Change
Emp only
0
$393.00
$407.00
3.6%
Emp + Spouse
0
$876.00
$90700
3.5%
Emp + Child(ren)
0
$774.00
$801.00
3.5%
Emp +Family
0
$1,284.00
$1,329.00
3.5%
TOTAL
0
$20,105.00
$0.00
0.0%
Current Amount Total Amount
Employees Due Due % Change
Monthly Totals 275 $212,762.00 $220,248.00 3.5%
05/31/2012 www.aetna.com Rates Summary Exhibit