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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