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Item 4FITEM 4F CITY OF SOUTHLAKI MEMORANDUM July 30, 2014 TO: Shana Yelverton, City Manager FROM: Stacey Black, Director of Human Resources SUBJECT: Approve a contract renewal with United Healthcare to provide employee medical benefits for Plan Year October 1, 2014 to September 30, 2015. Action Requested: Approve a contract renewal with United Healthcare to provide employee medical benefits for Plan Year October 1, 2014 to September 30, 2015. Background Information: The City's current medical insurance carrier is United Healthcare (UHC). With UHC, employees are offered three plan options: a "base" EPO plan, a "buy -down" High Deductible Health HSA (HDHP) plan, and a "buy -up" PPO plan. The City contributes the same amount to all three plans and employees are able to choose a plan that best meets their unique healthcare needs. UHC became the City's medical carrier October 1, 2013 following a competitive bidding process. Last year, the previous carrier proposed a 35.2% renewal increase, which prompted the City to issue a Request for Proposals (RFP). The City had previously issued an RFP for medical insurance in 2010, and will typically issue an RFP every four to five years depending upon renewal proposals. Prior to changing carriers, the City had been with Aetna for 15 years. Switching carriers after a 15 year history was difficult; however, UHC provided the best plan design with the lowest premium structure. Since switching to UHC, the City has received excellent service from the carrier with very few service complaints from employees. In mid -June, the City received its medical insurance renewal from UHC. Rate renewals are based on various factors, with the most important factors being: (1) actual claims paid for the current and past plan years in comparison to premiums paid, (2) healthcare industry cost trend, and (3) inclusion of components required by the Patient Protection and Affordable Care Act. Shana Yelverton, City Manager July 30, 2014 Page 2 ITEM 4F • Claims History: As part of the renewal process, UHC provided the City with the claims data used, in part, to determine the proposed renewal. The chart below compares the monthly premium paid by the City to the monthly claims paid by the insurance company over a two year period. The blue line on the chart represents the monthly premium and the gold line represents the claims paid. Over the last two years, the City's claims ratio is 90%. $400,000.00 $350,000.00 $300,000.00 $250,000.00 $200,000.00 $150,000.00 $100,000.00 Premium Paid vs Claims Paid N N N ry N N N N N N rY1 [Yl rtl Kl [Yi M tYI rt1 M [Yi [Yi tYi � � � ri v-I '-I ri rl r1 rl r� rl ri rl rl r� '-I '-I r� rl ri rl ri ri ri rl rl r� Q Q V1 [7 Z 0 LL Q ¢ to 0 Z 0 LL L(Premium (Claims • Industry Trend: Healthcare industry cost trend is the predicted change in the cost of healthcare. It includes components such as price inflation, technology and treatment advances, and regional cost variations. For the new plan year, industry experts such as Pricewaterhouse Coopers' Health Research Institute, the Society of Human Resource Management and United Healthcare predict a trend increase of 6.5% to 9.5% for healthcare. • Patient Protection and Affordable Care Act (ACA): The most significant ACA requirements in 2014 are the addition of the two new required fees and required plan changes. These new requirements have an impact the proposed renewal from UHC. Shana Yelverton, City Manager ITEM 4F July 30, 2014 Page 3 First, the Transitional Reinsurance Fee is designed to fund reinsurance payments to health insurance providers that cover high -risk individuals in the individual market. The fee for 2014 is $63 per covered life, meaning covered spouses and dependents will also generate fees. The City's plan currently covers 587 members which would equate to annual cost of nearly $37,000. This fee is required for all employer sponsored health insurance plans, including the City's plan. Second, the Health Insurance Provider Fee is collected from health insurance providers and will be used to fund premium tax subsidies for low-income individuals and families who purchase insurance through the health insurance Exchanges. The fee is permanent and expected to collect $8 billion in 2014 from all insurers, increasing to $14.3 billion in 2018, and increasing the rate of premium growth thereafter. Based upon industry estimates, the impact to 2014 premiums is about 2.5% to 3%. Finally, required plan changes include removal of benefit limits on items such as durable medical equipment and hearing aids and the removal of pre-existing condition limits for members age 19 and above. Based upon the above factors, UHC originally proposed a 10% rate increase. However, following negotiations and with a stipulation that the City accept the renewal without issuing a RFP, UHC reduced the proposed plan increase to 4.1 % to the EPO plan. The renewal proposes no plan modifications, with the exception of changes required by ACA. The chart to the right shows the final rate increases proposed for each plan and the basic plan design. United Healthcare HDHP HSA EPO PPd Red. + 20% Office Visit $35 Office Visit Copay $40 Office Visit Copay 80% Coinsurance 70% Coinsurance 80% Coinsurance $3,000 Individual Deductible $1,300 Individual Deductible $1,000 Individual Deductible 4% Ratelncrease 4.1% Rate Increase 4.6% Ratelncrease Advantages to maintaining medical insurance coverage with UHC include: • Given the City's claims history, predicted industry trend and new requirements under ACA, the proposed renewal is favorable; • Maintaining the current plan design retains the plan's competitiveness in comparison to our labor pool; 0 In the first year of service, the City has received very good Shana Yelverton, City Manager ITEM 4F July 30, 2014 Page 4 customer service and employees have been generally satisfied with the plan coverage; • Changing carriers would result in disruption to employees through changes in network providers, drug formularies, and ongoing treatment plans; • UHC offers a wellness program called "Simply Engaged" that provides onsite biometric screening, a robust wellness website that helps drive long-term behavior change, and incentives to employees for completing a health risk assessment, online health coaching, or telephone based coaching; • UHC is the City's current provider for dental insurance which allows the ability to coordinate medical and dental care for employees and consolidates billing and administrative processes; and • Establishing a history with a carrier generally permits plan renewals to be more stable over the long-term because the carrier is able to sustain high claim spikes more easily. Financial Considerations: The estimated cost of medical insurance premiums is $263,168 per month, or $3,158,018 annually (combined City and employee premium contributions). The annual estimated increase in the City's portion of medical insurance premiums is $76,516 for FY 2015. The proposed medical insurance plan costs will be included in the proposed budget for Fiscal Year 2015. Strategic Link: Performance Management and Service Delivery: attract, develop and retain a skilled workforce. CBO2: Become an employer of choice by developing a plan to recruit, develop and retain employees committed to excellence. Citizen Input/ Board Review: N/A Legal Review: N/A Alternatives: Deny contract United Healthcare and seek alternative options. Supporting Documents: The following supporting documents are attached: 0 United Healthcare Medical Proposed Rates Shana Yelverton, City Manager July 30, 2014 Page 5 ITEM 4F Staff Recommendation: Approve a contract with United Healthcare to provide employee medical benefits for Plan Year October 1, 2014 to September 30, 2015. CITY OF SOUTHLAKE I Medical Proposed Rates and Alternate Plans UnitedHealthcare Medical Proposed Rates with Alternate Plan Designs Customer Name: CITY OF SOUTHLAKE Medical Policy: 00730063 Renewal Date: October 1, 2014 • The numbers below are on an illustrative basis. Rates are subject to Underwriting approval. Renewal Plan Renewal Plan Renewal Plan Plan Name Product Option Plan Offering Multiple Option with: HRA or HSA Benefits* Office Copay (PCP/SPC) Hospital Copays UC/ER/Major Diag Copay Other Deductible Coinsurance Out -of -Pocket Pharmacy Deductible Coinsurance Out of Pocket Enrollment Employee Employee + Spouse Employee + Child(ren) Employee + Family Total Rates Employee Employee + Spouse Employee + Child(ren) Employee + Family Monthly Cost Annual Cost Change from Current Choice + Insurance Choice Insurance' Choice + Insurance' 1 TX-P UBN-P TOZ-P Multiple Option Multiple Option Multiple Option Option(s) 2 and 3 Option(s) 1 and 3 Option(s) 1 and 2 HSA Network Single/Family No Network Single/Family No Network Single/Family PCP N/A, SPC N/A PCP $35, SPC $35 PCP $40, SPC $40 OP N/A,IP N/A OP N/A,IP N/A OP N/A,IP N/A UC N/A, ER N/A, Maj Diag N/A C $50, ER $150 + 30%, Maj Diag NIA LIC $50, ER $150 + 20%, Maj Diag N/ N/A ($0 if <19) N/A $3000/$6000 (Non-Emb) $1500/$3000 (Emb) $1000/$2000 (Emb) 80% 70% 80% $6000/$12000 $5000/$10000 $4000/$8000 for M.O. $10/35/60; 2.5x for M.O. $10/35/60; 2.5x for M.O. $2000/$4000 (Emb) =$10/35/60;2.5x (Non-Emb) •00 N/A 0% N/A 50% /$20000 N/A $8000/$16000 27 128 23 1 18 6 3 78 4 4 28 4 35 (Billed) 252 Rates (Billed) 37 Rates (Billed) ProposedRates Current $406.14 $422.18 Current $484.25 $503.93, $538.45 $563.29, $905.69 $941.46 $1,079.88 $1,123.77 $1,200.74 $1,256.13 $800.10 $831.70 $953.97 $992.74 $1,060.75 $1,109.68 $1,328.08 $1,380.53 $1,583.50 $1,647.85 $1,760.73 $1,841.96 $19,584 $20,358 $200,170 $208,304 $30,875 $32,299 $235,009 $244,290 $2,402,034 $2,499,653 $370,497 $387,588 4.0% 4.1 % 4.6% *High level benefit summary. Please see your plan summary for more detailed benefit description. The numbers above are on an illustrative basis. Rates are subject to Underwriting approval. For markets moving to service fees, current rates (applicable for renewals only) include commission expenses. Proposed rates, for your convenience, include any applicable producer service fees. Producer service fees are not a contingency of obtaining insurance coverage but are fees agreed to between you (client) and yourproducedservice provider for service rendered on behalf of client. For markets continuing to pay commissions, both the current (applicable for renewals only) and proposed rates include commissions. Page I of 2 712912014 1035 AM CITY OF SOUTHLAKE I Medical Quote Assumptions UnitedHealthcare Medical Quote Assumptions Customer Name: CITY OF SOUTHLAKE Medical Policy: 00730063 Renewal Date: October 1 2014 The rates quoted here are based on the following assumptions. Changes to these assumptions may result in an adjustment to rates. Rates are guaranteed for the contract period of 10/1/14 through 9/30/15. Rates are based on your submitted census. UnitedHealthcare reserves the right to adjust the rates from audit date back to effective date if any of the following changes: Enrollment +/- 10% -Average Contract Size +/- 10% Area Factor +/- 7.5% -Age/Sex Factor +/- 10% -Any Material Changes - Cobra enrollees are more than 10% of enrollment Employer contributes a minimum of 100% toward the employee only rates and 55% toward the dependent rates. Requires a minimum participation level of 75%. INS -Choice plans are not available for subscribers in AL, AR, AZ, HI, KS, LA, MN, MS, MT, NC, NM, OK. U n ited Healthcare will work exclusively with the broker designated when an agent of record letter is issued by the prospective client. Unless otherwise stated, this offer replaces and renders all previous offers null and void. U n ited Healthcare reserves the right to re -rate if Underwriting has not received written confirmation of renewal by July 1, 2014 . - Quote includes Simply Engaged 2.0 UnitedHealthcare reserves the right to adjust the rates and/or fees (i) in the event of any changes in federal, state or other applicable legislation or regulation; (ii) in the event of any changes in Plan design required by the applicable regulatory authority (i.e. mandated benefits) or by the Plan Sponsor; and (iii) as otherwise permitted in our policy. This premium includes state and federal taxes and fees, including the Insurer Fee (about 2.5% of premium) and the Reinsurance Fee (about $5 per member per month) under the Affordable Care Act. These estimates will vary based on renewal date and state reinsurance fees. Premium rates and/or product forms included herein are subject to approval by regulators. If rates or product forms offered herein are subsequently modified by regulators we will immediately advise you of the change in plan design and retroactively adjust premium in subsequent billings. Plan design and corresponding premium rates offered herein represent a coverage option that is consistent with your current group size (based on most recent census or survey information) and closely matches your current coverage. Additional coverage options may be available to you. At your request, a service fee to be paid to your producer/service agent of 4.17% has been added as an expense item in sites where service fees apply. Agents may receive commissions and other compensation from us and these costs may be reflected in your premium or fee. Separately, you may have contracted with producers to provide services directly for your group and have agreed to pay them a 'service fee'. Since 'service fees' are not a contingency of the purchase of health insurance such fees are not part of your premium but may be included in your bill under total amount due. Please refer to the vendor bank collateral for HRA/HSA account fee information. HRA and HSA plans may include a non -embedded deductible and out of pocket. In that instance, no individual family members deductible or out of pocket is considered satisfied until the full family deductible or out of pocket amount has been met. Pharmacy copays will only apply after the deductible has been satisfied on HRA/HSA plans with integrated medical/pharmacy deductibles. -Rates assume the Employer funds no more than 50% of the HSA/HRA deductible. UnitedHealthcare reserved the right to adjust rates if this assumption changes. - HSA accounts must be paired with qualified HDHPs as determined under section 223 of the Internal Revenue Code -For calendar year 2014, the HDHP annual deductible cannot be less than $1,250 for self -only coverage or $2,500 for family coverage Medical and pharmacy expenses covered under an HSA program are not eligible for reimbursement under an FSA program Funds in the HSA account continue to accumulate and are fully portable to another HSA account. Any unused HRA funds can be rolled over to next years HRA, but are not portable as a cash out option. Only medical expenses covered under the medical plan are reimbursable from the HRA. Page 2Of2 712912014 1035 AM