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.
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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.
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