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Home My WebLink About12-9 Resolution No. 12-9 RESOLUTION ACCEPTING THE PROPOSAL OF BLUE CROSS BLUE SHIELD OF ILLINOIS FOR THE CITY OF ELGIN'S HMO AND PPO MEDICAL INSURANCE PROGRAM AND AUTHORIZING THE EXECUTION OF DOCUMENTS RELATED THERETO BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS, that the City of Elgin hereby accepts the proposal of Blue Cross Blue Shield of Illinois for the City of Elgin's HMO and PPO medical insurance program for the period of March 1, 2012 through February 28, 2013. BE IT FURTHER RESOLVED that Sean R. Stegall, City Manager, be and is hereby authorized and directed to execute all documents necessary and incident to such proposal of Blue Cross Blue Shield of Illinois for the City of Elgin's HMO and PPO medical insurance program. • s/David J. Kaptain David J. Kaptain, Mayor Presented: January 11, 2012 Adopted: January 11, 2012 Vote: Yeas: 6 Nays: 0 Attest: s/Kimberly Dewis Kimberly Dewis, City Clerk ill e Tf MA!OR 6:. MEMBERS OE_tY COUNCIL•REPORT E LG I THE CITY IN THE SUBURBS- AGENDA ITEM: B MEETING DATE: January 11, 2012 ITEM: 2012—2013 Health Insurance Program ($7,879,000 cost active employees; $1,616,700 cost retired employees) PURPOSE: Provide fiscally sound health insurance program access to employees, retirees and their de- pendents. RECOMMENDATION: Enter into a fully-insured contract with Blue Cross Blue Shield of Illinois to provide health insur- ance for employees, retirees and their dependents. • BACKGROUND The city's plan year for employee and retiree health insurance runs from March through Febru- ary. Forest Financial Group, the city's benefits broker and consultant, requested a renewal pro- posal for the period of March 1, 2012 through February 28, 2013, from Blue Cross Blue Shield (BCBS) as well as other insurers in the market, Humana, Aetna, United Healthcare and CIGNA, for fully-insured and self insured PPO programs. Under a fully-insured program, the city would pay a fixed premium per employee, depending on the plan selected. Premiums under the fully- insured program do not change from month to month and are easy to predict and budget. Un- der a self insured program, the city would pay actual claims costs, stop loss insurance to cover claims over a certain level, and carrier administration fees. HMOs under Blue Cross Blue Shield are always paid on a fully insured basis and are never self insured. OPERATIONAL ANALYSIS Forest Financial compared the following proposals: _ BCBS Fully-Insured: BCBS has been the city's health insurance provider for both the HMO and PPO health insurance plans since 2006. This proposal includes no changes to the current HMO or PPO plan designs and results in a 4.17 percent premium increase. As a fully-insured plan, the city's premiums would remain fairly static, month-to-month, changing only when employees IIIadd, drop or change plan options. ft ____.........,,„.,1 BCBS "Cost Plus" PPO: This proposal includes no changes to the current HMO or PPO plan de- signs. This option is transparent to employees and is a purely financial decision. Under the "Cost Plus" plan, BCBS would consider the PPO plans fully-insured, however, they would charge back to the city the actual claims and administrative fees, rather than a flat premium. Claims would be subject to specific and aggregate stop losses to cap the risk of high claims. Benefits of the "Cost Plus " plan are that the city would pay actual claims (up to the maximum level) and would hold its funds rather than BCBS retaining the premium, whether or not claims reached the full premium amount. Negatives of the "Cost Plus" plan include the fluctuation of claim payments month to month and the risk of a large claim needing to be paid upon presentation of the • monthly claims bill. The city's potential maximum liability would be greater than under the ful- ly-insured plan. The expected total plan cost under the fully-insured option is $9,519,849. Un- der the "Cost Plus" option, the total plan cost could range anywhere from $9,026,353 to $10,841,711. Employee premiums would increase by 4.17 percent, identical to the BCBS fully insured option. Humana: Humana's quote for a self-funded program was 2.99 percent lower than the current premiums. Forest believed this quote to be artificially lower given Humana's limited knowledge of the city's loss history and lack of actual claims data. It is not unusual within the industry for insurers to provide below market quotes in an effort to win the business and then substantially raise premiums in the following renewal to recover the initial losses. The short term benefit provided by Humana's lower quote would likely be wiped out by a high renewal quote for poli- cy year 2013 — 2014 and fosters an environment in which health insurers are changed annually , to avoid the spike in renewal fees. CIGNA: CIGNA's quote for a self funded program provided a 5.88 percent increase in premium costs. The Employee Health Insurance Committee unanimously agreed to recommend continuing with Blue Cross and Blue Shield for the upcoming policy year. The fully-insured option, which is the more conservative choice from a financial perspective, is being recommended. No changes to the current offerings are proposed this year. Employees have a selection of two PPO plans and two HMO plans. One PPO is a traditional PPO and the other consists of a Health Care Account (HCA) in theamount of$1,000 for singles and $2,000 for families which reimburs- es employees for medical expenses, excluding prescriptions, up to $1,000, at which point the employee is responsible for a remaining$500 deductible. Full-time employees contribute from 9 percent to 25 percent of the premium, depending on their position and date of hire. Permanent, part-time employees contribute 50 percent of the premium cost. Employees will be able to use pre-tax income to pay for their premium contributions as well as other non-covered medical expenses and childcare under the city's flexible spending plan which was implemented in 2005. is ll e 2 • Employees who have other sources of health insurance are encouraged to take advantage of such through the opt out program which provides the employee with a health retirement ac- count in the amount of $1,000 to $3,000, depending on employee group. INTERESTED PERSONS CONTACTED BCBS's renewal was reviewed by Forest Financial Corporation and the Employee Health Insur- ance Committee consisting of representatives from human resources, fiscal services, Service Employees International Union Local #73 Public Works Unit, Service Employees International Union Local #73 Clerical Technical Unit, Local #439 International Association of Fire Fighters, and the Policemen's Benevolent and Protective Association, Unit#54. FINANCIAL ANALYSIS In 2011, the cost to insure all active employees and retirees was approximated $7,564,000 and $1,552,000, respectively. The 4.17 percent adjustment to premiums will result in a combined increase of$380,000. The city's net contribution is increasing approximately $290,000. Current- ly, active employees are required to contribute a percentage of the premium based on their employee group. Management employees contribute 15%, police and fire employees contrib- ute 10% and the SEIU employee group contributes 9%. The contribution rates for management • and SEIU employees hired after March 1, 2010 are 20% and 25%, respectively. Retirees contrib- ute 100%of their insurance premium. BUDGET IMPACT FUND(S) ACCOUNT(S) PROJECT# AMOUNT AMOUNT BUDGETED AVAILABLE Medical Insurance 635-0000-796.50-04 N/A $2,128,090 $2,128,090 (HMO) Medical Insurance 635-0000-796.50-15 N/A $6,299,250 $6,299,250 (PPO) LEGAL IMPACT None. ALTERNATIVES The city council may decide not to enter into an agreement with BCBS. • 3 • NEXT STEPS 1. Sign the necessary paperwork with BCBS. 2. Announce open enrollment to employees and retirees. Originators: Gail Cohen, Human Resources Director Final Review: Colleen Lavery, Chief Financial Officer William A. Cogley, Corporation Counsel/Chief Development Officer Richard G. Kozal, Assistant City Manager/Chief Operating Officer Sean R. Stegall, City Manager ATTACHMENTS None. 4