Rancho Palos Verdes City Council
   

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: ASSISTANT CITY MANAGER

DATE: SEPTEMBER 3, 2002

SUBJECT: HEALTH INSURANCE CONTRIBUTIONS

RECOMMENDATION

Adopt Resolution No. 2002- ; amending the City’s maximum monthly contribution amounts for employee health insurance premiums.

BACKGROUND

Beginning in 1974, the City has paid the monthly medical insurance premiums for its full-time employees and, although staff has been unable to determine the exact date, the City has also paid for half of an employee’s dependent coverage at least since 1979. In the current health benefits package, which has been in effect since 1997, the City pays the full cost of the full-time employees and any participating Councilperson’s medical, dental, vision and mental health insurance benefits. The City also pays up to 50% of the cost of medical, dental and vision insurance benefits for eligible dependents (the flat rate for mental health paid per employee also includes all dependents). With the creation of job sharing in 1998, where two employees share the job responsibilities equivalent to one full-time position, the City pays up to 50% of the cost of medical, dental, vision and mental health insurance benefits for each job share employee. The City also pays up to 25% of the cost of medical, dental, vision and mental health benefits for a job share employee’s eligible dependents. Although not considered health benefits, the City also pays the full cost of each employee’s life insurance, accidental death & dismemberment insurance, and long term disability insurance.

Since 1997, the City has contracted with CalPERS to provide medical benefits to its full-time employees and participating Councilmembers. In May 2002, the City received notice from CalPERS that our medical insurance carriers will be increasing their rates effective January 1, 2003. CalPERS attributes the pending increase in premiums to greater use of covered services and prescription drugs, as well as physicians and hospitals requiring higher reimbursements from health insurance plans.

DISCUSSION

Under the CalPERS health plan, employees can select from four different medical providers, including two HMOs and two PPO plans. Since the City contracted with CalPERS in 1997, the number of participating HMOs has shrunk from nine plans to two that will be offered in 2003. Employees can still choose between two types of dental plans offered by one provider. The City contracts with only one provider for vision and mental health benefits. With the exception of mental health, which charges a flat rate per employee regardless of the number of dependents, each plan has three different premium levels:

  • Employee only
  • Employee plus one dependent ("two-party")
  • Employee plus two or more dependents ("family")

As required by the contract with CalPERS, each year Council adopts a Resolution establishing maximum contribution rates for health care insurance. The "maximum contribution rate" is the maximum amount that the City will pay in total health insurance premiums per employee per month. Adding up premium costs of the most expensive medical, dental, vision and mental health plans offered by City derives the amount. The medical insurance premium makes up the largest percentage of the total contribution rate. The City has used the most expensive plans to establish the contribution rate in order to allow participants the maximum amount of choice in selecting their health benefits. However, not everyone chooses the most expensive plans. For example, only ten employees/City Council members are currently enrolled in the most expensive medical plan (PERSCare).

Depending on which plans and what level of coverage an employee chooses, the total amount the City pays for each employee’s health insurance per month can vary greatly from one employee to another. Staff turnover and the duration of vacancies can also affect the City’s costs from year to year. The chart below shows the total health insurance costs the City has paid over the last five years and the budgeted amount for FY 02-03. The FY 02-03 budget shown below includes the addition of four new full-time employees. The increase in staffing was approved by the Council in June 2002 as part of the adoption of the FY 02-03 City Budget.

Fiscal Year

Amount

FY 96-97 (Actual)

$156,142

FY 97-98 (Actual)

$152,412

FY 98-99 (Actual)

$152,000

FY 99-00 (Actual)

$168,772

FY 00-01 (Actual)

$182,031

FY 01-02 (Actual)

$213,349

FY 02-03 (Budget)

$279,730

The 2003 monthly premiums for the two HMOs (Kaiser and Blue Shield) will increase an average of 23%, while the premiums for the two PPOs (PERSCare and PERS Choice) will increase an average of 20%, as compared to 2002. The rates for dental and vision care will not increase in 2003. The rates for metal health are scheduled to increase effective July 1, 2002, however, amount of the increase will not be announced until after January 1, 2003. Therefore, staff has assumed a 20% increase in this premium to cover the expected adjustment. Taking all of this into consideration, staff has calculated that the City’s maximum contribution rates for calendar 2003 need to be increased by 20% for each of the three premium levels discussed earlier, as compared to the limits established for 2002. The chart below compares the City’s current maximum contribution rates with the proposed rates:

Insurance Status

Full-Time Employee/Councilmember
Maximum Contribution Per Month

Shared Position Employee
Maximum Contribution Per Month

2002

2003

2002

2003

Employee Only

$523.00

$624.00

$261.00

$312.00

Two Party

$767.00

$917.00

$384.00

$459.00

Family

$928.00

$1,117.00

$467.00

$556.00

FISCAL IMPACT

Although the City will be paying higher costs for health benefits in the next calendar year, it is difficult to estimate the amount of the increase at this time. This is because the City will be half way through FY 02-03 before the increases take effect on January 1, 2003. In addition, the open enrollment period for employees to make changes to their health care plans, such as changing carriers and adding or deleting dependents, will run from September 3, 2002 to October 31, 2002. And finally, the City has not yet filled the four new full-time positions authorized by the City Council. The choices that employees make during open enrollment or at the time they are hired will have a direct impact on the amount of premiums paid by the City. Despite this uncertainly, the City’s Employee Benefit Fund, which is part of the Internal Services Fund, is expected to have adequate resources to cover the increase in costs over FY 01-02. If a larger increase occurs, the City can make any needed adjustments during the mid-year budget review.

Respectfully submitted,

Carolynn Petru
Assistant City Manager

Reviewed,

Les Evans
City Manager

Attachment:
Resolution No. 2002- ;

RESOLUTION NO. 2002 -

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES AMENDING THE CITY CONTRIBUTION RATES FOR EMPLOYEE BENEFIT PREMIUMS FOR ACTIVE FULL-TIME EMPLOYEES, ACTIVE SHARED-POSITION EMPLOYEES AND ACTIVE CITY COUNCIL PERSONS FOR CALENDAR YEAR 2003

WHEREAS, on May 20, 1997, the City Council adopted Resolution No. 97-42 which established the City contribution rates for employee benefit premiums for active full-time employees and City Council persons for calendar year 1997; and,

WHEREAS, on November 5, 1997, the City Council adopted Resolution No. 97-93 amending the maximum contribution amounts for full-time employees and City Council persons for calendar years 1998 and 1999; and,

WHEREAS, on April 21, 1998, the City Council adopted Resolution No. 98-29 establishing the maximum contribution amount for shared-position employees for calendar year 1998 and 1999; and,

WHEREAS, on December 7, 1999, the City Council adopted Resolution No. 99-89 establishing the maximum contribution amount for full-time employees, shared-position employees and City Council persons for calendar year 2000; and,

WHEREAS, on November 8, 2000, the City Council adopted Resolution No. 2000-73 establishing the maximum contribution amount for full-time employees, shared-position employees and City Council persons for calendar year 2001; and,

WHEREAS, on November 7, 2001, the City Council adopted Resolution No. 2001-90 establishing the maximum contribution amount for full-time employees, shared-position employees and City Council persons for calendar year 2002; and,

WHEREAS, the California Public Employee Retirement System (CalPERS) medical benefits program, which is the offered provided to the City’s employees and City Councilmembers, will increase its rate by a maximum of 23% for calendar year 2002; and,

WHEREAS, the City desires to continue to provide certain contributions to its active full-time employees, shared-position employees and City Council persons for health benefits.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES DOES HEREBY FIND, DETERMINE AND RESOLVE AS FOLLOWS:

Section 1: The City’s contribution for each active full-time employee or active City Councilperson shall have a maximum amount which may be applied toward the full cost of the active fill-time employee’s or active Council person’s medical, dental, vision and mental health benefits, and to pay up to 50% of the cost of medical, dental, vision and mental health insurance benefits for eligible dependents, subject to the maximum amounts for these insurance coverages as specified in the table below:

Insurance Status Maximum Contribution
Per Month
Employee Only $624.00
Two Party $917.00
Family $1,117.00

Section 2: Pursuant to Resolution No. 98-28, the City shall pay a proportional share of the medical, dental, vision and mental health insurance premium for the shared-position employee and dependent care premium based on the number of hours that employee worked per week. The City’s contribution for each shared-position employee shall have a maximum amount which may be applied toward the full cost of the active shared-position employee’s medical, dental, vision and mental health insurance benefits for eligible dependents, subject to the maximum amounts for these insurance coverages as specified in the table below:

Insurance Status Maximum Contribution
Per Month
Employee Only $312.00
Two Party $459.00
Family $556.00

Section 3: Any amounts remaining between the necessary contributions required and the maximum amounts specified in Sections 1 and 2 of this Resolution are not to be paid to the active full-time employee, active City Councilperson or active shared-position employee, as applicable.

Section 4: The shared-position employee shall pay any difference between the City’s contribution and the premium rates charged by the insurance carrier for the benefits that the shared-position employee has selected.

Section 5: If a full-time employee can provide proof of medical coverage that is generally similar to the City’s medical coverage, and declines the medical coverage offered by the City, the City will reimburse the full-time employee $75.00 per month. If a shared-position employee can provide proof of medical coverage that is generally similar to the City’s medical coverage, and declines the medical coverage offered by the City, the City will reimburse the shared-position employee $37.50 per month.

Section 6: The City shall pay the full cost for each active full-time employee’s and active shared-position employee’s life insurance premium and accidental death and dismemberment premium.

Section 7: The City Manager, or his designee, is authorized to adopt rules and procedures for the implementation of the Resolution.

Section 8: Resolution No. 2000-90 is hereby rescinded and replaced by this Resolution.

PASSED, APPROVED and ADOPTED this 3rd day of September 2002.

____________________________
MAYOR

ATTEST:

____________________

CITY CLERK

STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss
CITY OF RANCHO PALOS VERDES )

I, Jo Purcell, City Clerk of the City of Rancho Palos Verdes, hereby certify that the above Resolution No. 2002- ; was duly and regularly passed and adopted by the said City Council at a regular meeting thereof held on September 3, 2002.

_________________________
City Clerk