Rancho Palos Verdes City Council
   

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: ASSISTANT CITY MANAGER

DATE: OCTOBER 1, 2002

SUBJECT: HEALTH INSURANCE CONTRIBUTIONS

RECOMMENDATION

Adopt Resolution No. 2002- ; thereby superceding Resolution No. 2002-76, regarding employee and City Council member health insurance premiums.

DISCUSSION

On September 3, 2002, the City Council adopted Resolution No. 2002-76, establishing the maximum contribution rates for City employee and City Council member’s health insurance premiums for 2003. At that time, Council requested that staff re-examine certain sections of the Resolution in order to create parity between City employee and City Council member benefits.

Comparison of Contribution Levels

Staff surveyed the other cities on the Peninsula regarding employer health insurance contributions. None of the other Peninsula cities provide health insurance for City Council members. Therefore, the chart below only compares our City with the contributions that the other Peninsula cities make on behalf of their eligible employees:

City

Health Insurance

RPV

100% Employee and 50% Dependent(s)

PVE

100% Employees and Dependent(s), up to a $680/mo. cap, Employees pay any amount over the cap

RHE

100% Employee and 75% Dependent(s)

RH

100% Employee for all health insurance and 100% Dependent(s) for medical and dental insurance only

As shown in the chart above, the main difference between our health insurance contribution formula and other Peninsula cities relates to the level of dependent coverage provided.

The amount included in FY 02-03 budget for employee/City Council member insurance contributions is $279,730. This budgeted amount includes all types of insurance contributions, such as health, life and unemployment insurance. If the City’s health insurance contribution rate for dependents were increased from 50% to 75%, the additional cost to the City would be approximately $27,000. This estimate assumes that the current level of dependent enrollment will not change (currently 14 employees and 4 Council members have some level of dependent coverage), but takes into account the expected 20% increase in insurance premiums that will go into effect on January 1, 2003. Based on these same assumptions, if the contribution rate for dependents were increased to 100%, the additional cost would be approximately $54,000.

If the City Council wishes to modify the City’s existing dependent contribution rate at this time, Sections 1 and 2 of the attached Resolution can be modified accordingly as shown below, and staff will return with the appropriate budget adjustment at the next meeting. Because the open enrollment period doesn’t end until October 18, 2002, if the Council decides to increase dependent coverage, employees or Council members wishing to add dependents to their insurance plans would still have an opportunity to do so before the end of the enrollment period.

Full-time Employee and Active Council Member

Insurance Status

Maximum Contribution Per Month

@ 50% Dependent Coverage

@ 75% Dependent Coverage

@ 100% Dependent Coverage

Employee Only

$624.00

$624.00

$624.00

Two Party

$917.00

$1,067.00

$1,214.00

Family

$1,117.00

$1,361.00

$1,606.00

 

Shared Position Employee

Insurance Status

Maximum Contribution Per Month

@ 25% Dependent Coverage

@ 37.5% Dependent Coverage

@ 50% Dependent Coverage

Employee Only

$312.00

$312.00

$312.00

Two Party

$459.00

$539.00

$612.00

Family

$556.00

$686.00

$808.00

Reimbursement for Equivalent Health Insurance Coverage

Since 1997, the City has allowed employees to receive a partial reimbursement if they decline the City’s medical insurance coverage and can provide proof that they have generally similar coverage through some other means. Although not precluded by any regulation, this same reimbursement option was not previously applied to City Council members. At the September 3rd meeting, Council directed staff to prepare a subsequent Resolution to extend this option to include City Council members. At that same time, Council also inquired about how the $75.00 reimbursement amount had been derived and if there was any mechanism in place to adjust it over time. Staff was able to determine that the $75.00 amount was derived from taking half of the lowest medical insurance premium amount that was available in 1997. When the City created job sharing in 1998, the reimbursement for these employees was simply 50% of the amount offered to full-time employees. By applying this same methodology today, the reimbursement for 2003 should be increased to $130.00 for full-time employees/City Council members and $65.00 for share-position employees. Therefore, Section 5 of the Resolution has been modified as follows:

If a full-time employee or City Council member 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 or City Council member $75.00 $130.00 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 $65.00 per month.

In the future, the amount of the reimbursement for full-time employees/City Council members and shared-position employees will be adjusted annually based on 50% and 25% (respectively) of the lowest health insurance premium offered during the upcoming calendar year.

Increasing the reimbursement offered to employees and Council members for equivalent medical insurance would not increase costs for the City. In fact, even if more employees or Council members opt to receive the reimbursement (currently eight employees have selected this option), the City will realize a net savings in the difference between the reimbursement and the higher insurance premium.

Life Insurance and Accidental Death & Dismemberment Insurance

Section 6 of Resolution 2002-76 states "The City shall pay the full cost for each active full-time employee and active shared-position employee’s life insurance premium and accidental death and dismemberment premium." Since the last meeting, staff confirmed with our health insurance administrator (ABD Insurance Services) that the City Council members are not currently covered by the City’s life and AD&D insurance policies. To add them would require an amendment to the existing contract, as well as a recalculation of the City’s current premium rate.

Staff surveyed the other cities on the Peninsula regarding their life insurance and AD&D plans. None of the other Peninsula cities provide life insurance or accidental death & dismemberment policies for City Council members. Therefore, the chart below only compares our City with the life insurance policies that the other Peninsula cities provide their eligible employees:

City

Life/AD&D Insurance

Rancho Palos Verdes

2 x Annual Salary up to $200,000

Palos Verdes Estates

1 Year Annual Salary up to $100,000

Rolling Hills Estates

2 X Annual Salary up to $200,000

Rolling Hills

$50,000

Because Council members do not receive a salary from the City, the benefit amount for life and AD&D insurance would be calculated based on an "assumed" annual salary. The City’s health insurance manager indicated that a benefit level between $50,000 and $100,000 is typical in cities that provide this type of benefit to Council members. Therefore, the assumed salary range would be half of the benefit amount (example: $25,000 assumed salary would equate to a $50,000 benefit). The Council should also be aware that benefits are reduced after age 70, based on the following schedule:

Birthday Percentage Reduction
70th 65% of original benefit amount
75th 45% of previously reduced amount
80th 30% of previously reduced amount
85th 20% of previously reduced amount

Currently, the monthly life insurance premium for employees is calculated at a rate of $.23 per $1,000 of annual salary. The addition of City Council members to the contract would trigger a recalculation of the current rate, based on the ages of the Council members. Until the new rate is determined, the actual increase in cost cannot be accurately determined. However, using the existing rate to get a feel for the amount, a $100,000 benefit for Council members (which would use an assumed salary of $50,000) would increase the City’s life insurance premium by $57.50 per month or $690 per year. The City would expect a similar increase in the AD&D premium amounts.

Including City Council members in the City’s life and AD&D policy is strictly a policy matter and Council may wish to provide staff with direction on this point. It is not expected that such a change would require a budget adjustment.

If the Council wishes to be covered under the City’s life and AD&D insurance policies, Section 6 of the attached Resolution can be modified as follows:

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

Short Term/Long Term Disability and Retirement Plan

Unlike Life and AD&D insurance, where the City can use an "assumed" salary in order to determine a benefit amount for City Council members, short term/long term disability programs and retirement benefits are calculated based on "actual" yearly earnings. Because the Council members do not receive a salary from the City, they are not eligible to participate in these programs. Further, the City’s health insurance administrator indicated that even in cities where Council members receive a salary, insurance carriers are resistant to providing them with disability insurance because it is extremely difficult to define their critical job duties and the thresholds for when they would be able to return to work after becoming disabled.

Dependent Health Insurance

On September 3, 2002, Councilman Gardiner asked whether the City’s contract with CalPERS would allow an employee or Councilmember to obtain health insurance coverage only for their dependent(s) without having to enroll themselves in the program(s). Staff has researched this issue with CalPERS and confirmed that our insurance carrier will not extend coverage to dependents unless the employee or Councilmember is also enrolled in the insurance program.

Cafeteria Health Plan

At the September 3rd meeting, the Council also asked about the possibility of providing a cafeteria-style health insurance plan. Under this type of system, participants would be allotted a specified amount of money each year to "purchase" health insurance (medical, dental and vision). They can generally pick and choose between various plans and dependent coverage options. The employee or Council member is allowed to keep any "unspent" funds. This type of health plan may have significant funding ramifications for the City and could require a change in insurance carriers. If the Council is interested in pursuing a cafeteria plan, staff recommends that it be considered a budget policy issues as part of the upcoming FY 03-04/FY 04-05 two-year budget cycle.

FISCAL IMPACT

The cost of each potential amendment to the City’s insurance benefits is discussed in the body of this report. However, the aggregate impact on the City’s budget cannot be accurately determined at this time and will need to be calculated based on the combination of changes (if any) that are directed by the City Council.

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 AND RESCINDING RESOLUTION NO. 2002-76.

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 2003; 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.

WHEREAS, on September 3, 2002, the City Council adopted Resolution No. 2002-76 establishing the maximum contribution amount for full-time employees, shared-position employees and City Council persons for calendar year 2003, but directed staff to return with an amended Resolution that provides parity between all benefits offered to City employees and City Council persons.

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:

Maximum Contribution Insurance Status Per Month

   
Employee $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:

Maximum Contribution Insurance Status Per Month

   
Employee $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 or City Council member 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 or City Council member $130.00 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 $65.00 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. 2002-76 is hereby rescinded and replaced by this Resolution.

PASSED, APPROVED and ADOPTED this 1st day of October 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 October 1, 2002.

_________________________
City Clerk