FEBRUARY 26, 2005 CITY EMPLOYEE HEALTH PLAN FEBRUARY 26, 2005 CITY EMPLOYEE HEALTH PLAN

TO: HONORABLE MAYOR AND COUNCILMEMBERS

FROM: CITY MANAGER

DATE: FEBRUARY 26, 2005

SUBJECT: CITY EMPLOYEE HEALTH PLAN

RECOMMENDATION:

Direct Staff on how to proceed.

BACKGROUND:

The City Council is concerned about the increasing costs of the City Health plans and has directed staff to prepare a report suggesting ways to limit these costs.

DISCUSSION:

The City provides its employees a very generous array of health plans including medical, dental and vision. In addition the City offers a mental health plan, life insurance and disability insurance for its employees. The total annual cost to the City for these plans is nearly $400,000 for its 45 employees and five council members. By far the greatest cost to the City is the medical plan to which the City contributes approximately $256,000 annually for the 39 participating employees and four council members. The chart below shows a nine-year history of City expenditures on employee insurance plans (FY 2004-05 is estimated).

Employees have a menu of medical plans that they can choose from including an HMO, two PPOs and a combination HMO/PPO (POS). The cost of the various plans (and the

number of employees/council members enrolled in each) for the employee and dependents is shown in the table below.

 

Employee Only

Employee + 1

Employee + 2

HMO

$282.55 / 7 empl

$565.14 / 3 empl

$734.67 / 6 empl

POS

$370.00 / 2 empl

$741.00 / 2 empl

$963.89 / 0 empl

PPO

$435.97 / 0 empl

$871.93 / 1 empl

$1,133.51 / 0 empl

PPO plus

$487.97 / 16 empl

$975.94 / 3 empl

$1,268.72 / 3 empl

Twenty-five of the 43 employees/council members participating in the medical plan program subscribe to the employee only option. Sixteen of the twenty-five have selected the PPO plan with the lowest deductible. Nine of the 43 participating employees also insure one dependent. Nine of the 43 participating employees insure two or more dependents.

The City has agreed to pay the full cost of the employee premiums for all the health plans including the medical plan of the employee’s choice. In addition the City pays one-half of the cost of the various health plans for employee dependents. This benefit accrues differently for each employee depending on the medical plan chosen and the number of dependents he/she has. The least cost for an employee who has enrolled in all the plans (medical, dental, vision), has chosen the HMO and has no dependents is about $400 each month. The three employees who have two dependents and have chosen the most expensive PPO are granted a total health benefit of around $1,500 per month. Three other employees have a benefit of over $1,000 a month. The employees, with no dependents who have selected the more expensive PPO plan receive a total health benefit worth between $600 and $700 a month. The reason for the range is that life and disability insurance premiums are based on salary. The chart below summarizes the number of employees (and council members) in various increments of total health plan contributions.

The median City contribution to our employee/council health insurance plans is $605 or about $7,260 annually. The mean (average) contribution is $676 or about $8,108 annually.

Staff has surveyed the South Bay cities and compared their health benefits with ours. That survey is attached to this report. Note that many of the cities have established caps on their contributions in the $650 to $800 per month range. Assuming our employees chose the same plans as they are presently enrolled in, a cap of $700 per month on the City contribution to the health plans would save the City about $70,000 annually. This $70,000 savings would be shifted to sixteen of our employees/council members. However, by selecting the HMO medical plan no employee/council member should have to pay increased costs of more than $2,604 this year.

Should the Council decide to make changes to the health plan program it would be fair to wait until January 1, 2006 to allow employees to enroll in a less expensive plan or to seek other employment.

Respectfully submitted,

Les Evans,

City Manager

Attachment: Health Benefit Survey