NOVEMBER 1, 2005 CITY EMPLOYEE HEALTH PLAN NOVEMBER 1, 2005 CITY EMPLOYEE HEALTH PLAN NOVEMBER 1, 2005 CITY EMPLOYEE HEALTH PLAN

TO: HONORABLE MAYOR AND COUNCILMEMBERS

FROM: CITY MANAGER

DATE: NOVEMBER 1, 2005

SUBJECT:

RECOMMENDATION

Authorize the substitution of a single Blue Cross PPO Medical Plan in place of the two Blue Cross PPO Medical Plans currently offered to City employees.

BACKGROUND

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

At the February 26, 2005 Budget Policy Workshop the Council discussed costs of employee health insurance and agreed that the current City/employee contribution policies should remain as they are. However, Councilman Long pointed out that there seemed to be a disproportionate number of employees in the "zero" deductible PPO plan and that cost savings may be realized by terminating that plan and replacing it with the $250 deductible PPO plan. He suggested that the City could pick up the cost of the employee deductible so that there would be no additional cost to the employee. The City would realize savings of over $16,000 annually, less the cost of any deductibles that were reimbursed to employees.

After a review of the benefits between the $250 deductible PPO plan and the "zero" deductible PPO plan, it turned out that that the differences were much more complex than just the deductible amount and did not lend themselves to a simple substitution of one for the other. The Council took no additional action on the matter.

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 over $450,000 for 49 employees and five council members. By far the greatest cost to the City is the medical plan to which the City contributes approximately $300,000 annually for the participating employees and council members. The chart below shows an eleven-year history of City expenditures on employee insurance plans (FY 06 and FY 07 are 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 / 4 empl

$565.14 / 2 empl

$734.67 / 7 empl

POS

$370.00 / 2 empl

$741.00 / 3 empl

$963.89 / 0 empl

PPO

$435.97 / 0 empl

$871.93 / 1 empl

$1,133.51 / 0 empl

PPO plus

$487.97 / 15 empl

$975.94 / 3 empl

$1,268.72 / 4 empl

Twenty-one of the 41 employees/council members participating in the Blue Shield medical plan program subscribe to the employee only option. Fifteen of the twenty-one have selected the PPO plan with the lowest deductible. Nine of the 41 participating employees also insure one dependent. Eleven of the 41participating 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.

Our insurance service company has advised us that the overall cost of the Blue Shield plans will increase by 18.3% next year. The PPO plan costs will increase by 24.27% and the POS and HMO plans by 8.95%. In response to the 18.3% increase, staff asked our broker to develop some alternatives to reduce the costs without a substantial increase in cost to the employee or significant changes in plan benefits. The alternative developed by Blue Shield to meet these criteria was similar to that suggested by Councilman Long last February. By dropping the PPO plan with a $250 deductible and 80% coverage (in which only one of our employees is enrolled) and amending the $0 deductible PPO plan that has 90% coverage to a PPO plan with a $250 deductible and 90% coverage the City can hold the increase in medical insurance cost next year to a 15.14% increase.

Changed Features

PPO (Current)

PPO (Proposed)

Deductible

$0 if using preferred provider; $500 if not.

$250 whether using preferred provider or not.

Emergency Room Visit

$50

$100

FISCAL IMPACT

The overall cost savings are not great…approximately $10,000 for the year, but our employees have agreed to accept this reduction in benefit as a gesture toward controlling insurance costs.

Respectfully submitted,

Les Evans,

City Manager

Attachment: Proposed New Blue Shield Health Plans