DECEMBER 6, 2005 HEALTH INSURANCE CONTRIBUTIONS DECEMBER 6, 2005 HEALTH INSURANCE CONTRIBUTIONS DECEMBER 6, 2005 HEALTH INSURANCE CONTRIBUTIONS

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: ASSISTANT CITY MANAGER/CITY CLERK

DATE: DECEMBER 6, 2005

SUBJECT: HEALTH INSURANCE CONTRIBUTIONS

RECOMMENDATION

Adopt Resolution No. 2005-___; amending the City’s maximum monthly contribution amounts for employee health insurance premiums.

EXECUTIVE SUMMARY

The last time City Council established maximum contribution caps for employee health insurance premiums was in October 2002 for the rates that took effect on January 1, 2003. The Council has not had to increase the maximum cap since that time due to significant premiums savings the City realized by switching in 2004 from CalPERS’s medical insurance program to an independent broker, Maniaci Insurance Services, Inc. Recently, Council authorized the substitution of a single PPO medical plan in place of the two PPOs previously offered to participants in order to minimize the impact of premium cost increases in 2006. Although there are sufficient funds in the adopted FY 05-06 Budget to cover the increased in health insurance costs, the existing maximum contribution caps established need to be adjusted slightly for calendar year 2006. A draft Resolution adjusting those caps is attached for the Council’s consideration.

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, 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.

From 1997 to 2003, the City contracted with CalPERS for medical benefits. On October 1, 2002, City Council adopted Resolution No. 2002-87, which increased the maximum insurance contributions rates for all full-time employees, job share employees and Council members. The change was the result of CalPERS notifying the City that it would be increasing its rates for medical insurance by 23% for calendar year 2003. After being notified that the City would be facing a similar increase in 2004, the City withdrew from CalPERS and contracted with the private agency, Maniaci Insurance Services, Inc. Based on the premium savings resulting from this change, the City did not need to increase the maximum insurance contribution rates established in Resolution No. 2002-87 for another two years in a row – 2004 and 2005.

In October 2005, the City received notice from Maniaci that our medical insurance carriers will be increasing their rates effective January 1, 2006. Initially, the costs to maintain the City’s existing offering of health plans were going to increase by approximately 18%. However, with the City employees’ concurrence to eliminate the most expensive plan (a PPO with a $0 deductible) and reconfiguring the remaining PPO plan with a $250 deductible, the City was able to reduce the cost increase to around 15%. Council authorized the change to the health insurance plans on November 1, 1005.

DISCUSSION

Since 2004, the City has contracted with Maniaci Insurance Services, Inc. to provide medical benefits to its full-time employees, job-share employees and participating Council members. In 2006, participants can select from three different Blue Shield medical plans, including a PPO plan, a POS plan and an HMO plan. In addition, a few employees who were with Kaiser under the old CalPERS contract were allowed to maintain this insurance carrier under the new contract with Maniaci; however, no new enrollments or transfers into this program are permitted.

Participants can choose between two types of dental plans offered by Delta Dental. The City contracts with only one provider for vision (VSP) and mental health benefits (MHN). 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:

When necessary, 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, employees with dependents tend to choose the lower cost plans because they share in the cost of dependent coverage. .

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 05-06. Since FY 00-01, the number of full-time positions has increased from 41 to 49.

Fiscal Year

Amount

FY 00-01 (Actual)

$182,031

FY 01-02 (Actual)

$213,349

FY 02-03 (Actual)

$258,818

FY 03-04 (Actual)

$330,489

FY 04-05 (Actual)

$330,768

FY 05-06 (Budget)

$495,400

Staff has determined that the City’s maximum contribution rates for calendar 2006 need to be increased slightly (less than $60) for each of the three premium levels discussed earlier, as compared to the current limits established in 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

Current

Proposed

Current

Proposed

Employee Only

$624

$654

$312

$327

Two Party

$917

$957

$459

$482

Family

$1,117

$1,171

$556

$560

FISCAL IMPACT

Although the City will be paying slightly higher costs for health benefits in the next calendar year, it is difficult to estimate the actual amount of the increase at this time. This is because the City will be half way through FY 05-06 before the increases take effect on January 1, 2006. In addition, during the open enrollment period that ended on November 30, 2005, participants were allowed to change to their health care plans, such as changing carriers and adding or deleting dependents. This year, the twenty-two participants in the PPO $0 deductible plan needed to select from the remaining PPO, POS or HMO plans. The choices that employees made 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 is expected to have adequate resources to cover any increase in costs in FY 05-06. If a larger than expected increase occurs, the City can make any needed adjustments during the mid-year budget review.

ADDITIONAL INFORMATION

Full-time employees, shared-position employees and City Council members who can provide proof of medical coverage that is generally similar to the City’s medical coverage, can decline the medical coverage offered by the City and be reimbursed a flat amount each month equivalent to 50% of the lowest medical insurance premium. Resolution 2002-87 established this rate at $130.00 per month for full-time employees and City Council members and $65.00 per month for shared-position employees. With the adoption of the revised contribution caps for 2006, the amount of the reimbursement offered will increase to $154.00 and $77.00, respectively.

Respectfully submitted,

Carolynn Petru

Assistant City Manager/City Manager

Reviewed,

Les Evans

City Manager

Attachment:

Resolution No. 2005- ;

RESOLUTION NO. 2005-__

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 2006 AND RESCINDING RESOLUTION NO. 2002-87.

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, 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.

WHEREAS, on 2002, the City Council adopted Resolution No. 2002-87 establishing the maximum contribution amount for full-time employees, shared-position employees and City Council persons for calendar year 2003; and,

WHEREAS, due to health insurance premium savings realized by withdrawing from the CalPERS medical benefits program in 2004 and contracting with an independent insurance broker, Maniaci Insurance Services Inc., the City did not need to increase the maximum insurance contribution cap in 2004 and 2005; and,

WHEREAS, due to a proposed 18% increase in health insurance premiums in 2006, on November 1, 2005, the City Council authorized the substitution of a single PPO medical plan in place of the two PPOs previously offered to participants, thereby reducing the increase to approximately 15%; and,

WHEREAS, the increases in health insurance premiums in 2006 would slightly exceed (less than $60) the maximum contribution cap established in 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:

Maximum Contribution

Insurance Status Per Month

Employee Only $654.00

Two Party $957.00

Family $1,171.00

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 Only $327.00

Two Party $482.00

Family $560.00

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 $154.00 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 $77.00 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. 2002-87 is hereby rescinded and replaced by this Resolution.

PASSED, APPROVED and ADOPTED this 6th day of December 2005.

________________________

Mayor

Attest:

___________________________

City Clerk

State of California )

County of Los Angeles )ss

City of Rancho Palos Verdes )

I, Carolynn Petru, City Clerk of the City of Rancho Palos Verdes, hereby certify that the above Resolution No. 2005-___; was duly and regularly passed and adopted by the said City Council at a regular meeting thereof held on December 6, 2005.

_________________________

City Clerk