Rancho Palos Verdes City Council
   

December 5, 2006 RANCHO RANCHO PALOS VERDES CITY COUNCIL AGENDA-HEALTH INSURANCE CONTRIBUTIONS December 5, 2006 RANCHO RANCHO PALOS VERDES CITY COUNCIL AGENDA-HEALTH INSURANCE CONTRIBUTIONS December 5, 2006 RANCHO RANCHO PALOS VERDES CITY COUNCIL AGENDA-HEALTH INSURANCE CONTRIBUTIONS



TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: ASSISTANT CITY MANAGER/CITY CLERK

DATE: DECEMBER 5, 2006

SUBJECT: HEALTH INSURANCE CONTRIBUTIONS

RECOMMENDATION

Adopt Resolution No. 2006- ; amending the City’s maximum monthly contribution amounts for employee health insurance premiums.

EXECUTIVE SUMMARY

The last time City Council adjusted the maximum contribution caps for employee health insurance premiums was in December 2005 for the rates that took effect on January 1, 2006. Prior to that time, the caps had not been increased since January 1, 2003. The Council was able to avoid increasing the caps between January 2003 and January 2006 through significant premiums savings the City realized by switching in 2004 from CalPERS’s medical insurance program to an independent broker, Maniaci Insurance Services, Inc. In 2006, the Council was able to blunt the impact of increased premium costs by substituting a single PPO medical plan in place of the two PPOs previously offered to participants. A similar approach is being taken in 2007 by eliminating the POS medical plan, which was scheduled for a 33% rate increase, thereby reducing the number of Blue Shield medical plans offered to participants from three to two. Through these methods, the City has been able to slow the increase in the City’s costs to provide health insurance to its employees. A Council subcommittee is currently exploring the possibility with staff of implementing a Health Savings Plan (HSA) program in January 2008 aimed at further controlling these costs.

Although there are sufficient funds to cover the increased in health insurance costs in the adopted FY 06-07 Budget, the existing maximum contribution caps established for 2006 need to be adjusted slightly for calendar year 2007. 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 Councilmember’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 employee medical benefits. While participating in CalPERS medical insurance program for five years, the City experienced mounting premiums increases each year, culminating in a 23% increase in 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 insurance broker, 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 2006, the costs to maintain the City’s existing offering of health plans was initially slated to increase by approximately 18%, but the City substituted a single PPO medical plan in place of the two PPOs previously offered in order to reduce the premium cost increases to 15%.

DISCUSSION

In October 2006, the City received notice from Maniaci that our medical insurance carriers will be increasing their rates effective January 1, 2007. Initially, the costs to maintain the City’s existing offering of HMO, PPO and POS health plans were to increase by approximately 19%, 16% and 33%, respectively. Maniaci was able to negotiate with Blue Shield to lower the renewal rate for the HMO and PPO plans down to approximately 13% for each plan. Because the POS plan was slated for a significant cost increase (33%) and only three employees are currently enrolled in this plan, it has been eliminated from the City’s medical plan offerings. Therefore, in 2007, participants can select from two Blue Shield medical plans - an HMO plan or a PPO plan with a $250 deductible. In addition, three 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:

 Employee only
 Employee plus one dependent (“two-party”)
 Employee plus two or more dependents (“family”)

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. Since FY 00-01, the number of full-time positions has increased from 41 to 49. 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 six years and the budgeted amount for FY 06-07.

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 (Actual) $388,402
FY 06-07 (Budget) $418,600

Staff has determined that the City’s maximum contribution rates for calendar 2007 need to be increased for each of the three premium levels discussed earlier, as compared to the limits established in 2006. 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 $654 $719 $327 $360
Two Party $957 $1,054 $482 $538
Family $1,171 $1,289 $560 $659

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 2005-131 established this rate at $154.00 per month for full-time employees and City Council members and $77.00 per month for shared-position employees. With the adoption of the revised contribution caps for 2007, the amount of the reimbursement offered will increase to $175.00 and $87.50, respectively.

ADDITIONAL INFORMATION

A Council subcommittee, consisting of Mayor Pro Tem Long and Councilman Gardiner, has been exploring with staff the option of converting the PPO plan into a Health Saving Account (HSA) plan as another method to reduce the City’s costs for employee medical insurance. An HSA is a tax-favored account set up exclusively to pay for certain medical expenses of the account owner and their dependents. Under this type of plan, the existing PPO plan would be converted into a high-deductible PPO plan, which could increase the deductible from $250 to $2,600 potentially, with the City funding the employees’ annual deductible through the HSA. Distributions to pay for qualified medical expenses are received income tax free and funds not used during one year can be held over and used to pay qualified medical expenses in later years. Under this type of plan, the City could significantly reduce its medical health insurance premiums through the high deductible plan and employees would have an incentive to manage their health care costs more judiciously. Due to the need to work through the details of implementing such a plan and time constraints created by the open enrollment period, the subcommittee decided to postpone further consideration of the HSA concept until next year, with the goal of presenting the plan to the full Council and the employees with sufficient lead time to allow it to be implemented, if Council so chooses, effective either July 1, 2007 or January 1, 2008.

FISCAL IMPACT

Although the City will be paying 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 06-07 before the increases take effect on January 1, 2007. In addition, during the open enrollment period, which ends on December 10, 2006, participants are allowed to change to their health care plans, such as changing carriers and adding or deleting dependents. This year, the three employees participating in the POS plan needed to select from the remaining PPO 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 06-07. If a larger than expected increase occurs, the City can make any needed adjustments during the mid-year budget review.

Respectfully submitted,

Carolynn Petru
Assistant City Manager/City Manager

Reviewed,

Les Evans
City Manager

Attachment:

Resolution No. 2006- ;

RESOLUTION NO. 2006-

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 2007 AND RESCINDING RESOLUTION NO. 2005-131.

WHEREAS, on December 6, 2006, the City Council adopted Resolution No. 2005-131 establishing maximum insurance contribution rates for employee benefit premiums; and,

WHEREAS, the increases in health insurance premiums in 2007 would exceed the maximum contribution cap established in 2006; 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 $719.00
Two Party $1,054.00
Family $1,289.00

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 $360.00
Two Party $538.00
Family $659.00

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 $175.00 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 $87.50 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. 2005-131 is hereby rescinded and replaced by this Resolution.

PASSED, APPROVED and ADOPTED this 5th day of December 2006.

_______________________
Attest: Mayor

_________________________
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. 2006- , was duly and regularly passed and adopted by the said City Council at a regular meeting thereof held on December 5, 2006.

_________________________
City Clerk