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HomeMy WebLinkAboutResolution - 589 - Agreement - TML Insurance Trust - Employee Group Health & Life Insurance - 08/14/1980JCR:cl RESOLUTION 6 RESOLUTION #589 - 8/14/80 BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the Mayor of the City of Lubbock BE and is hereby authorized and directed to execute for and on behalf of the City of Lubbock an Insurance Agreement between the City of Lubbock and Texas Municipal League Insurance Trust, attached herewith which shall be spread upon the minutes of the Council and as spread upon the minutes of this Council shall constitute and be a part of this Resolution as if fully copied herein in detail. Passed by the City Council this 14th day of August ,1980. ILL McALISTER, MAYOR ATTEST:'. ea= Evelyn Gaf ga City Ser a reasurer APPROVED AS TO .FORM: ohn C. Ross, Jr., City Attorney � CITY OF LUBBOCK��� MEMO TO: Larry J. Cunningham, City Manager FROM: Insurance Committee SUBJECT: Proposals for Employee Group Health and Life Insurance August 8, 1980 On May 23, 1980, Aetna Life and Casualty presented in writing a rate increase for the City of Lubbock Employees Group Health and Life Insurance Program. The rate increase effective July 26, 1980 represented a 53.6% increase in premiums from $34.34 to $52.75 monthly for employee coverage and from $37.90 to $58.21 for dependent coverage. The City of Lubbock provides the medical coverage for all full -time employees and the employee has the option of adding dependent coverage at his own expense. The increase in employee coverage represented an increase of $381,087 above the costs budgeted in April for the 1980-81 budget year. HISTORY The insurance committee met in May and June to determine an alternative to the increased premiums requested by Aetna. It was determined that the City needed to re- assess the contract with Aetna and evaluate alternative carriers and plans. Requestes for Proposals for Group Health Insurance and Group Life Insurance were developed. The RFP's outlined the conditions and specifications under which the City would receive proposals for the Group Health and Life Insurance Program. Proposals were to be evaluated on the basis of a willingness to comply.with the benefit and administration requirements outlined in the specifications, the effectiveness and efficiency of administrative and service capabilities (claims handling and claims analysis and management reporting),economic competitiveness (premiums, administrative costs, etc.) and the demonstrated effectiveness of a cost containment program. Requests for Proposals were mailed to Aetna Life and Casualty, Texas Municipal League °k Prudential Insurance Company, Blue Cross/Blue Shield, The Travelers Insurance Companies, Metropolitan, Sanford Agency, Hartford Insurance, Lincoln National , Jefferson Standard, American National Insurance, Galbraith & Green % Insurance Associates, and Associated Financial Planners. Of those mailed to group health and life insurance carriers, Travelers and Metropolitan declined to submit a proposal. Of the Life insurance carriers all declined except American National. Due to the increasing cost of medical insurance and the potential limitations of municipal financing, three separate levels of health insurance benefits were outlined in the RFPs. The redesigning of our health insurance benefit plan is a viable alternative to the increasing cost of medical insurance. The three levels of benefits outlined were 1) our present plan which provides both Basic Benefits prior to a deductible and the Comprehensive coverage after the.deductible 2) a straight comprehensii plan funded at the 80% level and 3) a straight comprehensive plan funded at 80% level fol outpatient medical expenses and 1007o level for in hospital expenses. Plan 2 and 3 are vel similar to the plan developed by the Uniform Group Insurance Program of the Texas Municipal League Insurance Trust. ANALYSIS OF PROPOSALS Proposals received by three carriers, Aetna, Blue Cross and Texas Municipal League quoted premium rates on a fully insurance basis with retention accouting. This means that the premiums are established by the City's own experience (claims paid) plus �eM Proposals for Employee Health &-Life Insurance ` August 8, 1980: Page 2. retention costs (administrative handling, claims processing and premium tax). The other proposal was received by Galbraith & Green who serve as a third party administrator and insurance consultant.. Specifically the plan is a self-funded plan which is administered by Galbraith and Green and an insurance company -is obtained to handle .the catastrophic losses. Attached is a spread sheet which recaps the health and life insurance premiums quoted by the carriers who submitted proposals. As stated previously, premiums cost is only one of four major factors to be considered in evaluating the proposals and recommending a carrier. Basically the four factors are 1) compliance with the plan specified, 2) level of services received by the employees and the City, 3) cost of the plan, and 4) cost containment procedures utilized by the carrier. All proposals received quoted on the plan as outlined in the specifications and all utilize similar cost containment program.. Therefore,the remaining two factors, costs and service are highlighted below. Aetna The premiums quoted by Aetna were the highest of the three fully -insured proposals. For our present plan Aetna's premiums were 12°4 above TML and 16% above Blue Cross. For the Comprehensive at 80% level, the rates were 10°4 above TML and the same as Blue Cross. The rates submitted by Aetna for the basic and high comprehensive plans appeared to be loaded towards the dependent costs. Historically, the difference between the rate for -employee coverage and the rate for dependent coverage is approximately 10°4. This historical pattern Was reflected in the rates received by TML and Blue Cross. However, the rates submitted by Aetna for the comprehensive plan showed a 62% spread between employee coverage and dependent coverage with the dependent coverage rate shouldering the burden. Level of services offerred to the employees and to the City is basically what is received now. Claims analysis reporting, plan expenses, claims payment statistics, and cost control reports are presently unavailable and not included in the premiums. They are available at $1,500 per printing (i.e. monthly). Instructional aides to employees for claims filing, and processing are restricted to the instructions on the claim form with the responsibility of explaining procedures assigned to the City. Blue Cross/Blue Shield As stated above, the rates submitted for Blue Cross for the current plan are considerally less than Aetna's. The difference between Blue Cross and TML is only 3%. The rates for the comprehensive 80% level for BLue-Cross is 12°4 higher than TML or $158,012 annually. L Much of the claims filing under Blue Cross/Blue Shield is done directly by the member hospitals, physicians, and medical service institutions. Blue Cross negotiates prices with member hospitals who file all claims directly with Blue Cross. The remaining claims are filed directly by the employee. Limited instructional claims filing and processing information is available to the employees. Claims analysis reporting to the City is also limited. It appears that Blue Cross has sophisticated internal management reports which they utilize to administer their programs in Texas -to provide cost control features.but limited reports to assest the City in administration.. Proposals for Employee Health r & Life Insurance"', August 8,• 1980. Page 3. TEXAS MUNICIPAL LEAGUE The rates for our current level of benefits submitted by Prudential under the Texas Municipal League Insurance Trust are 12% less than Aetna's, and 3% higher than Blue Cross. The rates for the comprehensive -80% level of benefits are 10°k lower than Aetna's and 127 lower than Blue Cross. Texas Municipal League appears to offer the most sophisticated level of services both to the employee and to the City. Each employee is provided with an illustrated detailed information packet which explains the claims filing and processing procedures. It appears to be an effort to inform the employee prior to the filing of a claims, and reduce questions later. The costs of the packets are included in the rates. Also included in the rates are complete claims analysis anct payment, reports. GALBRAITH & GREEN As a third party administrator, Galbraith & Green would administer the City of Lubbock's insurance program and would retain an insurance carrier to provide carastrophic insurance. Under a self -funding plan, the City would pay all eligible claims up to our re -insurance limits, both specific and annual. Self - funding has the most cost saving features because of the elimination of the premium tax. It also has the greatest liability because the City would be responsibl, for premium costs after termination of the contract in excess of any reserves built up over the duration of the contract. Advantages of a third -party administrated plan are that City can change carriers without changing administrative procedures, claim filing and processing procedures, and claim and payment forms. This eliminates the need to re -enroll and re-educate employees each time a carrier is changed. The disadvantage of self -funding plan is the potential financial liability. Unfortunately, the City has had two years with a 1007 + loss ratio. Under a self -funding plan, the City would need to adequately fund the plan so as not to create financial problems at the end of the contract year- or at"termintation of. contract. Due to the lack of stability in our claims experience over the last three years, and the lack of available past management reports to determine specific contributing cost factors, it would not be adviseable to go to a self -funding plan at this time. RECOM1ENDATION & HEALTH INSURANCE Based on the economic competitiveness of the Texas Municipal League plan, the level of services available to both the employees and to the City of Lubbock, it is recommended that the City place its Group Health and Life Insurance Program with the Texas Municipal League Insurance Trust, Uniform Group Insurance Program under-,- written nder. written by Philadelphia Life Insurance Company and reinsured and administered by the Prudential Insurance Company. Currently there are 170 cities in Texas with a total of 26,000 municipal employees enrolled in the Texas Municipal League plan. The Texas Municipal League plan provides employees with the most detailed explanations of claims filing and claims processing procedures. It provides Oities with detailed claims analysis reports such as Benefit Management Information Reports, Coordina- tion of Benefits Savings Reports, Hospital Cost Analysis Reports, Claim Payment Statistics Reports, etc. We feel these and similar reports are needed for the City staff to properly administer and monitor the insurance program. Proposals for Employee Health & Life Insurance August 8,1980 Page 4. The Texas..:Municipal Leagueplan provides the City with flexible funding methods, fully -insured and fully self-funded. Due to the potential cost savings, the City would be advised to consider self -funding at that point in the future when the plan experience has stabilized and management reports are being received on a regular basis for proper evaluation. Both funding options are available under Texas Municipal League. The City could elect a fully insured plan for the first year or two and then decide to self -fund under Texas Municipal's administration. The change would not effect the employees. The second recommendation concerns the level of benefits to be funded. To maintain our present level of benefits with Texas Municipal League would require $321,046 additional annual premium above our current budgeted rates. Aetna is requiring $512,647 additional premium to maintain our level of benefits. On an individual premium basis, Aetna has requested a 40% increase (reduced from 53% requested prior to the request for proposals) while Texas Municipal League's rates are 25% above our present rates. It is therefore recommended that the City change it level -of benefits to a Comprehensive Plan funded at an.80% benefit level. This Would require only a nominal change in rates. It is true that the employees would receive greater benefit under our present plan; however, they pay for the increased benefits in increased premiums. Basically, a Comprehensive Plan funded at an 80°4 level of benefit means that after the deduc- _ tible.is met, eligible expenses are paid at 80%. The present plan provides the greatest benefit during hospital confinements. During hospital confinements, the present plan pays $25 per day, plus 80% for room and board, and 100% of the miscellaneous hospital expenses. A Comprehensive Plan pays a straight 80% after the deductible. For illustrated purposes,an average hospital claim, appendectomy requiring a four day confinement has been attached. It is noted that under the present basic benefit plus major medical plan, 88% of the expenses.or $1,575 of the total $1,780 would be paid by.insurance and $205 (11;5%) would be paid by the employee.. Under the basic Comprehensive Plan, $1,364 (76.6%) is paid by insurance and $416 (23.4%) is paid by the employee. An important point is that the increased insurance benefit requires an increased premium. For dependent coverage, the employee has to pay an additional $169,'per year for the present plan benefits. This reduces his actual benefits received and lessens the differences in the two plans. It also provides that the employee with the high medical cost share some increased responsibility instead of distributing the costs to the remaining employee. For medical expenses incurred on an outpatient basis, the differences in the two pl4ns are not significant. The Comprehensive Plan provides for a lower per member deductible, $75 per member as opposed to $100 per member under the present plan. On an outpatient basis the present plan pays 80% of the medical expenses above the deductible so the employee receives two out-of-pocket savings, $25 lower annual deductible and $169 lower annual premium. LIFE INSURANCE Little attention in this paper has been addressed to life insurance. All carriers submitted proposals on the indentical plan and there was relatively little fluctuation between premium rates. The lowest rate submitted was by Aetna for an annual City cost of $48,127. Texas Municipal League's was the highest annual cost of $73,485, Proposals for Employee Health & Life Insurance August 8,. 1980 Page 5. which is $25,358 above Aetna. Our present rate with Aetna is $.612 per thousand dollar coverage and would represent an annual cost of $63,342 for the plan specified in the proposal. The proposal specifications outlined a term life insurance -plan where the City would provide a flat $5,000 coverage for.each full-time employee. The employee has the option of purchasing additional insurance equal to one times his earnings for himself and dependent term insurance for his spouse and children. State statutes limit life insurance for municipal employees to twice annual earnings up to a maximum of $50,000 coverage and limit dependent coverage to ' of employees coverage up to $10,000.for a spouse and $2,000 for a child. The typical Texas Municipal League life insurance plan has been designed from the state statute. According to Texas Municipal League, the usual funding procedure is for*the City to provide the one times annual earnings with the employee having the option of one additional times his earnings at his own expense. This funding method could cost the City an annual $157,926. It is also recommended that the City adopt a new term life insurance plan. At the present, an employee is eligible to receive life insurance coverage equal to approximately one times the annual salary up to $15,000 coverage. One-third of the premium is paid by the employee. For simplicity in administration, budgeting, and accounting procedures, it is recommended that the City would provide a flat $5,000 coverage plus AD&D for all full-time employees, and provide the employee with several options. This would maintain the City's present cost while offering the employee a choice in his benefit level. The options include allowing the .employee to add additional term coverage and AD&D equal to one times his annual earinings and to add dependent coverage for his spouse and children.. Both the additional employee coverage and dependent coverage are at the.expense of the employer. Rates for the optional coverage scheduled by age and sex and experienced separately so they do not effect the rates paid by.::the City. Employees have requested a greater -flexibility in our.life insurance program and dependent -life insurance. Presently the City does offer dependent life insurance through Philadelphia Life. The plan through Texas Municipal League world conso- lidate the insurance programs offered with. one-, plan.. The insurance rate increase presented by Aetna effective July 26, 1980, payable on August 22, 1980 is an annual increase of $512,647 of which $284,418 is to be paid by the City. The City has.three alternatives, 1) Continue the same level of •coverage with Aetna and budget the.increase. 2) Change the health insurance plan with Aetna to lessen the increase. Based on Aetna's submitted rates, this would actually decrease City's cost by $44,091 annually but increase the employees' cost for dependent insurance by $203,133 annually, and 3) Change carriers retaining the same benefits or restructure the plan to reduce present and future increases. It is recommended by the insurance committee that the City change the plan to the Comprehensive Basic Plan provided by the Texas Municipal League Insurance Trust Fund underwritted by Philadelphia Life and administered by Prudential Insurance Company in Houston. This would cost the City $264,546 less than remaining with Aetna under the present plan. Gc Ll1 e 1Sui'dl7c.:� August 8, 1980 . , Page 6. !� Also recommended is the Texas Municipal League life insurance plan.providing.a basic term life insurance coverage and ADHD at the City's expense and allowing employees optional additional insurance. It is felt that the employees will ireceive the City as responding to their insurance needs. Should the recommendation be approved by the management and City Council, a cancellation notice will need to be sent to Aetna at least thiry days prior to cancellation. Departmental employee meetings will be held in September to explain the changes. Jim Blagg Assistant City Manager Robert Massengale Finance Director Rita P. Harmon Assistant Personnel Director Carrol McDonald Director of Electric Utilities Premium Annaul Employee• $423.60 Dependent $467.50 COMPREHENSIVE - BASIC 80% Covered Not Expenses Expenses Covered * R&B = $80/day X 4 days = •$ 320 320 0 Miscellaneous Fees _ 750 750 0 Surgeon = 500 500 0 Anesthesiologist = 175 175 0 Radiologist = 15 15 0 Non -Hospital Drugs = 20 20 0 TOTALS $1,780 $1,780 $20 -75 1,705 X. 80% Total'Benefit Payment 1,364 (76.6%) Paid by Employee 416 (23.4%) -169 Additional Premium Paid by Employee $ 247 `Assume Semi -Private Room Charge is $75/day Premium Annaul Employee• $423.60 Dependent $467.50 w AETI?A - PRESENT PLAN Basic Major Not • Expenses " Benefits Medical Covered *R & B = $80/day x 4 days = $ 320 $ 100 $216 $4 Misc Fees = 750 750• 0 0 Surgeon - = 500 132 368 . 0 Anesthesiologist = 175 '175 0 0 Radiologist = 15 15 -0 0 Non-hospital drugs = 20 0 20• 0 To $1,780 $1072 $604 $4 -100 ' $504 x 80% $403 _ Benefit Recap: 1. Basic Benefit Payment $1,172 2. Major Medical Payment 403' • 3. Total Benefit Payment $1,575(88.5%) 4. Paid by employee $ 205111.5%) - *Assume Semi-private room charge is $75/day. Annual Premium Employee $ 515.40 Dependent 1$ 636.60 Comprehensive Basic - 80% Expenses Summary of Annual Expenses 4 Office Visits at $20.00 Ea. _ $ 80.0 Prescription $ 5.75 12.50 9.50 17.17 12.50 Annual Premium $467.50 Covered Expenses 0 $-80.00 57.42 157.42 TOTALS $137.42 -75.00 62.42 X80% Total Benefit Payment $ 49.94 Paid by Employee $ 87.48 Present Plan 57.42 $137.42 Annual Premium $636.60 Expenses Covered Expenses Summary of Annual Expenses 4 Office Visits at $20.00 Ea. _ $:80.00 Prescription 57.42 $137.42 -100.00 Total Benefit Payment 37.42 Paid by Employee $100.00 Additional Premium Paid by Employee $169.10 80.00 57.42 $137.42 �I PLAN COMPARISON BASIC PLUS BENEFIT MAJOR MEDICAL COMPREHENSIVE Hospital Expense Basic Plan High Plan Semi -Private Room $25 Per Day; 80% Under Major Medical 80% 100% Other Hospital Expenses 100% Under Major Medical 80% 100% Deductible Applies Yes Yes Yes Laboratory and X -Ray Scheduled up to $75 Year; 80% Major Medical 80% 80% Medical Expenses 80% Major Medical 80% 80% Surgical Expenses Scheduled; 80% Major Medical 80% 80% Accidental Injury Expenses 100% to Maximum of $300 $300 $300 Maternity Expenses Treated Same As Any Illness Psychiatric Care After Deductible Outpatient - Pays 50% up to an Annual Maximum of $1,000 50% 50% 50% Annual Deductible Maximum Per Person $100 $75 $75 Maximum Per Family $200 $225 $225 Coinsurance Pays 80% to Maximum of First $5,000 of Expenses and then 100% of the Ex- penses above $5,000 During the Balance of the Calen- dar Year and in the Next Calendar Year. $5,000 $5,000 $5,000 Lifetime Maximum Per Participant $250,000 $250,000 $1,000,000 x H CrJ H z C) r C d H O M H H CrJ CrJ En .� w -11 .t` w r w w r N tIn N X- to N 17 N 00 OD W zO CT Un �:- N N O O� O k n O O F� t3l N OD CJD W 0�0 N W Vl 011 O\ kc -.l O tD W -13 --4 CT Ul N a, N O h' CT N tJl 00 tJl N O %-n O O ---4 tJi l CT J-- _L J- Q` Ul tJl 7 OD IP W k -n O N W w kO W N to ] W O O O CT co F� 00 H N W Ul OJ O\ OD O N tll (T ON \.p O 1' l Q` 1 J N o O F' - Ul 7-1 F CT 00 OD W ..� O N C� co 4- 4- OD > N (T m O W (31% F-' N F� F- N F� H F✓ N tir W O% ON 1 til CT r � t0 F, O ()-N 1 t 1 Vl %.0 1 N N Ul 'In k -n W -r-- :4 zn 7 F' tY, :4 N 00 W N OD OD O %_o to -4 .� OD 0 -� ON N CF\ W ON 1' 7 3 by � b0 til 0 C) to 0 C) 3 t0 H O �n w w' O O � a O O w w m LO z m b :3c m C— to N 3 c..,. co b b O 1-11 z (n b z z z m a a N w w w r 15 N Is 0 to 1 t I C) + 1 1 O ct C °C � OD CD w w c (D CD Ff ao (D Ff c cD CD Is w 00 o a. 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