6.2. SR 10-08-2012 Elk REQUEST FOR ACTION
River
TO ITEM NUMBER
Mayor and City Council 6.2
AGENDA SECTION MEETING DATE PREPARED BY
Work Session October 8, 2012 Lauren Wipper, Human Resources
Representative
ITEM DESCRIPTION REVIEWED By
2013 Flexible Benefit Design Cal Portner, City Administrator
REVIEWED BY
ACTION REQUESTED
Review and discuss 2013 benefit renewals.
1) Provide direction for a health insurance opt out incentive
2) Provide direction on the city's contribution to employee's Flexible Benefits Plans and HSAs
BACKGROUND/DISCUSSION
Coverage Renewal Rates
We recently received our health and dental insurance renewal from our insurance brokers, Financial
Concepts Inc. (FCI). While the health claims experience for our group were quite good,we are not
considered to be a fully credible group because of our group size and the short period of time we've been
with Medica. Because we are not fully credible, our claims are combined with the Medica community
claims when calculating our renewal. The initial renewal rate for our health insurance came back at
11.5%. Because this rate was impacted significantly by the community claims, FCI was able to negotiate
our increase down to 5%. 2013 health plan premiums range from $372.47 (single high deductible) to
$1,753.16 (family co-pay). On average, employees pay zero to 28% of the premium.
Our initial renewal with Principal Life for dental insurance indicated a 15.4% rate increase due to a 94.5%
loss ratio. FCI negotiated our dental rate increase down to 11.5%.
Our group term life, additional life, and short-term disability insurance rates are unchanged for 2013;
however; our long-term disability renewal came back with a 16%increase. Our brokers for that plan,
Ochs Inc., suggested we go to the market for bids. Ochs received a bid from Madison National Life
Insurance Company that matched our current plan in both rates and plan design. A request to change to
Madison National Life Insurance will be included on next week's consent agenda.
Health Insurance Opt Out
It has been the city's policy to require all eligible employees to take three core benefits within our Flexible
Benefits Plan. The core benefits are group term life insurance, single dental insurance, and single health
insurance. The city's contribution to the Flexible Benefits Plan has always paid 100% of these core
benefits for at least one of the health plans offered.
By mandating employees to carry health insurance, some may be covered under two different plans.
Often the economics of health care and plan design make it cheaper for one family member to carry
F 0 W I R I a a r
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family coverage. The general thought is that if allowed to opt out of coverage, the healthy employees
would leave the plan and the employees with high claims would stay on the plan, causing premiums to
increase. Our brokers have assured us that they are not seeing this trend. Most employers require
employees to provide proof that they are covered by insurance elsewhere before allowing them to opt
out. The employees who choose to opt out are doing so because they have coverage through their
spouse or could get coverage through their spouse at a lower cost than they would pay at their own
employer. The incentive to opt out is set at a rate to encourage employees to not maintain double
coverage or to make it more economically feasible to transition their coverage to their spouses plan.
We surveyed our insurance eligible employees and 26%indicate that they would consider opting out of
the city's health insurance depending on how the numbers add up with their spouse's plan and provided
they could get back on our plan if needed. Employees are,by law, able to return to city benefits based
upon a life-changing event.
Our dental plan design requires 100%participation of eligible employees and changing that would impact
rates. Therefore,we are only considering an option to opt out for health insurance.
Review of the League of Minnesota Cities Salary Survey shows that 131 of the 174 (75%) responding
cities allow employees to opt out of their health insurance. Of those, 74 (57%) provide incentive
compensation to waive health insurance. The amount provided varies significantly from $27.10 to $944
per month. FCI works with 12 large group city clients and six of them offer incentives to waive
insurance with an average monthly incentive of$317.
If half of our employees who said they'd consider the opt out option chose to opt out with a monthly
incentive of$300 the city could save about$32,000 this year. This is of course based upon 2012
enrollments and on a survey in which employees were not told of the amount of the incentive.
2013 Flexible Benefits Plan Design
The 2013 budget includes a 5%increase to insurance benefit costs. Over the past few years,we have
taken the full amount budgeted and allocated that between contributions to employee's flexible benefits
plans and health savings accounts. We would like to continue to assist those employees willing to take on
the risk of the high deductible plan by contributing to their health savings account. The implementation
of the high deductible plan in 2008 has proven to be successful as it continues to experience low claims-
to-premium ratios which significantly help our entire plan.
There are two items we need to decide for this year's plan design.
1. We need to determine the contribution amount to employee's flexible benefits plans and health
savings accounts.
2. We need to decide if we are going to implement an option to waive health insurance. If we do,
what is the appropriate incentive?
Contribution Amount
We have looked at city contribution options from a zero increase up to 5%. Each option would leave
some amount of money available to contribute to employee's health savings accounts. While all of these
options are fairly similar in effect,we suggest a 4%increase to the city contribution amount reserving the
balance for an annual HSA contribution of$492 for employees electing the high deductible health plan.
A spreadsheet of this plan design is attached.
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FINANCIAL IMPACT
The projected benefit renewal was accounted for in the preliminary budget. The implementation of an
option to opt out of benefits would provide a potential savings to the city.
ATTACHMENTS
■ Proposed 2013 Flexible Benefits Plan Renewal
Action Motion by Second by Vote
Follow Up
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Proposed 2013 Flexible Benefits Plan Renewal
Single +Spouse +Child(ren) Family
2013 City Contribution 484.00 708.00 708.00 951.00
Life Ins 4.50 4.50 4.50 4.50
Single Dental 35.60 35.60 35.60 35.60
Remaining for Health Ins 443.90 667.90 667.90 910.90
$25 Co-pay Mthly Premium 530.41 1,160.86 1,150.77 1,753.16
Monthly Employee Cost 86.51 492.96 482.87 842.26
Annual Employee Cost 1,038.12 5,915.52 5,794.44 10,107.12
Current Enrollment 10 0 1 0
$500 Ded Mthly Premium 459.25 1,005.13 996.41 1,518.00
Monthly Employee Cost 15.35 337.23 328.51 607.10
Annual Employee Cost 184.20 4,046.76 3,942.12 7,285.20
Current Enrollment 12 2 2 3
$2,500 HDHP Mthly Premium 372.47 815.19 808.11 1,231.11
Monthly Employee Cost -71.43 147.29 140.21 320.21
Annual Employee Cost -857.16 1,767.48 1,682.52 3,842.52
Current Enrollment 42 8 16 19
Employees electing the High Deductible Health Plan also receive a$41 per month($492.00 for the full
year)contribution to their Health Savings Account.
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