Loading...
5.4. SR 04-24-2000Tity of TO: FROM: DATE: SUBJECT: Item #5.4. iver MEMORANDUM Mayor & City Council Lori Johnson for the Benefits Committee - Marc Nevinski, Joan Frick, Cheryll Edinger, Bob Mahutga, Steve Tillman, Lauren Wipper, Scott Harlicker, Lori Johnson April 24, 2000 Update: Benefits Committee Introduction The Council requested that a Benefits Committee be formed to review the City's benefit package in response to hiring and retention issues related to the City's current benefit package and the high cost of health insurance. The Committee has been meeting since January and is now reporting to the Council on the Committee's progress, possible options the Council may consider, and its recommendation. Council direction is requested so the Committee can proceed. Background Several weeks ago you received minutes from the Benefits Committee meetings as background for our March 22 Council discussion. Attached are minutes from the last two Committee meetings held after March 22. This memo will briefly highlight only the major issues; please refer to the minutes for additional information. If you need another copy of the minutes distributed in March, please contact me. The Committee's first task was to determine why benefit changes were being considered. The Committee identified two main reasons: 1. The high cost of insurance and the amount paid by employees for family coverage. 2. Recent problems with employee recruiting because the City's benefit package was not at a level comparable to the applicant's current employer and employee retention issues. Next the Committee discussed what the City could do to address these two issues. The Committee identified items over which the City has control and others that are out of the City's control. Unfortunately, the most important component of the benefit package, health insurance premiums, is not something the City can change. The City can change the level of benefits and the type of insurance, but it cannot change the premium charged by the insurance company. The City's rates are determined by claims history and demographics. The company reviews past claims, estimates future claims, reviews current demographics, estimates future demographics and develops rates based on this 13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420 · Fax: (612) 441-7425 information. We cannot change claim history or future claims; therefore, no matter which company we use, the rates will be based on our claims. Changing from one company to another will not substantially decrease rates because all companies use the same information to determine rates. The only way to reduce costs is to reduce coverage. Increasing the contribution could reduce employee costs, but that just passes the cost on to the City - the insurance company still collects the same premium. In addition, the Committee discussed the issue of fairness. What is fair? Do benefits have to be fair? What one person thinks is fair may not seem fair at all to the other. Is it fair that some employees receive more financially from the City because the City is paying for part of their family insurance coverage? Or is this fair because in the end all employees have insurance coverage? If two employees are each paid $10.00 per hour and one takes family coverage, the actual cost to the City is much higher per hour for that employee than an employee taking employee only coverage - is this fair? These are some of the issues the Committee discussed because fairness is an important part of how benefits are provided. In the end, not all members agreed on what is fair and what isn't. The Committee reviewed national surveys and published articles to help determine what most employees what in a benefits package. This information correlated closely to what the members felt was important. Employees want several things from their benefit package. · Flexibility · Choice · A feeling of control or ownership Finally, keeping all of these issues in mind, the Committee tried to focus on changes that would help all employees but not cause undue hardship on the City. The Committee also had to work around the health insurance premium issue since that is out of our control. Options The Committee identified several options for the Council to consider. Of course, some of these options do not address the issues that the Council wants to resolve. The options proposed are as follows: · Do nothing · Increase City contribution to family coverage · Unilaterally decrease health insurance benefits · Change the way benefits are provided o Increase flexibility in current structure o Cafeteria Plan Do Nothing: Obviously, this option does not address the concerns and goals stated previously. Increase City Contribution to Family Coverage: This option reduces the cost to employees who choose family coverage and increases the cost to the city. A significant contribution increase would be needed in order to decrease the employee cost for family coverage to a level these employees feel is appropriate. This option helps a small percentage of the City's employees. It does not help in employee recruiting and hiring situations unless the applicant wants family coverage. Unilaterally Decrease Health Insurance Benefits: Unilaterally decreasing health insurance benefits would decrease premium and increase out of pocket medical costs. For some employees the out of pocket costs may exceed the reduction in premium. Employees electing single coverage may be most upset by this option because these employees would incur more out of pocket costs in order to reduce costs for employees with family coverage. Although a decrease in benefits would reduce premiums, not all employees with family coverage would see any reduction in cost; if there are on going or sizable claims for a family, the cost would just convert to out of pocket costs instead of premium payments. Change the Way Benefits are Provided: Changing the way benefits are offered to employees provides some direct benefit to all employees. There are several ways benefit changes can be made. The cost to the employer for making these changes depends entirely on what changes are made. The Committee focused on two different benefit plans - a cafeteria plan and simply making minor changes to the current benefit structure. Of course, each of these methods benefits different groups of employees. IncreaseflexibiBty in current plan: Under this scenario the current benefits would remain in place along with the City's contribution cap. However, employees would be allowed to purchase family dental, for instance, if they had not used all of the City's contribution. This option does not reduce the employee costs for family coverage unless to City increases its contribution level. The cost to implement this plan is minimal unless the City's contribution is increased to reduce costs for family premiums. Cafeteria plan: A cafeteria plan allows employees to choose the benefits that best fit their situation with money left after purchasing a minimum level (core) of benefits required by the employer. Please refer to the attached Cafeteria Plan Overview for information on how the plan functions. This plan does benefit all employees, but to differing degrees depending upon how the plan is structured. Employees with family coverage would have the option of choosing a high deductible health insurance plan and putting the rest of the City's contribution into a pretax medical reimbursement account or into deferred compensation. The premium for medical coverage would not change because that is still determined by the insurance company based on claim and demographic information; however, these employees at least have the option to choose between paying the extra premium or applying that money to something else - like a medical reimbursement account to pay the extra out of pocket costs. Unless the City increases its contribution to family coverage, the employee share for comprehensive coverage will not decrease. These employees decrease their cost by opting for a deductible health insurance plan. Other employees benefit because they have the flexibility to use the funds remaining after purchasing core benefits for voluntary options that are most appealing to them. The amount of the City's contribution can either be the same for all employees or vary depending on the type of insurance coverage that the employee selects. The Committee discussed the merits of equal and unequal contributions at length and identified the pros and cons of each: Equal Contribution o Positive aspects · Fair to all employees · Easier to administer · Creates more flexibility for employees to create their own benefit package o Negative aspects · May cost employer more than unequal contributions Unequal Contribution o Positive aspects · Will, in most cases, cost employer less than equal contributions o Negative aspects · Not fair to all employees · Harder to administer (also more difficult to determine contribution levels) Recommendation The Committee carefully evaluated each of the above options against the following criteria the Committee established: · Cost - to both the City and employees · Feasibility - could the plan be accomplished given that some of the main issues are out of the City's control? · Employee Choice - did it offer all employee groups choice and a feeling of ownership in their benefit package? The Committee acknowledges and respects the financial constraints of the City and, at the same time, is very aware that employees are the City's most valuable assets. Both the Council and employees have indicated that change is needed to retain current employees and to recruit new employees in this tight labor market. The Committee struggled with developing its recommendation to accomplish that goal. Lengthy discussions took place on what is fair to all employees - Committee members came in with different views on what is fair and appropriate, and most have held firm to their belief while representing the views of their department. The entire Committee agrees that employees pay a lot for family coverage. But, not all agree on how this should be improved. At least one member feels that the City should sharply increase the City's contribution for family coverage because employee coverage is already funded 100 percent by the city; therefore, the focus should be directed towards employees who take family coverage and pay a share of the premium. However, most of the members see a need to improve benefit flexibility for all employees not just for those who take family coverage. Based on this desire to provide something to all employees, the Committee is recommending that the City consider implementing a cafeteria plan. The cost to the City varies greatly depending upon the contribution level(s) set by the Council. It will be difficult to determine the exact cost because the insurance information will not be available until next December and the group demographics may change. The Committee is prepared to provide more information on cafeteria plans on Monday depending upon how much time is available. Action Requested The City Council is asked to provide direction to the Benefits Committee on the options and recommendation provided. The Council does not have to make a decision on this information on Monday since the proposed implementation date of any change is January 1, 2001. THE CITY OF ELK RIVER BENEFITS COMMITTEE APRIL 7, 2000 MINUTES Members Present: Scott Harlicker, Cheryll Edinger, Marc Nevinski, Joan Frick, Bob Mahutga, Lauren Wipper, Lori Johnson, Steve Tillmann The agenda for today includes: 1) Employee input 2) Minutes from last meeting 3) Update on March 20th City Council Meeting 4) Prepare for April 24th City Council Meeting a) Background b) Options c) Our Recommendations d) Presentations 5) Other Bob shared with the committee information about the amount of premiums that some private sector employers pay. He stated that this is where we look to recruit employees. Marc said that the Council understands the need to attract and retain employees. By the time the Council was able to get to the request from the Benefits Committee at the March 20th meeting it was late at night. They asked that the committee come back with ideas for them. We will be meeting with them at the April 24th City Council Meeting. The committee discussed our options for the April 24th meeting. We decided to present three recommendations to the Council for discussion and possible action. We will present to them the background and criteria we used to design our recommendations and ask them for feedback. The next Benefits Committee meeting is scheduled for Friday, April 14th at 9:00 am. We will be finalizing the information for the April 24th Council meeting. We invite any staff interested to join us at the April 24th City Council Meeting. Respectfully submitted, Lauren Wipper THE CITY OF ELK RIVER BENEFITS COMMITTEE APRIL 14, 2000 MINUTES Members Present: Scott Harlicker, Cheryll Edinger, Marc Nevinski, Joan Frick, Bob Mahutga, Lauren Wipper, Lori Johnson Members Not Present: Steve Tillmann The agenda for today includes: 1) Employee input 2) Minutes from last meeting 3) Costs/Cafeteria 4) City Council Meeting a) Memo b) Presentations 5) Next Meeting Lori distributed information outlining costs for the plans we've been discussing. These are difficult to assess because we don't know what the premiums are for 2001 and if we change the structure of our plan, the enrollment demographics could also change. We discussed the numbers presented and chose the four plans we will present to the council - our current plan and three cafeteria plans. Lori will prepare a memo for the Council and distribute to committee members for review. Lori and Marc will prepare a presentation for the Council and all other members will be present and prepared to participate. The presentation will begin with our committee goals and background. We will then present the options we have chosen and the rational behind our choices. In conclusion we will ask the Council for feedback. We invite any staff interested to join us at the April 24th City Council Meeting. Respectfully submitted, Lauren Wipper CAFETERIA PLAN OVERVIEW OVERVIEW At County, we recognize that all employees have unique personal and family health care, insurance and financial needs. Since no two employees are exactly alike, we've made choice and flexibility the cornerstones of our new Flexible Benefits Plan. The Plan gives you an opportunity to design a benefits package that more closely fits vour oersonal needs and goals. County makes monthly Employer Contributions to the Plan on your behalf. You may use these Employer Contributions to purchase benefits from a menu. Some benefits are considered "CORE." That is, they are required for all Plan participants. A variety of additional benefits are "OPTIONAL" and are available for purchase with the money that is not spent on Core benefits. If you use. up all your Employer Contributions and still have additional needs, you may contribute your own money to the Plan. Such 'voluntary Employee Contributions increase your buying power -- giving you more flexibility to pick and choose among the coverages that are offered. Any money left over after buying Core and Optional benefits may be contributed to your Section 457 Deferred Compensation. The diagram to the right illustrates the selection process. As you can see, a number of new and helpful benefits are now available for you and/or your family. These new benefits serve to greatly extend the scope and value of our County Employee Benefits Program. Monthly Employer and Voluntary Employee Contributions CORE Medical Coverage for Yourself Basic Life Insurance for Yourself I Preventative Dental for Yourself OPTIONAL Additional Personal and Family Health Care Coverage Long-Term Disability Income Protection for Yourself Supplemental Life Insurance For You & Your Family ComprehensiYe Dental Insurance For You and Your Family Flexible Spendinfl ~ccount$ For You & Your Family I Section 457 Deferred Compensation Plan OVER--- HOW THE PLAN WORKS ELIGIBILITY The Flexible Benefits Plan is effective January 1, All regular employees currently eligible for the medical plan will become eligible for the Plan on the first day of the month following one full 'month of employment. Employees who have met these eligibility requirements on the Plan's effective date may participate as of the effective date. Provided, however, that eligibility for the plan in general or for any particular feature may be altered for any individual or group pursuant to a labor agreement collectively bargained in good faith. Simply fill out and sign the. Enrollment Form, indicating the benefits you have selected. For assistance with enrollment, please see the "How to Enroll" section of this Workbook. EMPLOYER AND EMPLOYEE CONTRIBUTIONS All employees who participate in the Plan are allocated a predetermined share of Employer Contributions each month. Participating employees may also contribute additional money to the Plan on their own through regular payroll deductions. All contributions to the Plan are made on a pre-tax basis. In other words, the money goes into the Plan before federal, state and Social Security taxes are deducted. Since a dollar that is not taxed buys more than a dollar that is taxed, this increases your buying power -- giving you more money to spend on Optional Benefits. The only exception is when you purchase Supplemental Life Insurance. In this case, the federal government says that you must use after-tax dollars. SELECT YOUR BENEFITS CAREFULLY The benefits you select January 1 will remain in effect through December 31 unless you have a "change in family status." Such a change can only be caused by: Marriage or divorce, Birth or adoption of a child, Death of a spouse or child, Change in the employment status of you or your spouse, · Change in your health coverage due to your spouse's employment, or · Unpaid leave of absence. Please note: Individual benefits may have stricter requirements than the overall Flexible Benefit Plan. If you experience a "Change in Family Status," certain benefits, such as Medical Insurance, may not allow for mid year changes. Please contact ihe Personnel Department if you want to review your options following a "change in family status." This Workbook will assist you as you go about "Designing Your Benefits." Please read the matedal carefully, and be sure to ask any questions during the enrollment period. CURRENT AND CAFETERIA PLAN COSTS Current Insurance Benefits Monthly Monthly Annual Employee No. of Premium* City City Share of Empl. Total Other Cost Cost Premium Employee 41 235.73 235.73 115,979.16 Employee & Spouse 6 467.58 430.00 30,960.00 37.58 Employee & Children 13 414.78 414.78 64,705.68 - Family 7 764.38 430.00 36,120.00 334.38 67 247,764.84 Cafeteria Option A (I) Full Cafeteria Plan - all employees receive $430. O0 per month Monthly Monthly Annual Employee No. of Premium* City City Share of Empl. .Total Other Cost Cost Premium Employee 41 235.73 194.27 430.00 211,560.00 Employee & Spouse 6 467.58 430.00 30,960.00 37.58 Employee & Children 13 414.78 15.22 430.00 67,080.00 Family 7 764.38 430.00 36,120.00 334.38 67 345,720.00 97,955.16 Cafeteria Option B (IliA) Full Cafeteria Plan - employees receive different amount depending on coverage taken. - core benefits are reduced to $750. O0 deductible health insurance Monthly Monthly Annual Employee No. of Premium* City City Share of Empl. Total Other Cost Cost Premium =mployee 41 183.02 106.98 290.00 142,680.00 Employee & Spouse 6 356.91 73.10 430.00 30,960.00 Employee & Children 13 317.31 102.70 420.00 65,520.00 Family 7 579.51 440.00 36,960.00 139.51 67 276,120.00 ADDITIONAL CITY COST 28,355.16 Employee Cost to Buy Up 52.71 110.68 97.48 184.88 Available for other after Buy Up 54.27 (37.58) 5.22 (324.38) Cafeteria Option C (IV) Full Cafeteria Plan - employees get core plus a set amount per month - core benefits are reduced to $750.00 deductible health insurance - Other for Employee includes cost to buy up to $15.00 deductible. Monthly Monthly Annual Employee No. of Premium* City City Empl. Total Other Cost Cost Employee 41 235.73 75.00 310.73 152,879.16 Employee & Spouse 6 356.91 75.00 431.91 31,097.16 Employee & Children 13 317.31 75.00 392.31 61,199.58 Family 7 579.51 75.00 654.51 54,978.42 67 Share of Premium 300,154.32 ADDITIONAL CITY COST 52,389.48 ' 'iditional City Cost is based on current enrollment. This may increase or decrease depending upon enrollment(demographic) changes. *Health is based on Medica Elect premium. (1) Health is reduced 73% to get to estimated $750.00 deductible. ~2~oo Bnfficmt Employee Cost to Buy Up 110.68 97.48 184.88 Available for other after Buy Up 75.00 (35.68) (22.48) (109.88) CURRENT AND CAFETERIA PLAN COSTS As the group enrollment changes, so does the cost of each of these plans, The following is a summary of how enrollment changes affect the City cost. Compared to current enrollment: Additional Cost Current Sample A Sample B Current Plan - 23,312 3,427 Cafeteria Option A 97,955 97,955 97,955 Cafeteria Option B 28,355 46,355 31,715 Cafeteria Option C 52,389 93,642 78,064 Compared to same enrollment in current plan: Current Plan Cafeteria Option A Cafeteria Option B Cafeteria Option C Additional Cost Sample A Sample B 74,643 94,528 23,043 28,288 70,330 74,637 Enrollment: Current Sample A Sample B Employee 41 31 40 Employee & Spouse 6 6 5 Employee & Children 13 13 7 Family 7 17 15 Total 67 67 67 4/24/00 Bnr~cmt SAMPLE CAFETERIA PLAN DESIGN City Contribution Required Benefits Employee Health - $750 Deductible Employee Dental Employee Life Insurance - $25,000 Balance Available after Required Benefits X Voluntary Options Optional Medical Employee - $200 Deductible Employee - $15 Copay Employee & Spouse - $750 Deductible Employee & Spouse - $200 Deductible Employee & Spouse - $15 Copay Employee & Children - $750 Deductible Employee & Children - $200 Deductible Employee & Children - $15 Copay Family - $750 Deductible Family - $200 Deductible Family - $15 Copay Optional Dental Family Other Optional Benefits Supplemental Employee Life Insurance Dependent Life Insurance Long Term Disability Short Term Disability Flexible Spending Accounts Dependent Care Reimbursement Medical Expense Reimbursement Deferred Compensation - 457 plan Total Optional Benefits Notes: The city's contribution is set annually by the City Council. The contribution amount may be the same for all employees or differ depending on the health insurance selected - employee, family or other. MONTHLY INSURANCE BENEFITS City Contribution Life Insurance Dental Insurance Balance Available for Health Ins. Single Health Balance Avail. for Additional Health Ins. Optional Additional Health 1. Employee & Children Balance Paid by Employee 2. Employee & Spouse Balance Paid by Employee 3. Family Balance Paid by Employee 2000 Contribution 430.00 $ 430.00 4.63 4.63 20.25 20.25 405.12 405.12 234.25 234.25 170.87 170.87 Elect Choice 389.90 433.35. 28.23 442.70 491.90 37.58 86.78 739.50 821.60 334.38 416.48 Family Dental 32.60r~?