4.0. SR 12-06-1999
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Item #4.
MEMORANDUM
TO:
Mayor & City Council
Pat Klaers, City ~
December 6, 1999
FROM:
DATE:
SUBJECT: Discuss City Contribution to Employee
Health Insurance
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The city has 64 employees covered under the Blue CrosslBlue Shield insurance
policy. In 2000 the medical coverage will be offered by the Medica policy. This
excludes the police union employees who are covered under a separate
program. Of these 64 employees, currently 40 have employee only coverage, 13
have family coverage, and the remaining 11 have either employee/child or
employee/spouse coverage. These numbers will change for 2000 and it is
anticipated that approximately 20 employees will select family, spouse, or
child coverage. The city currently contributes $355 per month toward the
insurance for each employee. All employees get their insurance paid by the
city, but the single coverage employees do not use all of the funds made
available by the city, while the other three coverage groups have to contribute
in order to pay the full premium.
The city really has two different issues to look at with its insurance and
benefits program. One issue is to begin offering cafeteria type benefits
whereby employees can select the benefits they desire from a menu of
selections. The other issue is dealing with the high cost of family insurance
premIums.
I think everyone is somewhat familiar with the cafeteria program. Under this
program employees have a certain amount of money available to them and
they select their insurance plan and anything else that can be fit under the
maximum figure set by the city. This can include disability insurance,
additional life insurance, or, in some cases, getting the extra available dollars
in additional wages.
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13065 Orono Parkway · P.O. Box 490. Elk River, MN 55330. TDD & Phone: (612) 441-7420. Fax: (612) 441-7425
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Employee Health Insurance
December 6,1999
Pae-e 2 of3
A cafeteria program was proposed to the City Council by an employee
committee in 1990, and was again presented to the council in 1994. Both
times the proposal was rejected by the council. I recommended the City
Council vote against both proposals based mainly on cost. For example, the
difference between what the city offers (based on $355/month) and the cost of
single coverage insurance amounts to about $96 per month times 12 months
times 40 employees, or $46,000. This amount could be even higher if more
employees are selecting single coverage and the city contribution amount
increases. While this is expensive to the city, I believe we need to move toward
something on this order to be able to attract and retain quality employees and
to improve employee morale. This is somewhat an acknowledgment that it is a
much different employee market in 2000 than it was in 1990 or 1994. An
employee committee needs to work on this and present a recommendation to
the council in the not too distant future.
Dealing with the rising cost of family medical insurance premiums is very
difficult. In spite of changing providers, the city premium for family coverage
is again going up dramatically for 2000. We experienced similar increases in
1989 and in 1994. If nothing is done for our employees that have family
insurance coverage, they will see a minimum of an extra $79 being taken out
of their check for insurance. This is not unlike the $90 per check increase the
family coverage employees saw in 1994. (In some cases this $79 per check
figure is higher because of the deductible plan that the employee chose in
1999.)
The easy solution for the City Council is to give more money so that the
employee selecting family coverage will not have to pay as much out of each
paycheck. However, the city has to look at the cost of this easy solution. For
example, assume the city offered an extra $100 per month for a contribution of
$455 in 2000. There will be about 20 employees with family, spouse, or child
coverage that will realize this benefit and this will cost the city about $24,000
(20 employees x $100 x 12 months = $24,000). Additionally, the city will see a
number of single coverage employees switch to either family or employee/child
or employee/spouse coverage as it will be cheaper with the city than where
they are currently getting this insurance. The difference between the single
insurance policy and a $455 city contribution is $196 per month and if only 10
employees made an insurance policy switch, this would amount to an extra
$23,000. By adding these together it is conceivable that the solution of offering
an extra $100 per month for insurance could cost the city about $47,000.
(However, the city will have some additional expense regardless, assuming a
"typical" contribution increase is made by the city.)
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Employee Health Insurance
December 6, 1999
PalZe 3 of 3
In addition to costing the city more money, it should also be acknowledged that
in 1989 and 1994 the City Council did not do anything special or unusual for
the employees that had family coverage and who saw substantial increases in
their premiums. The family coverage employees today are not necessarily the
same ones as in 1989 or 1994, and while no one will feel bad about fellow
employees receiving a positive financial benefit from the City Council today,
there will, nonetheless, be some employees who will regret that they also
didn't get a similar break five or ten years ago.
Finally, a solution of providing an extra $100 or so per month for the family
coverage employees may have a morale impact on the employees who have
single coverage. By this I mean that for a number of years the single coverage
employees have felt like they have made compromises to help the employees
with family coverage by accepting higher co pays and even switching plans so
that the financial impact on the family coverage employees would be less. In
this regard the single coverage employees have consistently "taken less and
paid more" and now the City Council will be providing additional help for the
family coverage employees and nothing for the single coverage employees.
However, this "nothing" may change dramatically if the City Council also
decides to pursue a cafeteria benefits program, as this program will have a
positive impact on single insurance coverage employees.
I believe the best course of action for the city is to not make any dramatic
changes in our contribution to the city insurance packages and also to
seriously explore offering cafeteria benefits for all employees. Over the last
nine years the city has averaged an increase of $15 in its additional
contribution to the employee insurance package. In comparison to the group 6
metro cities, we are slightly low in our per month contribution amount. A mid
point type of solution is for the City Council to deviate from this past practice
and increase its contribution to $45 for 2000. This would make our
contribution amount $400 per month and this would be on par with the group
6 metro cities.
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MONTHLY INSURANCE BENEFITS
Current 2000 Sample Contribution
City Contribution $ 355.00 $ 355.00 $ 370.00 $ 400.00
Life Insurance 4.63 4.63 4.63 4.63
Dental Insurance 19.50 20.25 20.25 20.25
Balance Available for Health Ins. 330.87 330.12 345.12 375.12
Single Health 194.32 234.25 234.25 234.25
Balance Avail. for Additional Health Ins. 136.55 195.87 110.87 140.87
Optional Additional Health
1. Employee & Children 408.08 389.90 389.90 389.90
Balance Paid by Employee 77.21 59.78 44.78 14.78
2. Employee & Spouse 446.95 442.70 442.70 442.70
Balance Paid by Employee 116.08 112.58 97.58 67.58
3. Family 582.97 739.50 739.50 739.50
Balance Paid by Employee 252.10 409.38 394.38 364.38
Family Dental all paid by employee even if not all City Contribution is spent.
1999 Family Dental - $33.79; 2000 Family Dental- $32.60
Blue Cross & Blue Shield Blue Choice Plan and Medica Elect used for comparison.
. Medica Choice was used for employee only comparison.
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Employee Employee
Change in Employee Cost & Children & Spouse ~
NO INCREASE IN CITY CONTRIBUTION
From Blue Choice to Medica Elect (17.43) (3.50) 157.28
From Blue Choice to Medica Choice 26.02 45.70 239.38
From BCBS $200 to Medica Elect** 43.50 63.31 244.65
From BCBS $200 to Medica Choice** 87.70 116.23 327.50
INCREASE CITY CONTRIBUTION TO $370
From Blue Choice to Medica Elect (32.43) (18.50) 142.28
From Blue Choice to Medica Choice 11.02 30.70 224.38
From BCBS $200 to Medica Elect** 29.25 49.06 230.40
From BCBS $200 to Medica Choice** 72.70 98.26 312.50
INCREASE CITY CONTRIBUTION TO $400
From Blue Choice to Medica Elect (62.43) (48.50) 112.28
From Blue Choice to Medica Choice (18.98) 0.70 194.38
From BCBS $200 to Medica Elect** (0.75) 19.06 200.40
From BCBS $200 to Medica Choice** 42.70 68.26 282.50
*AII include a dental insurance increase of $0.75.
* *Not an accurate comparison because the employee was exposed to
substantial deductible payments under the BCBD $200 ded. plan.
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Item #4.
River
MEMORANDUM
TO:
Mayor & City Council "
Lori Johnson, Finance Director A~
FROM:
DATE:
December 6, 1999
SUBJECT: City Contribution to Employee Insurance
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The City Council briefly discussed cafeteria plans when the health and dental
insurance contracts for non-union employees were renewed on November 22.
As requested I am providing some very general information to the council on
cafeteria plans so that the council will have a better understanding of a full
cafeteria plan. This issue has come to the council two times in the past. It has
not been implemented due mainly to the costs associated with the program.
However, due to the tight employment market, it may be something the
council would like to explore as part of its effort to retain and attract quality
employees.
This is one of the items the benefits committee will be exploring along with
other benefits issues. Several employees who are interested in serving on the
benefits committee have already contacted me. I feel it is important for the
employees to have a good understanding of the costs associated with the
benefits that the city provides and to understand how the insurance renewal
process works and how premiums are determined. Benefits are a considerable
part of employee compensation so it is to everyone's benefit to provide
employees the benefits they need and want within the city's budget.
Finally, attached is a spreadsheet showing the monthly insurance benefit costs
for both the city and employee depending on the type of coverage elected. The
information includes the change in health and dental insurance as approved at
the November 22 meeting. Also, the sample contributions of $370 or $400 per
month are based on information from the city administrator's memo.
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13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420 · Fax: (612) 441-7425
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MONTHLY INSURANCE BENEFITS
Current 2000 Sample Contribution
City Contribution $ 355.00 $ 355.00 $ 370.00 $ 400.00
Life Insurance 4.63 4.63 4.63 4.63
Dental Insurance 19.50 20.25 20.25 20.25
Balance Available for Health Ins. 330.87 330.12 345.12 375.12
Single Health 194.32 234.25 234.25 234.25
Balance Avail. for Additional Health Ins. 136.55 95.87 110.87 140.87
Optional Additional Health
1. Employee & Children 408.08 389.90 389.90 389.90
Balance Paid by Employee 77.21 59.78 44.78 14.78
2. Employee & Spouse 446.95 442.70 442.70 442.70
Balance Paid by Employee 116.08 112.58 97.58 67.58
3. Family 582.97 739.50 739.50 739.50
Balance Paid by Employee 252.10 409.38 394.38 364.38
Family Dental all paid by employee even if not all City Contribution is spent.
1999 Family Dental - $33.79; 2000 Family Dental - $32.60
Blue Cross & Blue Shield Blue Choice Plan and Medica Elect used for comparison.
. Medica Choice was used for employee only comparison.
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Employee Employee
Chang~ in Employ~e Cost & Children & Spouse Earl:lWt
NO INCREASE IN CITY CONTRIBUTION
From Blue Choice to Medica Elect (17.43) (3.50) 157.28
From Blue Choice to Medica Choice 26.02 45.70 239.38
From BCBS $200 to Medica Elect** 43.50 63.31 244.65
From BCBS $200 to Medica Choice* * 87.70 116.23 327.50
INCREASE CITY CONTRIBUTION TO $370
From Blue Choice to Medica Elect (32.43) (18.50) 142.28
From Blue Choice to Medica Choice 11.02 30.70 224.38
From BCBS $200 to Medica Elect** 29.25 49.06 230.40
From BCBS $200 to Medica Choice** 72.70 98.26 312.50
INCREASE CITY CONTRIBUTION TO $400
From Blue Choice to Medica Elect (62.43) (48.50) 112.28
From Blue Choice to Medica Choice (18.98) 0.70 194.38
From BCBS $200 to Medica Elect** (0.75) 19.06 200.40
From BCBS $200 to Medica Choice** 42.70 68.26 282.50
*AII include a dental insurance increase of $0.75.
* *Not an accurate comparison because the employee was exposed to
substantial deductible payments under the BCBD $200 ded. plan.
HR UPDATE
Public Sector Benefit Trends
roviding a good employee
benefits package has long been
touted as an attractive feature
of public employment. While
a comprehensive benefits package
is a selling point for public sector
jobs, it no longer has the impact
that it once did. Today's work-
force is making it clear that basic bene-
fits are still needed, but flexible benefits
are what is really desired.
As the employment market becomes
tighter, cities are looking for new ways
to attract and retain qualified employ-
ees. Current public sector employees
are interested in those programs and
policies that allow employees to deter-
mine for themselves what is best for
them. The following are some of the
programs enabling greater flexibility
in today's public sector workplace:
Paid time off. In the past, a typical
paid time off package consisted of va-
cation time, sick leave, and perhaps
some paid leave to be taken in specific
situations (funeral leave, military leave,
maternity leave, etc.). Actions taken
in recent years by both federal and state
government including the Americans
with Disabilities Act, the Family and
Medical Leave Act, and the Minnesota
Parental Leave Act, have caused many
cities to revise and rethink their leave
plans. In addition, employers are being
challenged by employees wanting
increased flexibility in the use of their
paid time off. As a result, a common
trend is for the employer to combine
different kinds of paid time off and
provide one kind of leave called "flex
leave" to be used for any reason that
an employee would need to be out
of the office.
Telecommuting. Telecommuting
has become an accepted way of work
ing for many public and private sector
organizations. The most common form
of telecommuting consists of an office
employee working a couple of days
SEPTEMBER 1999
By Tracie Chamberlin
each week at home and reporting to
the office the remainder of the week.
Most telecommuters use the telephone
to keep in touch with the office and
other external contacts. The popular
theory in support of telecommuting
is that it eliminates wasteful commuting
time and permits a better, more flexible
balance of work and personal time.
Telecommuting is also a tool used
to retain the expertise of employees
who are in need of a more flexible
schedule. The consensus among those
who have participated in a telecom-
muting program is that it makes life
a little easier for workers and a little
harder for supervisors.
"As the employment market becomes
tighter, cities are looking for new ways to
attract and retain qualified employees."
Flexible work schedules. Flexible
work schedule programs vary greatly
among those cities that have chosen
to implement them. Such schedules
range from longer work days, which
result in shorter work weeks, to flexible
arrival and departure times, as well as
many other options developed to meet
the specific needs of employee and
employer. A flexible work schedule
is sometimes used to meet needs that
may arise in conjunction with the
Americans with Disabilities Act and
the Family and Medical Leave Act,
etc. Similar to telecommuting, flexible
work schedules provide employees
. th a greater opportunity to balance
wor and personal time.
aJeteria plans. Cafeteria plans are
pular because they allow employees
to design individualized benefit pro-
grams that suit their own needs. They
MINNESOTA CITIES
allow employees to choose between
cash and a variety of employer-pro-
vided benefits without having to
include the value of their chosen ben-
efits as taxable income. For example,
an employee with a working spouse
may opt out of the health insurance
plan if his or her spouse has a better
health plan. The extra cash, which
then becomes available, could be used
to establish a reimbursement account
for uninsured health expenses or for
child care costs, etc. Cafeteria plans
can also be used to close the gap
between the employer contribution
for single coverage versus family cover-
age. Each employee receives the same
dollar amount to use in designing his
or her benefits program. While cafete-
ria plans are increasing in popularity,
employers need to be aware that the
mere fact that a benefit is offered under
a cafeteria plan does not make the ben-
efit exempt from taxation. To qualifY
for tax exempt status, a benefit program
must comply with the rules of IRS
Code Section 125.
The trends discussed in this article
provide a mere glimpse of the benefit
programs being implemented in an
effort to meet employees' increased
desire for flexibility in the workplace.
The issue of achieving an acceptable
balance between work and personal
time has become big enough to cause
some employees to decide not to work
at all if they can't achieve a balance
with their employer. Of course, not
all cities can feasibly offer these kinds
of benefit programs. However, being
aware that increased flexibility in the
workplace is the way of the future
will better enable you to discuss the
issue with employees when it does
come up in your city. ...
Tracie Chamberlin is human resources
representative with the League if
Minnesota Cities.
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FULL CAFETERIA PLANS
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Presented
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By
YVONNE JOHNSON
VICE PRESIDENT, DCA STANTON GROUP
September, 1999
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FULL CAFETERIA PLANS
With the cost of medical coverages increasing
dramatically, employers are seeking a way to offer
more affordable and varied benefits to their
employees. One vehicle widely used to deliver
this is through the use of a Full Cafeteria Plans.
The following information will assist you in
determining if this option is appropriate for your
organization.
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FULL CAFETERIA PLANS
· Full Cafeteria Plans are designed to comply with
the requirements of IRS Code Section 125.
· These plans offer significant choices in the types
and levels of coverage available to employees.
· Allows employees to create a benefit package that
more closely meets their individual needs.
· Enables employers to finally tackle the issue of
"How much overall do I pay my employees?"
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FULL CAFETERIA PLANS
Advantages
· Better meets the needs of today' s diverse
workforce
· Empowers employees to make more informed
personal benefit decisions
· Takes advantage of pretax funding
· Increases employee appreciation
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FULL CAFETERIA PLANS
Advantages, continued
· Offers a vehicle where by employers can offer a
wider variety of benefits at no additional cost.
· Allows employers to get a better handle on future
funding
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FULL CAFETERIA PLANS
Disadvantages
· Can be complex to implement
· Employees are often suspicious
· If employer contributions are not equal for all
groups, this may need to be addressed
· May have to change vendors if benefit options are
not available from current carriers
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FULL CAFETERIA PLANS
What types of benefits are typically included?
· Health and accident coverage, including medical,
vision, prescription drugs, dental, long and short-
term disability, and AD&D (code sections 105 and
106)
· Group term life insurance (code section 79)
· Dependent daycare (code section 129)
· Cash
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FULL CAFETERIA PLANS
A cafeteria plan must offer a choice between cash
and non-taxable benefits.
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FULL CAFETERIA PLANS
Why should an employer offer a full cafeteria
Plan?
· Fix annual bene tits costs to an annual contribution
· . Introduce new benefits at no cost to the employer
· Control which benefits are offered
· Incent employees into more cost effective plans by
controlling the price of certain benefits
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FULL CAFETERIA PLANS
Contributions
· Nonelective employer contributions
· Pretax employee contributions
· After-tax employee contributions
· A combination of any or all of the above
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