5.9. SR 08-29-1994
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!lk River
ITEM 5.9.
MEMORANDUM
TO:
MAYOR & CITY COUNCIL
FROM:
LORI JOHNSON, FINANCE DIRECTOR
DATE:
AUGUST 25, 1994
SUBJECT: HEALTH INSURANCE
At the last City Council meeting, I verbally updated the Council on recent
developments with the employee health insurance issue. The Council
requested that the issue be brought back for formal action on August 29. In
that regard, I will again provide background information on this issue as well
as cost comparisons for the various options available.
.
First let me give you a very condensed version of some of the developments
that have taken place recently. The most important factor is that the Police
Union voted not to accept the PEIP Plan which the Union felt constituted a
decrease in the aggregate value of their benefits. This vote allowed the City
to split its group into two smaller groups; the Union group consisting of
fourteen members and the non-Union group consisting of forty-two members.
Current law does not allow a group to split simply in order to obtain better
insurance rates, however, a group can split if it is for other reasons such as a
bargaining unit agreement. This split means that the Police Union group
falls under the Minnesota Care Law affecting groups with between two to
twenty-nine members. The Minnesota Care Law guarantees coverage and
premiums which are determined by base rates with a maximum increase of
up to 67 percent based on health histories. The final rates proposed for the
Police Union will not be available until after all the health history
information has been obtained. However, on the attached sheet, I have
provided both the best and worst case Medica rates. In discussing the
premium ranges with the City's insurance agent, it is our feeling that the
rates will be closer to mid-point between the best and worst case scenarios.
.
Although the Minnesota Care Law applies to the Union employees, it does
not, at this time, apply to the non-Union employee group. Effective July 1,
1995, the Minnesota Care Law changes so that groups of two to forty-nine
members are covered. That means that on July 1, 1995, the non-Union group
will also be eligible for coverage under the Minnesota Care Law. This means
two things. First it means that we cannot be denied coverage by an
insurance company. As you know, we had seven companies refuse to offer
coverage to the City based on our outstanding medical conditions. Second,
P.O. Box 490 · 13065 Orono Parkway · Elk River, MN 55330 · (612) 441-7420 · Fax: (612) 441-7425
.
the premiums would be calculated using base rates and an increase of up to
67 percent based on health histories. Since the Minnesota Care Law will
definitely benefit the non-union group, it is recommended that the non-union
group stay with HealthPartners coverage and that the City increase its
contribution to employees with family coverage until the insurance is rebid in
July or earlier if possible. This increase in contribution would be offset by
the savings in the Medica contract. Although the non-union group still has
the option of going with PEIP, it may not be in our best interest in the long
term to make this change at this time. As we have discussed, the risk pool
for PEIP is considerably smaller (6,000 versus 650,000) and the City would
be tied to a two year contract that we would not be able to get out of unless
our premiums increased more than 50 percent.
.
The attached spreadsheet provides information on the various benefit
options. Column one shows the health coverage as of January 1, 1994.
Columns two through five relate to the non-union employees. Column two
shows the HealthPartners increase effective August 1, 1994. The remaining
three columns show the rates effective October 1, 1994, based on a co-pay
plan and increased City contributions. Columns six and seven relate to the
Union Medica plan. Column six shows the best case scenario and column
seven shows the worst case scenario if the base rates are increased to the
maximum amount based on health history information. Below each of these
columns is the employee cost per paycheck. On January 1, the employee cost
for all employees, both Union and non-union, was $125.46 per paycheck. On
August 1, 1994, that went up to $207.81 for non-union employees and
$215.30 for Union employees. On October 1, the rates for the Union
employees could be as low as $14.10 per paycheck and a maximum of $108.02
per paycheck. The City cost per month is currently $14,463.59. There are
several options provided which keep the City cost relatively constant, but
offer a substantial benefit to the employees with family coverage.
ACTION REQUESTED
The Council is asked to take action on the proposed Medica contract for the
Union employees which would be effective on October 1, 1994. The Council is
also asked to consider increasing the non-union contribution and to consider
authorizing the addition of a co-pay to the HealthPartners contract. The
increased contribution is temporary and would be adjusted or eliminated on
July 1, 1995. It is hoped that the implementation of an office co-pay will
decrease utilization.
.
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