9.1. SR 11-05-2007REQUEST FOR ACTION
To Item Number
Ci Council 9.1.
Agenda Section Meeting Date Prepared by
Worksession November 5, 2007 Lauren Wipper, Human Resource
Re resentative
Item Description Reviewed by
Health Insurance Update Lori ohnson, Ci Administrator
Reviewed by
Action Requested
Approve termination of group health insurance contract with B1ueCross B1ueShield of Minnesota and
enter into group health insurance contract with HealthPartners. Consider adding a High Deductible
Health Plan (HDHP) with a Health Savings Account (HSA) beginning January 1, 2008. Discuss potential
for partial funding of HSA.
Background/Discussion
In September, Council authorized staff to request bids for group health insurance. The City's 2008
renewal with B1ueCross B1ueShield of Minnesota increased monthly premium rates by 29%. The City's
insurance brokers, Barry Rosenberg and Rick Nelson. of Minnesota Insurance Services, sought bids from
other insurance companies. HealthPartners offered renewal of our current plan designs at the lowest
premium rates, which are 16 to 20% increases over 2007. The 2008 City budget includes a 3% increase to
the funds provided to employees for their flexible benefits plan. Details of 2007 and 2008 premiums as
well as the City's contribution are attached.
On October 25`'', Barry Rosenberg, Beth Luby from HealthPartners, and I held employee meetings to
gauge interest in offering a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA)
as an option to the other traditional plans that we offer. Ms. Luby gave a brief overview of HSA's and
HDHP's and how they work and then answered questions from employees. It appears there is great
interest in this option; however enrollment will weigh heavily on financial viability for each employee.
HDHP's are great tools for encouraging people to make responsible health care consumer choices. The
City's premium rates increase significantly each year because of usage. With a HDHP, members are
responsible for the cost of their medical care up to the deductible amount so they tend to seek care only
when necessary and, in theory, look for quality care at a reasonable price. Many insurance companies
offer tools to help consumers evaluate cost and quality and as HDHPs axe becoming more prevalent,
these tools are continuing to be developed and refined. As well, the premium rates quoted by
HealthPartners fora $2,200 deductible plan are 21.5% lower than the renewal rate for the $500 deductible
plan we offer. A HDHP deductible can vary anywhere from $1,100 to $10,000 and more. At this time
staff and our brokers feel offering a lower deductible will encourage more employees to participate.
HSAs are designed to help offset the deductible and other out of pocket costs of a HDHP and help
protect employees who are willing to take on more upfront risk. They also provide an incentive to save
C:\Docuxnents and Settings\jmiller\Local Settings\Temporary Internet Files\OLK3E\Council Memo 11-05-07.doc
as funds deposited into an HSA roll over year after year and can be used for future health care costs.
Funds deposited into an HSA are tax free going in and tax free coming out provided they are spent on
qualified medical expenses.
Barry Rosenberg, Rick Nelson and I will be present Monday night to discuss our options for 2008. We
are looking for direction from council on offering a HDHP with an HSA.
Financial Impact
The brunt of the financial impact with this year's renewal will fall to employees. The City has budgeted a
3% increase to its contribution to employee's flexible benefit plans for 2008. This will increase total cost
to the City by approximately $23,000 fora 2008 total of $785,000. If we maintain the same plan design
for this year and employees continue with their current coverage, increased cost to employees will be
about $139,000 fora 2008 total of $336,000.
There is no way of knowing how many employees would choose a HDHP option if one is made
available. With the $2,200 deductible plan, which is the one recommended by our brokers, employees
would see significant savings in premium costs and the hope is that employees would invest that money
into their HSA. To encourage employees to do so, staff would like to offer a matching contribution.
This has the potential to be quite expensive as matching as little as $200 would result in additional costs
to the City of $24,000 if all 120 employees participated. Unfortunately, this is not much of an incentive
to each individual employee when they are looking at a $2,200 deductible although it is a great
contribution on behalf of the City.
If the council desires to provide additional funding either to encourage participation in a HDHP/HSA or
to offset additional premium costs, staff will provide council with updated plan design for approval at the
November 13, 2007 meeting.
Attachments
^ 2008 Health Insurance Renewal
Action Motion by Second by Vote
Follow Up
C:\Documents and Settings\jmillex\Local Settings\Tempoxary Internet Files\OLK3E\Council Memo 11-05-07 (2).doc
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