5.2. SR 11-13-2007'1~~i ~j
Elk REQUEST FOR ACTION
River
To Item Number
Ci Council 5.2.
Agenda Section Meeting Date Prepared by
Worksession November 13, 2007 Lauren Wipper, Human Resource
Re resentative
Item Description Reviewed by
2008 Flexible Benefits Plan Contribution Lori ohnson, Ci Administrator
Reviewed by
Action Requested
Determine the City's contribution to the 2008 Flexible Benefits Plan.
Background/Discussion
Last meeting we discussed health insurance for the 2008 plan year. The City Council approved
contracting with HealthPartners and offering the options of a $25 Co-pay plan, $500 Deductible plan and
a $2,200 High Deductible Health Plan (HDHP). The 2008 budget includes a 3% increase to the City's
contribution to the Flexible Benefits Plan. Staff was asked to look at the budget and determine if there
were options for additional funding and return with updated plan designs.
I discussed additional funding with Finance Director Tim Simon and City Administrator Lori Johnson
and we feel we can find offsetting budget cuts to fund additional contributions to the Flexible Benefits
Plan. Approximately 90% of costs for this plan come from the general fund with the other 10% from
enterprise funds.
Below are descriptions of four options for plan design and city contributions. Spreadsheets are also
attached to provide further detail of each option. Three of the four options accomplish our goal of
providing additional incentive to employees taking the HDHP. If Council would like to consider other
options, staff will be prepared to discuss and calculate other options at Tuesday's meeting.
Option 1 - 3% Increase to City Contribution
Staying with the budgeted 3% increase is the first option.
Option 2 - 5% Increase to City Contribution with $300 Health Savings Account (HSA) Match
This option increases the City's contribution to 5% for each insurance plan and provides an additional
$300 HSA match to employees choosing the HDHP. Providing a match will encourage employees to
choose the HDHP and require them to contribute to their HSA if they wish to receive the additional
funds. The match can be provided in a number of different ways. For example: For every dollar the
employee contributes to their HSA the City will contribute one dollar, or if the employee contributes four
dollars, the City can add a dollar to make it five. Of course these are only examples and Council should
determine the matching method that is most appropriate.
Option 3 -Different Percent City Contribution Increase for Each Insurance Plan
This option would keep the 3% contribution increase to the co-pay plan, provide a 5% increase to the
$500 deductible plan and 12% increase to the HDHP.
Maintaining the 3% increase for the co-pay plan may encourage employees to move from this plan to one
that encourages them to be more conscientious health care consumers. Having more employees on the
deductible plans should help provide relief to the City's claims experience and escalating premium rates.
Providing a 5% increase for the $500 deductible plan offers additional premium savings to employees
moving from the co-pay plan. Monthly savings range from $59.42 for single coverage to $184.97 for
families.
A 12% contribution increase for the HDHP will provide significant premium savings to employees which
they may use to contribute to their HSA. Single employees will have $95.23 remaining each month after
paying for CORE benefits (life, dental and single health) and, under this option, all employees who
choose the HDHP will see out of pocket premium savings of $633.72 to $3,361.44 as compared to 2007.
This premium savings should make employees more comfortable with taking on the high deductible.
Opp tion 4 -Same Increase fox Co-pay and $500 Deductible Plan with Larger Increase fox HDHP
Option 4 is a variation of option 3 however it provides less incentive to move from the co-pay plan. It
provides a 5% increase to both the co-pay and $500 deductible plans and an 11% increase to the HDHP.
Providing a 5% increase for the co-pay and $500 deductible plans maintains equitable contributions for
those two plans. This option will also provide an incentive to choose the HDHP; however the incentive
will be smaller than in Option 3.
Financial Impact
It is very difficult to pinpoint the exact financial impact as employees have the ability to elect whichever
plan fits their needs. The demographics will change and there is no way to know how they will change.
The 2008 Plan Design Options and Costs spreadsheet attached calculates costs for each option listed
above based on current demographics and further calculates to reflect how funds would be affected if
half of the employees choose the HDHP and if all the employees choose the HDHP. I would anticipate
enrollment would fall closer to the current demographics but it's impossible to know. Although it is
highly unlikely that all employees will elect the HDHP, this figure is included to show the highest possible
financial impact. Approximately 90% of any increase would come from the general fund with the rest
applying to enterprise funds.
Option 1 is making no change to the budgeted contribution so there is no financial impact fox option 1.
The financial impact for options 2, 3 and 4 axe as follows:
Current Demographics 1/z of Em~lo~ees All Emplo,~ ees
Elect HDHP Elect HDHP
Option 2 $20,220 $32,820 $50,820
Option 3 $15,084 $37,965 $68,520
Option 4 $20,940 $37,782 $60,744
These are the amounts each option is estimated to exceed the budgeted contribution increase for 2008.
Attachments
' 2008 Plan Design Options and Costs
' 2008 Employee Costs for Health Insurance
Action Motion by Second by Vote
Follow Up
2008 PLAN DESIGN OPTIONS AND COSTS
3% Budgeted Amount: $784,164.00
Option 1 3% Increase
Option 2 5% Increase w/HSA match
Option 3 3% 5% 12%
Option 4 5% 5% 11
Based on Current Demographics below
City Match Per Financial
Contribution Employee Total Cost Impact
784,164.00 784,164.00 -
798,984.00 300.00 804,384.00 20,220.00
799,248.00 799,248.00 15,084.00
805,104.00 805,104.00 20, 940.00
* Current Demographics Single +Spouse +Child(ren) Family Total
$25 Co-pay 25 7 12 11 55
$500 Deductible 22 3 11 11 47
$2200 HSA 12 3 2 1 18
Total 59 13 25 23 120
If 1/2 of the employees
choose HDHP: **
Financial
Total Match Total Costs Impact
784,164.00 -
18,000.00 816,984.00 32,820.00
822,129.00 37,965.00
821,946.00 37,782.00
If all employees choose HDHP:
Financial
Total Match Total Costs Impact
784,164.00 -
36,000.00 834,984.00 50,820.00
852,684.00 68,520.00
844,908.00 60,744.00
** When calculating 1/2 of the employees for Option 3, 25% of employees were figured in the co-pay plan, 25% in the $500 deductible plan and 50% in the HDHP.
2008 EMPLOYEE COSTS FOR HEALTH INSURANCE
Option 1 Single +Spouse +Child(ren) Family
City Contribution 409.00 598.00 598.00 804.00
Co-pay Plan
Employee Monthly Cost 59.53 382.77 374.58 658.01
Employee Annual Cost 714.36 4,593.24 4,494.96 7,896.12
$500 Deductible
Employee Monthly Cost 8.11 270.22 263.01 488.04
Employee Annual Cost 97.32 3,242.64 3,156.12 5,856.48
HDHP
Employee Monthly Cost (59.23) 122.84 116.91 265.46
Employee Annual Cost (710.76) 1,474.08 1,402.92 3,185.52
Option 2 Sin le +Spouse +Child(ren) Family
City Contribution 417.00 609.00 609.00 819.00
Co-pay Plan
Employee Monthly Cost 51.53 371.77 363.58 643.01
Employee Annual Cost 618.36 4,461.24 4,362.96 7,716.12
$500 Deductible
Employee Monthly Cost 0.11 259.22 252.01 473.04
Employee Annual Cost 1.32 3,110.64 3,024.12 5,676.48
HDHP
Employee Monthly Cost (67.23) 111.84 105.91 250.46
Employee Annual Cost (806.76) 1,342.08 1,270.92 3,005.52
HSA Match 300.00 300.00 300.00 300.00
Option 3 Sin le +Spouse +Child(ren) Family
City Contribution Co-pay 409.00 598.00 598.00 804.00
City Contribution $500 Ded 417.00 609.00 609.00 819.00
City Contribution HDHP 445.00 650.00 650.00 874.00
Co-pay Plan
Employee Monthly Cost 59.53 382.77 374.58 658.01
Employee Annual Cost 714.36 4,593.24 4,494.96 7,896.12
$500 Deductible
Employee Monthly Cost 0.11 259.22 252.01 473.04
Employee Annual Cost 1.32 3,110.64 3,024.12 5,676.48
HDHP
Employee Monthly Cost (95.23) 70.84 64.91 195.46
Employee Annual Cost (1,142.76) 850.08 778.92 2,345.52
Option 4 Single +Spouse +Child(ren) Family
City Contribution Co-pay 417.00 609.00 609.00 819.00
City Contribution $500 Ded 417.00 609.00 609.00 819.00
City Contribution HDHP 441.00 644.00 644.00 866.00
Co-pay Plan
Employee Monthly Cost 51.53 371.77 363.58 643.01
Employee Annual Cost 618.36 4,461.24 4,362.96 7,716.12
$500 Deductible
Employee Monthly Cost 0.11 259.22 252.01 473.04
Employee Annual Cost 1.32 3,110.64 3,024.12 5,676.48
HDHP
Employee Monthly Cost (91.23) 76.84 70.91 203.46
Employee Annual Cost (1,094.76) 922.08 850.92 2,441.52