HomeMy WebLinkAbout15.E.1. 2006 Employee Health Insurance Renewals-Res. No. 6331
CITY OF SHAKOPEE IS-. E · / I
Memorandum
TO: Mayor and City Council
FROM: Mark McNeill, City Administrator
RE: 2006 Employee Health Insurance Renewals
DATE: November 8, 2005
INTRODUCTION:
The Council is asked to approve employee health insurance plans with Medica, and
establish contribution rates for 2006.
BACKGROUND:
Like other employers, in recent years the City of Shakopee has been hit with significant
increases in employee health insurance rates. While the City was able to negotiate
renewal increases that were acceptable for the current year, last year the City Council
directed that competitive proposals be sought for this year's renewal. Beginning in
August, requests for formal proposals were sent out by the Nesbit Agency, the City's
insurance broker, and proposals were received back in late October. A couple of
prospective vendors declined to submit a bid, indicating that what Medica was already
providing was not something with which they could be competitive. We did receive a
proposal from Health Partners, but their II % increase would have meant that employees
would have to change health care providers.
Staff directed the Nesbit Agency to negotiate fUliher with Medica and obtain optional
cost-saving proposals from Medica. Initially, Medica's renewal rates were based on the
city's experience rating and indicated a 15.7% increase. That was negotiated down to a
12.7% increase. However, that amount still appeared to be more than what was
acceptable for 2006. Subsequently, after reviewing all the options, staff is recommending
the following two plan designs for 2006:
MN 200-15 - This plan is basically the same $15 Co-Pay/l 00% Plan that has
been provided by the City since 2002, when the City changed insurance carriers to
Medica. All preventative care continues to be covered at 100%, office visits
remain at the $15 co-pay with 100% coverage, and prescription drug co-pay
continues at $11/26. However, it will now include a $200 deductible for single
coverage, and $400 for family for both inpatient and outpatient services. After
that initial deductible has been met, payment is tht(n made at 80% until the
maximum out-of-pocket is met. As with the current plans, there is a $1,200 per
single, and $5,000 for family out-of-pocket maximum each year. Adding the
deductible to inpatient/outpatient services essentially brought the premium down
to current 2005 rates.
HSA 1500/3000 - This is health plan has a "health savings account" (HSA) with
tax advantages and reduced premiums, and which is gaining popularity as an
alternative to other plans. With the HSA plan, employees are encouraged to be
better consumers of health care alternatives. Unlike the more traditional
insurance plans, employees may actually see the cost oftheir health care
expenses, and pay them directly. The employee is reimbursed up to the amount
available in their HSA. Anything above the deductible is covered dollar for dollar
by insurance. However, money in the individual employees' HSA account which
is unspent at the end of the plan year is carried over into the next year. Over time,
assuming the usage is less than the amount placed into it, the HSA will grow, and
is an asset of the employee - it travels with them as they change employers, or
could be used to. fund health care costs in retirement.
The funds are tax-free both going in and out of the account, as long as the
expenses ,meet federal guidelines. Another advantage to the employee of the HSA
is that the charges for drugs and office visits are taken directly from the HSA, and
are not coming out of the employee's pocket at the time of use.
The advantage to the City is that there will be significant savings in the premiums that are
charged by the insurance company, primarily due to a shift in first dollar cost to the user
and ultimately, consumers making better health care decisions as they become aware of
costs and quality of service. For example, the cost of a family premium with the HSA
plan as proposed is actually 13.4% less than the 2005 rate, and is 23% less than what a
renewal ofthe current plan would have been in 2006. (The cost of the MN 200-l5 is
slightly less than the 2005 rates, owing entirely to the increased deduction for
hospitalization use).
However, because there is a need to provide the initial funding of the health savings
account, depending on number of employees who sign up for the HSA, the cost to the
City for 2006 will probably be more than what a straight renewal of a MN 200-15 plan
would cost. In this case, the larger savings to the City will be in future years.
Our recommendation is that the City provides funding of $1 ,250 of the $1,500 deductible
for single coverage, and $2,500 of the $3,000 deductible for two-party/family. That
amounts to 83.3% of the initial HSA amount, which is an amount that is more than what
typical employers provide for funding (according to Medica, employer funding varies
depending on whether private or public employers, but 50% tends to be the average of
public employers once the accounts are established).. We want employees to feel
comfortable that they will not have a significant out of pocket risk during the first year,
which could be seen as a transition.
We will recommend that next year, the Council consider funding the deductible
contributions at 75% (i.e., $937.50 and $1875 for single and 2-party/family,
respectively), and that for the third year of the program, the City's contribution be at
50%. It would be left at 50% for subsequent years. As with current insurances, the
funding choice would be made by the Council annually.
These HSA funds would belong to the employee, and would stay with the employee to
take with them, should they leave the City of Shakopee. In other words, a newly hired
employee who does not make probation (a 12 month probationary period is required)
could take this with them. Federal law prohibits treating individual employees
differently; therefore, the City could not make "ownership" of the HSA of a probationary
employee conditioned upon successful completion of their probation. However, we do
recommend that the policy regarding initial insurance coverage be modified so that
instead of having insurance available to an employee 30 days following employment, it
would be on the first of the month following the calendar month of employment. In other
words, instead of a new employee being without insurance for up to 30 days, potentially
it would be from 31 to 60 days. This would make health insurance consistent with the
beginning of dental coverage.
Dental Insurance:
We received notice that the City's dental insurance coverage for employees is proposed
to go up 8 % for 2006. The City's contribution towards dental insurance would be
$30.65/month, equivalent to the cost of single preventative dental. Note that the City has
not had an increase in dental premiums for several years; averaged over those years, the
increase appears to be reasonable.
BUDGET IMPACT:
The 2006 budget provided for 15% increase in insurance premiums. There is also
$20,000 available for contingency. The overall impact ofthis new plan will not be
known until after open enrollment ceases (December 1 st), when we know how many
employees sign up for which program. However, Finance Director V oxland advises that
the implementation of both the HSA and the offering of the more traditional MN 200-15
plan should be within the 2006 budget numbers.
RECOMMENDATION:
We recommend the City's contribution rates as per the attached schedule:
2006 Option 1 2006 Option 2
($1500/Individ
MN2OO-15 ual
HSA$1500/3000* $3000/Family)
$11$26 RX
SINGLE $ 347.19 $ 302.23
CITY CONTRIBUTION $ 347.19 $ 302.23
EE MONTHL Y COST $ - $ -
{f)ler PAYROLL
2-PARTY $ 694.40 $ 604.46
CITY CONTRIBUTION $ 611.07 $ 531.92
EE MONTHLY COST $ 83.33 $ 72.54
per PAYROLL $ 41.66 $ 36.27
FAMILY $ 1,107.19 $ 963.79
CITY CONTRIBUTION $ 802.71 $ 698.75
EE MONTHLY COST $ 304.48 $ 265.04
per PAYROLL $ 152.24 $ 132.52
*$1250/2500
funded by City
ACTION REQUIRED:
If Council concurs, it should, by motion, adopt the following resolution:
RESOLUTION NO. 6331
A RESOLUTION ADOPTING THE CITY OF SHAKOPEE'S LEVEL OF
CONTRIBUTION FOR EMPLOYEE BENEFITS FOR THE YEAR 2006
~
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Mark McNeill
City Administrator
RESOLUTION NO. 6331
A RESOLUTION ADOPTING THE CITY OF SHAKOPEE'S LEVEL OF
CONTRIBUTION FOR EMPLOYEE BENEFITS FOR THE YEAR 2006
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SHAKOPEE,
MINNESOTA, that the City's maximum contribution towards group health insurance
plans for full-time qualified employees shall be:
MN200-15 Single coverage 2-party Coverage Family Coverage
$347. 19/month $611.07/month $802.711month
HSA Single Coverage 2-Party Coverage Family Coverage
$15001 $302.23/month $531.92/month $698.75/month
3000 $1,250 HSA Fund $2,500 HSA Fund $2,500 HSA Fund
The City shall deposit the HSA funding on January 1, 2006. Employees hired after
7/1/06 shall receive 50 percent HSA funding; and
the City's contribution towards dental insurance shall be $30.65/month, equivalent to the
cost of single preventative dental.
Qualified part-time employees shall receive pro-rated benefits.
BE IT FURTHER RESOLVED, that all Resolutions in conflict with this
resolution are hereby repealed and terminated effective January 1, 2006.
Adopted in session of the City of Shakopee, Minnesota, held this
day of ,2005.
Mayor of the City of Shakopee
ATTEST:
City Clerk