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HomeMy WebLinkAbout1982-07-20; City Council; 7095; Revisions to Employee Benefit ProgramZ O F- a a t? Z 0 O V CIT`► JF CARLSBAD — AGENDA diLL f f C!? 7 Ati# 10 9 TITLE i REVISIONS TO EMPLOYEE BENEFIT PROGRAM DEPT. HD.'• MTG.- 7/20/82 CITY ATTY DEPT. CM CITY MGR. RECOMMENDED ACTION: Adopt the revised employee benefit program. Direct staff to prepare contracts of insurance to implement revised program effective August 1, 1982. ITEM EXPLANATION: City staff, the City's consultant, Mr. Michael Baker of the Wyatt Company, and representatives of employee groups have worked together to develop a revised benefit program. The City's group medical, dental, vision, life, and long- term disability (LTD) plans have been examined and major revisions are recom- mended for the program. The revised program provides for improvements in many areas of coverage and should more adequately meet the needs of employees. The revised program was developed after consultation with representatives of employee groups. The fire, miscellaneous, and police associations concur with the revision in the plan. The major features of the revised plan are: 1. Revised medical insurance plan that will provide 90%/10% coinsurance for hospital, surgical, and medical expenses. i 2. An improved dental plan that emphasizes preventive care and provides d orthodontia coverage for dependent children. 3. Improved life insurance coverage for all employees. All employees will have a minimum amount of life insurance equal to their annual salary. 4. Improved long term disability coverage. 5. Retirees will be eligible to participate in the group medical plan. FISCAL IMPACT! Through redesign and restructuring of the program, the premium costs of the program will go up from $345,286 to $366,553 - an increase of $21,267. The premium rates for medical insurance will increase 6.4%, the premium rates for dental and vision insurance will remain unchanged. The premium rates for life insurance will go down, but with more life insurance in force, the actual cost will increase. The City pays the premium for life and long term disability insurance. The City shares the cost of medical, dental, and vision insurance dependinglupon the agreements with various employee associations. The increased costs of this revised program will come out of the compensation adjustments authorized for fire, management, and police groups. The miscellaneous employee group will pay the increased costs out of its benefit payment program that will continue in effect until June 1983. AB MTG. 7 20/82 DEPT. CM FISCAL IMPACT (CONTINUED): The revision program provides for an improved funding concept that will improve cash flow and allow dividends if the groups claims experience is good. If the city had been on the revised funding concept for the past three years, a cost saving of $85,000 would have resulted. EXHIBITS: 1. Memo from Assistant City Manager/Administration dated July 9, 1982. 2. Memo from Assistant City Manager/Administration dated July 15, 1982. DATE: JULY 9, 1982 TO: CITY MANAGER FROM: Assistant City Manager/Administration SUBJECT: REVISION OF EMPLOYEE BENEFIT PROGRAMS The City has been concerned about the design and cost of its employee benefit program for the past couple of years. The employee benefit program which includes health, medical, dental, vision, life insurance and long-term disability is a program that has evolved over a period of years. Changes and modifications to this program have occurred on a piece -meal basis. Coverage under the various insurance programs has been changed in an attempt to provide better benefits for employees and an opportunity to select benefits as employees feel appropriate. However, as a result,the evolution of this program has led to problems with the existing insurance program that need to be corrected if the City is to maintain a sound program at reasonable cost. As an outgrowth of meet and confer sessions with the miscellaneous employee group last year, the City attempted to establish an in- surance study committee composed of representatives from the miscellaneous, police, fire, and management employees. The purpose of this study group was to look at possible modifications or im- provements to existing programs. For a variety of reasons this approach did not work out and subsequently, the City has engaged the services of a nationally known actuarial and insurance con- sulting firm, The Wyatt Company, to perform an analysis and redesign of the City's employee benefits program. The purpose of The Wyatt Company study, conducted by Mr. Michael Baker, was to critique current plan benefits and funding concepts, design a revised plan based on City personnel and financial objectives, and negotiate with carriers to correct existing deficiencies, improve plan design,and net cost arrangements. Mr. Baker prepared a report dated February 16, 1982 which recommended major revisions to the employee benefit program. A summary of the report's finding and recommendations is attached. The major finr".ings in Mr. Baker's report are: 1. The entire program requires redesign and improvement. 2. $85,000 could have been saved over the last 3 years using improved funding concepts. a July 9, 1982 Page 2 Revision of Employee Benefit Programs 3. Medical, dental, vision, and life insurances plans should be consolidated into one contract. 4. Current plan costs are reasonable based upon current claims experience and anti -selection problems. 5. To improve the overall program, which includes re- vising and improving existing plans, the City should do the following: a. stop allowing employees to pick and choose coverages, b. broaden benefits to make plan more meaning- ful for all, c. terminate the employee cash refund system, d. require all employees to pay a reasonable portion of their own and/or their dependents' plan costs. 6. A dramatically improved program of life, medical, dental, vision care, and disability income benefits can be provided at only a slight gross cost increase to the City. Based on his findings, Mr. Baker is recommending that the City: 1. Adopt an improved program. 2. Change from a pooling to an experience rated concept. 3. Stop allowing employees to select against the plan(s). 4. Cease or phase out the employee refund plan. S. Improve plan participation. After preparation of Mr. Baker's report, it was reviewed by representatives of employee groups and was explained at meetings held with employees. After consultation with the presidents of fire, miscellaneous, and police officers associations, a final program was developed that is being recommended to the City Council for adoption. The fire and police association have agreed to the design of the program. The president of the miscellaneous association agrees with the program design, however, the mis- cellaneous employee association has not taken action on the program as a group at this time. Mr. Baker and city management have worked closely with representatives of employee associations in an effort to develop a program that will be responsive to the needs of employees at a reasonable cost. I L, I July 9, 1982 - Reyision of Employee Benefit Programs Page 3 A summary of the revisions to the employee benefit program is outlined below: SUMMARY OF MAJOR REVISION TO EMPLOYEE BENEFIT PROGRAM MEDICAL PLAN: (Cost shared with Employees) Present Program Reyi'-se'd Program Coinsurance Rate 100% of first 90%/10% Coinsurance $5,000 for Hospital/ of first $5,000 for Surgical Hospital/Surgical/ 80%/20% Medical Coinsurance of first $2,500 for Medical Retiree Coverage None - may convert May participate in to individual plan group medical plan by Deductible $100 per person, maximum 2 deduct- ibles per family DENTAL PLAN: (Cost shared with Employees) Coinsurance Based on % of fixed dollar schedule Class I - 80% Class IT - 80% Class IIT - 50% Deductible $25 per year per i person for all i classes, orthodontia None a, paying medical premium a $100 per person $300 family maximum t 1 U Based on usual, reason- able,& customary charges Class I - 80% Class II - 80% Class III - 60% $50 per year per person for Class 12 & III - E no deductible for Class I.' Maximum $150 deductible for families 50%/50% Coinsurance. Maximum $500 annual benefit. Maximum $1,000 lifetime benefit. Only applies to dependent children '3 t July 9, 1982 l 'Revision of Employee Benefit Programs Page 4 SUMMARY OF MAJOR REVISION TO EMPLOYEE BENEFIT PROGRAM 1 i f Present Program Revised Program VISION PLAN: (Cost shared with employees) UNCHANGED t LIFE INSURANCE PLAN (City Paid) 1 Police $2,000 Equal to Annual Salary 4 Fire $2,000 Equal to Annual Salary c Miscellaneous $15,000 Equal to Annual Salary , Minimum of $15,000 s �i Management Equal to Annual Equal to twice Annual Salary Salary LONG TERM DISABILITY PLAN (City Paid) ' Maximum Monthly Benefit $900 $5,000 �6 ( i1 } PREMIUM COSTS ? The current plan is divided into,two rates: employee only, and ? employee plus all dependents. Under the current plan, employees ; must have medical insurance on themselves. The employee may take dental and vision insurance on himself. The employee may also choose to have medical and/or dental/vision insurance on his dependents. Under the revised program, employees would be required to take medical, dental and vision insurance on themselves, and would not be able to choose between coverages. Likewise, for dependents' coverage, they must take medical, dental, and vision for dependents or have no dependents' coverage. The purpose of this requirement is to establish a sound group approach and eliminate the selection that was occurring that under- mines the group approach to insurance. .Aft� ' July 9, '1982 Revision of Employee Benefit Programs Page 5 The revised plan would be divided into three rates: employee only; employee plus one dependent; and employee plus two dependents. COMPARISON OF PREMIUMS: PRESENT PLAN REVISED PLAN (2) (Divided into two rates) (Divided into three rates) Employee Employee & Employee Employee Only Dependents employee +1 +2 1 Medical $36.95 $112.53 $39.31 $89.31 $139.27 Dental 8.43 24.84 8.43 18.76 30.80 vision 2.19 6.17 2.19 4.70 7.20 TOTAL $47.57 $143.54 $49.93 $112.77 $177.27 (1) Employee +2 rate includes orthodontia coverage for dependent children. If employee +1 is a man or woman with one child, then add $1.70 to employee +1 rate for orthodontia coverage. (2) Rates for the revised plan will be good for one year. Rates on present plan can be increased every month. Mr. Baker is recommending that the City continue with the existing insurance carriers for the improved program. The City's existing carrier, Crown Life, would continue to provide life, medical, den- tal, and vision insurance. The City's long-term disability carrier, Standard Insurance Company, would continue with the LTD program. Although there has been some dissatisfaction expressed by certain employees with the service provided by Crown, the consultant and the City feel that Crown has responded well in matters of disputed claims and provided that Crown continues to perform in a satisfac- tory manner, there appears to be no advantage in changing carriers at this time. In order to deal with disputed claims, the City has agreed to establish a voluntary claims review program for employees who have questions about claims payments. Representatives of employees groups and the City will review claims, if requested by an employee, to determine if benefits have been paid properly. An Administra- tive Order to implement this process has been issued. This process will provide for peer review that will develop an understanding and confidence in claims administration procedures amongst a larger number of employees. s I Q I July 9 , , 1982 Reyision of Employee Benefit Programs Page 6 The City's account has been a profitable one for Crown in the past. They have been very responsive to the City's request to revise the contract of insurance in order to keep the City's business. The City's consultant, Mr. Baker, has negotiated a revised contract with Crown which contains four important changes: 1. The City will pay Crown Life 90 days in arrears, which results in the City having use of the cash flow. 2. A retrospective premium rating arrangement will be included in the contract. The City will only pay 85% of the conven- tional monthly premium. The City holds the other 15% of premium payments until the end of the year. At year-end, Crown Life will perform an accounting of paid claims. If the City's claims experience is good, the City will receive a cash dividend. If the City's claims experience is not so good, the City will be required to pay any amounts owed up to the additional 15% of the conventional premium. 3. When enrollment in the revised plan is finalized, Crown Life will evaluate the proposed rates for medical, dental and vision plans. Present rate estimates are based on current enrollment figures and as enrollment improves, and anti - selection problems are eliminated, the rate may possibly be decreased. 4. The revised insurance program will be written on a no commis- ; sion basis and the City will deal directly with the insurance s companies. The present commission arrangements provide for an annual commission of approximately $15,000 on the program. , Mr. Baker's recommendation is to eliminate commissions and deal ,directly with the company. Both Crown Life and Standard Insurance Company are willing to do this and the rates they have quoted are on a "no commission" basis. Mr. Baker indi- cates that all of his clients deal directly with insurance companies on a no commission basis and the practice in most cities is to deal directly with insurance companies. In San ; Diego County, almost all cities deal directly with the insur- ance carriers, and do not pay commissions. # Crown Insurance Company, as well as Standard, has group claims representatives available to the City at any time to assist in claims administration and processing. The companies have ade- quate staff to work on any claim problems and the City should not suffer any service loss by dealing directly with the companies. City management does not feel it is necessary to have a broker for this type of insurance and recommends that the insurance be written on a no commission basis. When specialized services are required, they can obtain the assistance of specialists in the area of concern. July 9, 1982 keyision of Employee Benefit Programs Page 7 Mr. Richard Nieves, the City's current broker for medical, dental, vision, life and disability insurance has submitted a proposal to continue to serve as the City broker. Mr. Nieves is proposing to provide services as outlined in his letter of June 4, 1982, a copy is attached to this report. Mr. Nieves proposes a commission of 1' to 211 of total premiums paid (ap- proximately $350,000 annually) or $5,250 to $8,750 plus a flat fee to "research, market, study, evaluate and recommend to the City Manager improved insurance coverages and alternate insur- ance programs." The cost for this additional work would have to be negotiated on an "as needed" basis. The possibility of Mr. Nieves serving the City on an hourly basis to provide assistance on resolving claims disputes was discussed. However, Mr. Nieves would prefer to provide service as outlined in his proposal. In addition to the establishment of the voluntary claims review committee, the City is strengthening its internal management and control of the program. Administrative and accounting procedures are being established to improve the program's management and communication with employees. Improved employee communication booklets are being prepared. The entire insurance program is being simplified and employees should find it easier to under- stand and use the program. In addition to the revisions of the existing programs, employee representatives and employee groups have expressed a continuing interest in having a health maintenance organization available as an option in the insurance program. A number of employees have indicated an interest in having an HMO like Kaiser available to employees as an option to the current indemnity program. It is recommended that the City obtain proposals from certified HMO's and, if feasible, enter into an agreement with an HMO to provide services beginning possibly January 1, 1983. COST CONTROL PROGRAM The City is also becoming involved in a program designed to help control escalating health care costs by participating in the San Diego Employees Coalition Action Program (CAP). The CAP program provides for a pre -admission hospital review and in -hospital concurrent review program. Crown Life is paying for the entire cost of the program. The program is designed to make physicians aware of the need to consider costs as well as other factors when treating patients. No claims or costs will be denied as a r:sult of this program. The emphasis is on making determinations of the medical necessity of treatment before it occurs, not the payment of charges after the treatment is received. A description of the program is attached. N July 9, ' 1982 Revision of Employee Benefit Program Page 8 FISCAL IMPACT The revised program recommended for adoption by the City Council will have a premium cost of approximately $366,553. The premium costs for the existing program -is approximately $345,286,, an increase of $21,267. The increased costs of the revised program will be paid out of funds set aside for compensation adjustments for fire, ' management, and police employees. The increased costs for ' 1 miscellaneous employees will be paid out .of the $115 a month provided to each employee in that group as part of a benefit Payment program. The recommended revised program is the result of a long and oftentimes tedious process that has provided for input from all interested and concerned employees. The revised programs provide substantial improvement in coverage for employees, and i is supported.by the majority of the employees. E i FRANK N. MANNEN t Assistant City Manager/ Administration ; r � ' FNM:gb Attachments y,y t j 1 + i t i ` Sune 9, 1982 JUNIS82 Frank 'I. "annen v' Assistant City ;'anager/Administration i CITY OF CARISRAD City of Carlsbad UT 9,j^ Carlsbad, California 92008 Dear Frank: 6�gl�l9l �l VZti�ti I wish to formally note in response to your letter of April 12, 1982 that I ai most happy to respond with a proposal. This response is also based on the meeting that we had last week in the city managers office with the 'iayor. Before ray proposal, I wish to take this opportunity to note that I received no response from ;lour office to my letter of April 2, 1932 wherby I have stated fiy justification as the insurance broker for the City of Carlsbad. The :Myatt Company report itself offers my strongest support. Please keep in rind however, that rt Revised Insurance Program " to me, means r,igcier premii*ms, lower paid claims, lower benefits, out of which comes consultants fees. -y propsal is: a. To oversee proper administration procedures of the insurance programs b. Research, rarket, study, evaluate and recommend to tho City ?*anager improved insurance coverages and alternative insurance programs e. To eliniaate problems trAat have existed in the past concerning improper infor-iatio3 to the employees within the departments themselves d. One to three hours each week on site (City) servicing e. to personally take care of excess or complicated cla:Lms f. Standing ,' to 1 «our neetiiEe vith the City ;'angers office to discuss or resolve insurance prowl- s on a weeIJ- y basis g. To train and counsel maaageneat/personnel staff on claims and prerdun admi;ni: tration h. I will provide t..o service indicated Li ?.taw °B" above on a reasonable fee basis i. DesiCn pro,ramo to fit needs sad budgets. After study and ovaluatioia of all Vie possibilities, detailed reports with reco-Tr_aendationc will to sub- mitted so that mRanaQereat oayy make Vie appropriate decisions j.:*y, fees for the above will either been a cornincio:i tasi3 or on a fee basis a^ 1.. to 2-V , of the total paid promiums or convert it to a flat doI?ar arloltnt i I M • -Tune' _2_ ;For ciy services indicated s,i,ove, Citr will provide the folloirinn. a. A Broker of t?ocord latter .for one ,oar b. To discus^ and re;otiate the renewal of the tlrolser of Record.,30 to 60 days prior to the vne yoaors conc3ttsion c. City vial share i t,forration after• p\ ovidit� notice of city plevio to chance and/or improve oti3or etty inouraoce plans Uo that T nay be able to compete , for Vie business A1.1 of the above is subwtted i,L vood faiV�. AN the citys broker for the pact 12 , years, it is my* cincere desire and requirement to continue servicing the City of t Carlsbad and it's employees. r I feel privileged to be a lifetine local citizen and a, rne;7ber of tl,,e Carlsbad co-MTOMity as troll as o minority contractor. Four ropy; to the above :rill be jR�'x mated. 7:1 ere.7.;1, 4 t icilard Cs.:.ievoo, 'roger ; 10?77 T o' a ',Fa. - Carl. -bad, 00iforaia 92008 i 1 cc: City Council 3 Cit;j i arizv$r f , r ! '4 t I, t .. 4 i r�GROWN LIFE INSURANCE COMPANY i July 1, 1982 DISTRICT GROUP OFFICE SUITE 214E 1764 SAN DIEGO AVENUE, SAN DIEGO, CALIFORNIr` 92110-1995 TEL: (714) 692-3350 TELEX #: 695.071 Mr. Frank Mannen City of Carlsbad 1200 Elm Avenue Carlsbad, California 92008 Re: Group Policy Number 24146 Dear Mr. Mannen: Crown Life is pleased to announce its full participation in the San Diego Eknployers Coalition Action Program (CAP) -- a hospital review program administered by the San Diego Foundation for Medical Care. We at Crown feel that CAP will return many times our expenses by controlling health care costs and improving claims experience. These savings are ulti- mately passed on to you. Our strong belief in the effectiveness of this program inspires us to offer CAP to you at no additional cost. Enclosed is an overview of CAP procedures. We have also provided announcement letters and CAP wallet cards for your employees. Should you desire a presentation for your employees or have any questions, please contact our office. Kindest regards,�`�� Bradley E. Nerhus District Manager, Group & Pensions BN/11 encls. GROUP INSURANCE AND PENSIONS 13 U *CROWN l.F V1.1"t CONY ATTENTION ALL E14PLOYEES Effective immediately your employer has joined other businesses in San Diego County in fighting the battle of escalating health care costs by participating in the San Diego Employers Coalition Action Program (CAP). CAP physician advisors and nurses conduct reviews to determine the medical necessity of hospital admissions and services rendered. They also assess the appropriateness of lengths of stay. For all hospital admissions scheduled for you or any dependent covered by your group health plan in a San Diego County hospital you should be sure to do the following: 1. When ycur doctor tells you that hospitalization is necessary, tell him/her that your employer participates in the CAP program and show the doctor the enclosed card which will remind Pim/her to call CAP prior to admission. You should_'eep this card in your wallet or purse, 2. Upon admission, tell the hospital admitting office that your employer participates in CAP. After you give these notifications of an admission, there is nothing else you need to do. Health care costs rose 19A last year to over $738 million in San Diego. Hospital confinement represents 50 - 75% of that total. Your participation in CAP will help decrease this current trend. The attached overview explains CAP. Please familiarize yourself with these procedures because YOU MAKE THE DIFFERENCE. Iq OVERVIEW SAN DIEGO CAP A PRE -ADMISSION AND IN -HOSPITAL CONCURRENT REVIEW PROGRAM CAP is an innovative San Diego hospital review program which Crown Life is making available to your company. The program operating expenses are fully funded by Crown Life with no additional cost to you. CAP identifies and interrupts the provision of care that is not medically necessary. Physician advisors conduct pre -admission review and concurrent review of the hospital stays of covered employees and their dependents. These physician advisors are in the private practice of medicine locally. They are supported by CAP Coordinators -registered nurses - who screen admission requests and the medical records of hospitalized patients. Pre -admission review identifies scheduled hospital admissions which can more readily —be performed in another setting and redirects those admissions to that setting. These alternative settings include the physician's office and ambulatory (out -patient) surgical facilities both hospital based and free standing. A.M. admissions (morning admissions for surgery the same day) are also encouraged. The admitting physician's office will notify CAP in advance of all scheduled admissions. While the primary intent of pre -admission review is the deterrence of unnecessary hospital admissions, an important by-product of this review is the identification of proposed procedures that are generally not covered by group health benefit plans (as surgery which is, in fact, cosmetic surgery though described ir, non -cosmetic terms.) A Admission review will be performed on all non-scheduled admissions within 24 hours of admission in order to determine the appropriateness of the admission as well as the need for continued stay. The hospital's t admitting office will notify CAP of these admissions. Concurrent review will be conducted periodically during each patient's stay to order to determine the patient's need for continued stay. This review will include level of care review in order to determine whether a patient in intensive care should be more appropriately treated in an acute care bed, or whether a patient in an acute care bed could be more appropriately treated in a sub -acute setting (to include a convalescent facility or home health care.) The physician advisor will discuss next - day discharge with the attending physician in each case where further hospitalization is thought to not be medically necessary. Concurrent ancillarx review will be conducted at the same time as concurrent review of length of stay and will include all services requiring the written order of a ph—i cian (laboratory, x-ray, inhalation therapy, physical therap, , etc.). Any services which do not appear to be medically necessary wil. be brought to the attention Ii - 2 - of the attending physician by the physician advisor. Stop orders for these services may then be written by the attending physician to prevent these unnecessary ancillary services from being provided. (This concurrent process is far superior to that of retroactive denial by the insurer of care already rendered.) CAP makes determinations of medical necessity, not payment. The r7sults of each admission reviewed will be provided in a written Statement of Medical Necessity to Crown Life. As currently envisioned, CAP's review would not result in denial of payment except in instances in which the attending physician concurred that ; further stay was not medically necessary, but the patient chose to stay 9 after being informed that he may be responsible for the resulting bill. CAP's major impact will be as a consequence of its substantial deterrent effect on the provision of unnecessary hospital services. 1 • CAP Participating Hospitals Alvarado Hospital Bay General Hospital Clairemont Hospital Comm. of Chula Vist Hospital Coronado Hospital E1 Cajon Valley Hospital Fallbrook Hospital #-drossmont Hospital Hillside Hospital Mercy Hospital Mesa Vista Hospital Mission Bay Hospital Paradise Valley Hospital San Luis Rey Hospital Sharp Cabrillo Hospital Sharp Memorial Hospital a Southwood Mental Health Center j: University Hospital Villa View Community Hospital Vista Hill Hospital ��,��+; t�^L.S Gc.�rc,!! !«S�/.'���cR'•c ,ram' ewpv, �.�.7��/ <' j} ti/ .CV LAG r' /� Z`el call DOSTON ORLANDO CHICAGO, / PHILADELPHIA CLEVELAND - / ! PHOENIX D /� //J// POIJTLAND DETROIROIT THE i CC COMPANY SAN DIEGO FORT WORTH yet J SAN FRANCISCO HONOLULU STAMFORO HOUSTON ACTUARIES AND CONSULTANT$ WASHINGTON LOS ANGELES PENSION EMPLOTCC COMPENSATION INTERNATIONAL EMPLOYEE RISK CALG 14EMPHIS PLANS OCN(I1T5 PROGRAMS SCNCL'1T5 COMMUNICATIONS MANAGEMENT HALIFAXFAX MIAMI MONTREAL MINNEAPOLIS- OTTAWA ST. PAUL TORONTO NEW YORK VANCOUVER SUITE 220 3366 NORTH TORREY PINES COURT LA JOLLA. CALIFORNIA 92037 (114) 455-5350 i February 16,1982 i Mr. Frank Mannen Assistant City Manager CITY OF CARLSBAD 1200 Elm Avenue Carlsbad, CA Dear Frank: Attached is our report of findings and recommendations to improve the City of Carlsbad's employee group benefits program. This report focuses primarily upon -KL improvements to the life, medical, dental and vision care plans underwritten by Crown t Life Insurance Company. In addition, the Long -Term Disability Plan of Standard Insurance Company is impacted by our recommendations. Our report is based upon a thorough analysis of your current program's design, funding concepts, cost subsidy, and participation levels and sets forth recommendations for improvement. It is written in an executive summary format and supported by,in-depth ,I exhibits where necessary. OUR SUMMARY FINDINGS: • Your entire program requires redesign and improvements in many areas. - certain plans are inadequate or non-existent - others are simply ill -designed or outdated s Current funding and underwriting techniques are cost inefficient. - approximately an $85,000 cost savings would have resulted during the last three years using an improved concept - the improved concept(s) can be provided using your current carrier(s) • All improved Crown Life plans snould be consolidated into one improved funding %"001 contract to reduce long-range costs. 1_, Mr. Frank Mannen CITY OF CARLSBAD February 16, 1982 Page Two • Current Crown life plan costs are reasonable based upon current claims experience and an existing anti -selection problem. the current program anti -selection, participation problem is acute. • In an effort to improve the overall program, which includes revising and improving existing plans, you should do the following: - stop allowing employees to pick and choose coverages - broaden benefits to make plan more meaningful for all - terminate the employee cash refund system - require- all employees to pay a reasonable portion of their own and/or their dependents' plan costs • A dramatically improved program of life, medical, dental, vision care and disability income benefits can be provided at only a slight gross cost increase to the City. The cost savings achieved will depend upon the cost subsidy levels and funding concepts of the finalized program, as adopted. - the improved program could be provided at no increase to the City if the cash refund system is terminated - additional cost savings may result if large numbers of employees leave the Plan and/or decline future coverage -- if the city requires employees to pay even a small portion of either plans' costs, approximately 10% to 15% of these employees will most likely drop the plan due to duplicate spouse coverages -- an increase of dependents coverage, where the City plan pays as secondary, would improve the programs loss ratios • An improved employee communications program is required to assist in plan understanding and to assure support of the improved program. the City will also need a program to assist in salary negotiations with employees • Government legislation impacting benefits and costs requires attention. Your new program will be designed to meet requirements at the most economical cost. YMC "I ja 1 COMPANY • •� Mr. Frank Mannen CITY OF CARLSBAD February 16, 1982 Page Three • You may also want to consider several types of voluntary, supplemental employee -paid plans to make the total package more attractive to employee needs. we have included a voluntary supplemental life and accident plan in the improved program OUR SUMMARY RECOMMENDATIONS • The City should adopt an improved group benefits program. The improved programs will provide: - improved life, medical, dental and vision care plan coverages - an improved long-term disability plan - a voluntary supplemental life and AD&D plans • The City should change from a pooling to an experience -rated funding concept. • An all out effort should be made to: - improve plan participation - stop allowing employees to select against the plan(s) - cease or phase out the employee refund plan Our in-depth findings and recommendations are as set forth in the following report. We are prepared to present and discuss our report with management and City Council at your convenience. Sincerely, THE WYATT COMPANY Michael D. Baker Consultant MDB:ks Enclosure TNC/�aii COMPANT o� I SUMMARY FINDINGS AND RECOMMENDATIONS S& T.& a/a// c".., SECTION I INTRODUCTION The City of Carlsbad provides a group life, medical, dental, vision and long-term disability plan for its employees and their eligible dependents. The LTD plan is provided by Standard Insurance Company. The life and medical care plans consist of life, medical, dental and vision care plan provided through the Crown Life Insurance Company. During the past three years, City staff and the Council have become increasingly concerned about the City's benefit package, its design as well as rising costs. The Crown Life plan benefits have been improved. Crown's costs have increased significantly during the past three years, and medical plan costs are scheduled to increase 25% effective March 1, 1982. Standard's rates have remained level and have not increased because of a maximum benefit level in the plan's design. One year ago, the medical, dental and vision plans were improved and an employee cash refund system was implemented for management and miscellaneous employees. Employees were also given the opportunity to select or decline coverages, at will. When combined, the above practices are and will continue to result in signficiant if not unacceptable program costs. Based upon our evaluation of rising claims experience, we expect another rate increase will be forthcoming in 7uly, 1982 or sooner unless perceived problem areas are corrected. Actually, Crown Life can increase costs at any time by simply giving a 30- day notice. -I- T /1 f fJ i I SECTION II PLAN DESIGN/BENEFITS Current Plan A. Basic Employee Life Insurance Plan (See Exhibit `1) • The current basic employee life plan provides a death benefit on the life of each employee, plus accidental death and dismemberment, AD6:D, as well as a waiver of premium, W.P., _provision for disabled employees. • The benefit amounts are based upon the following schedule: Employee Insurance Classification Amount Managers I x Annual Pay up to $50,060 Safety Members $ 2,000 All Other Employees $15,000 • AD&D equals one times the basic life amount for accidental- death. • Waiver of premium continues life insurance in force without premium payments for totally and permanently disabled employees. • Life insurance amounts remain level, unreduced, at age 65 and 70 for active employees. There is no waiver of premium after age 60. There is no life coverage after employment termination or retirement. - employees may, however, convert to a permanent life plan if needed at employment termination and retirement • Recent legislation, the Age Discrimination in.Employment Act, ADEA, now prevents certain discriminatory reductions in life plan amounts, except for those made on an actuarially cost -justified basis. • ADEA creates additional risk exposures for life plans which we have dealt with in the plan design improvements section. • As a solitary life plan for employees, this plan would be inadequate. Especially for employees in the medium- to high -pay ranges. -2- 23 r B. Life Insurance For Dependents (See Exhibit 1) • The City's plan provides dependents' life insurance of-$1,500. C. Voluntary or Supplemental Life Insurance for Employees (See Exhibit I) • The City's plan provides a voluntary or supplemental life plan benefit equal to one times annual pay. • Supplemental life plans are usually voluntary and are paid for by the employee. • They make available, at low group rates, supplemental life insurance amounts for those employees finding a need for extra insurance. • Most often the employee is allowed the option of purchasing an additional life insurance amount equal to his or her basic life plan amount. Supplemental life plan premiums can be arranged in several ways. The two most common methods are: - a single low rate for all employees - step -rated rates, by five-year age categories, increasing with age • Currently, the City's supplemental life plan has 48 employees enrolled in the plan. - this represents a 16% plan participation and indicates that probably a step -rated plan will have to be adopted rather than the current group rated plan Improved Plan D. Basic Employee Life Plan (See Exhibit II) • Our findings indicate a need to provide improved life insurance benefits. • We recommend the following level of benefits be provided: Employee Insurance Classification Amount Mayor Council Members and Elected Officials $25,000 Manager, Assistant Managers 2 x Annual Pay All Other Employees 1 x Annual Pay -3- 1HE " %i �r COMPANY • Council members have a benefit under the current life plan of $15,000 and should be provided with a meaningful flat amount benefit. • Two times pay, or more, is competitive for management staff. • One times annual pay for all other employees is a reasonable death benefit objective for a government agency sponsored plan. - in today's economy, even the second income earners have a need to replace their annual pay in event of death - the City should deal with benefit objectives based upon the occurrence of events (death, disability, etc.) rather than what the insurance industry has sold you in the past, simply to be competitive - at the same time, the City should not attempt to emulate other, ill- conceived, government agency plans E. Supplemental/Voluntary Life Plan (See Exhibit II) • Provide a separate, voluntary, employee -paid supplemental life -plan for all classes of employees of an additional one times the basic plan amount. • Will require at least 50% participation if group rated; one rate for all. • Can also be provided on a five-year, step -rate, age -bracket basis if 50% participation fails or you desire to do so. • Eliminate waiver of premium and AD&D on the supplemental plans - one might ask the question, is an employee worth twice as much if death is by accidental versus natural causes - we do not believe this to be true • If 50% participation is achieved, an average group rate of $.50 per $1,000 would probably be required to fund the plan. F. Dependent's Life Plan (See Exhibit II) • Provide $1,500 death benefit for dependent spouse and each child. • No AD&D; no waiver of premium. • California insurance code limits maximum amount to $5,000 THE '^"/Pl� G0M PANS I 111*N • Employees who elect dependents' medical coverages would have this plan. • We would suggest that employees pay for plan costs which we estimate would be about $.75 per family, per month. - Crown Life has proposed a $.99 rate which we feel is too high and have requested a lower rate G. Voluntary Employee/Dependents' ADD Plan (See Exhibit III) • If the City finds the elimination of AD&D from the basic and supplemental life plan attractive, you might consider sponsoring a voluntary AD&D life plan as follows: - provide a voluntary AD&D plan for employees and dependents - employees select and they pay for this plan • Amounts can range from $25,000 to $150,000 per employee in increments of - $25,000. • Spouse benefit equals 40%-50% of employee amount. • Children benefit equals 10%-15% of employee amount. • Special educational benefit of 2% of employee amount for children in college. • Costs about $.08 per $1,000. • We would not recommend offering two voluntary life plans, initially. • The City might also consider paying 33% of plan costs and have employees pay 67% of plan costs. In other words, City pays for costs for the eight hours while + ie employee is at work. H. Medical Plan Current Plan (See Exhibit IV) • The current medical plan is a comprehensive major medical type plan which provides a 100% benefit for in -hospital expenses and 80% for out -of - hospital expenses. Before Deductible • The plan provides an accident expense benefit of 100% of usual, reason- able, and customary charges without any deductible up to a $500 per person, per year maximum. -5- ` Lt TNf Q/Jnll COMPANY The Deductible • Is $100 per person, per calendar year; $200 family maximum. After the Deductible • The major medical plan pays a percentage of most types of medical care charges, including hospital, surgical, proiC-sional services, as well as doctor visits and prescription drugs. - for the first $5,000 of eligible in -hospital expenses, the plan pays 100% of usual, reasonable, and customary, URC, charges - for the first $2,500 of out -of -hospital expenses, the plan pays 80% of URC charges, plus - 100% of charges in excess of $2,500 up to a lifetime maximum • The lifetime plan maximum is $1,000,000 per participant. • The plan is provided through Crown Life Insurance Company, and claims are paid by their Los Angeles office. We perceive this plan's primary problem to be one of design. • By paying a 100% benefit for in -hospital charges which includes the surgical, hospital room and board and miscellaneous charges, the plan encourages hospitalization to receive the maximum, 100%, benefit reim- bursement. - with medical care costs escalating at a rate which exceeds most other costs, we find that a plan change is necessary - in -hospital and 'emergency room costs are the most expensive of all medical care costs and they represent over 50% of total medical care costs • A plan which encourages out -patient service utilization appears necessary. - the plan could pay 80% of all medical expenses or it could pay 100% for out -patient services and 80% for all other including in -hospital expenses - historically, the latter plan will cost from 10% to 20% less • We also find a need to provide a medical plan for retired employees and their dependents. - especially now that the City is out of federal social security -6- J i/if 111 COM LA%+ r Improved Plan (Se: Fxhibit V) • Provide a tailor-made comprehensive major medical pian for your employees and their dependents, as outlined in Exhibit V. Before the' Deductible • The plan payz 100% of the first $500 for medical charges related to accidental injuries, outpatient minor surgery and diagnostic x-ray and laboratory tests. There is no coinsurance and no deductible requirement for this benefit feature. The Deductible • $100 per person, per calendar year; $200 family maximum; three months carry over provision to meet next year deductible for charges incurred during October, November and December. - deductible is waived for accidents After the Deductible • The plan pays 80% of all covered medically necessary charges on a usual, reasonable, and customary, URC, basis, up to a $1,000,000 maximum. When $2,500 of charges are incurred in a calendar year, the plan pays 100% of excess charges up to the maximum of $1,000,000 per person. - guarantees no more than $500 in out-of-pocket expenses during the plan year, per person for accidents; $600 for sicknesses • Plan treats all in- and out -of -hospital expenses, including pregnancy, the same as all other types of illnesses. • Does not encourage hospitalization to maximize plan payments or favor a particular service type. • Traditionally costs 10% to 20% less than for the in -hospital plus major medical approach. • Allows other benefits and plans to be added and/or improved. • Provide the medical plan for all currently eligible employees, plus the same plan, at group rates for employees with 5 years of service, age 50. This plan would be for retirees and their dependents and as a supplemental plan - five years of service, age 50, would coordinate with your retirement plan's early retirement feature - the City currently does not offer this feature to retirta5 -7- TIIE 111r�0111 COMPANY 1.1 W I I. Dental Plan Current Plan (See Exhibit VI) • The City currently provides a dental plan. • We believe the current plan is competitive and provides adequate benefits. 0 Dental plans are popular with employees and are becoming common within industry as well as government agencies. • Employees have a real need for dental care plans and are able to receive a tax-free benefit from the plan without dying or being disabled. 0 We find a need to increase the plan's deductible as well as adverse selection problems to insure it's future availability. Improved Program (See Exhibit VII) • Provide a comprehensive dentaA program that pays a percentage of URC charges by dental service class. We recommend the adoption of the following plan: Before the Deductible 6 Pays 80% of Class I -- Preventive Services. The Deductible • $50 per person, per year. After the Deductible • Pays 80% of Class II -- basic, therapeutic, and restorative services and supplies (See Exhibit V for details of benefit categories). • Pays 50% to 60% of Class III -- major restorative services and supplies (See Exhibit V for details of benefit categories). Plan maximum per person, per year will be $1,000. - $1,000 is adequate and controls abuse and prior patient -neglect exposures - $1,500 would be a future improvement to be added for employees in subsequent plan years -8- M • We same as medical - see improved medical plan for eligibility recommendations • In light of the $50 deductible, you should waive the deductible for preventive Class I type benefits. - this rewards employees for past and future good dental hygiene - it is of no value to persons with prior patient -neglect J. Vision Care Plan Current Plan (See Exhibit VIII) • The City provides a competitive vision care plan. • In light of the other benefit changes, we recommend that the current plan be continued. Improved Plan (See Exhibit IX) • Exhibit IX illustrates a recommended vision care plan. It represents 70% = 80%-reimbursement of URC charges and is identical to the current plan. • The primary problem with the current plan is adverse selection. Less than half of employees participate in the plan. Dependent participation is even worse. - this practice increases costs and will eventually make the plan unaffordable • We recommend eligibility be the same as for medical and dental coverages and require participation in the entire program. This will prevent the anti - selection problem. K. Short -Term Disability Current Plan (No Exhibit was prepared for this plan) • Short-term disability is most often designed to replace income losses due to short=term disabilities lasting from eight days to six or twelve months. - sick leave covers day one through seven -9- THE Q/11j GOMPAN� • Salary continuation arrangements for management employees often cover one to six months' medical leave periods. • California S.D.I. covers your employees from day eight to nine months for disabilities. (1) • S.D.I: s weekly maximum is $154 as of January 1, 1980. • California S.D.I. basically provides income replacement of 50% to 55% of pay up to $14,900. After that income level, the plan stops accruing additional benefits. L. Long -Term Disability Current Plan (See Exhibit 10) o The City provides a long-term disability plan for its employees which is underwritten through Standard Insurance Company. • This plan provides income replacement for totally and permanently disabled employees. 0 Pays 66-2/3% of basic monthly pay up to $1,350. - maximum monthly benefit is $900 • Pays to age 65 for accidents as well as sickness. After age 65, the plan reduces by paying the pre-65 benefit amount but for a limited payment duration period: All benefits cease -at age 70. - your pension plan will coordinate with, the LTD plans benefit structure and continue benefits past age 70 • Benefits commence after a three-month, or 90-day, elimination period. • Plan integrates, offsets, for full family social security, as well as other group and state disability plans. • The plan provides inadequate benefits for all employees earning more than $16,200 annually. - Federal and State tax supported plans favor lower -paid employees, and basically do not provide benefits above the $16,000 to $18,000 per year pay level - also, they replace a higher percentage of pay for lower -paid employees (1) Effective on January 1, 1980. -10- THE Oil [f tOM kANr .31 • A separate plan benefit with more liberal eligibility and elimination periods should be considered for management personnel. - these employees are least apt to malinger or abuse the program - the improved plan should be coordinated with your salary continuation and sick leave programs • A competitive LTD plan should replace a percentage of disabled employees' current monthly pay. - 50% to 70% is competitive when coordinated with social security { waiting or elimination periods range from 30 to 270 days depending upon the circumstances, objectives, and need of a particular employee group - current gross income, less all other disability benefit payments, less work related expenses and payroll taxes, deductions, etc., equals a realistic LTD plan benefit objective ( - benefits in excess of 70% of take home pay are excessive and equal in { value to more than current gross salary 3 -- this would encourage malingering l — especially since LTD payments are taxed more favorably than ordinary income r• Also, LTD plans are particularly important to the younger, short -service employees who usually have not had sufficient time to accumulate meaningful disability benefits, if at all, under the City's pension plans. a, Improved Plan (Short- and Long -Term Disability) See Exhibit XI • The City should continue to provide a long-term disability plan for ' employees. The question is for whom and what type of benefits. • We recommend a somewhat modified plan be continued for all employees. provide a 60% of monthly pay up to $8,333 which would provide a $5,000 monthly plan maximum benefit payment without any .evidence of insurability -11- 7 04 E RA N F 1 the elimination or benefit waiting period (from day of employment to date benefits commence) should be as follows: — 90 days for management and selected group of manager, plus police and fire types — 270 days for all other employees earning less than $16,000 annually — social or government subsidized plans favor lower -paid employees by replacing a greater percentage of their pay (i.e., S.D.I. and social security) which makes a longer elimination period for those employees justifiable the eligibility waiting period should be as follows: first day of the month following date of employment for selected management group employees earning $20,000 per year, or more you could adopt a one-year service requirement for a.II other employees. For the selected group of management employees, participation should be immediate a return -to -work incentive provision, paying an extra 10% or greater benefit from all incomes, should be adopted to encourage employees to attempt to return to work a rehabilitation program is also an attempt to assist disabling employees to return to productive employment. This program can be: — any plan, formal or informal — a new or current position with the City — any type of gainful employment or training plan See Exhibit XI for other recommended provisions, such as: — dismemberment benefit — death benefit — definition of disability — deductible benefits — pre-existing conditions -12- THE �/11 �l COMPANY i 1 N F. SECTION III PROGRAM FUNDING AND UNDERWRITING CONCEPTS (Special Attachment "A" Discusses Various Types of Funding Concepts) A. Current Funding Concepts 0 The Crown Life program consists of life, medical, dental and vision care underwritten under three separate contracts. • Each plan is fully insured on a partially pooled and partially experience - rated basis as follows: the plan is partially experience -rated based on the City's experience and partially pooled -rated. The pooled -rated portion represents claims experience of Crown's total book of other similar -sized pooled contracts non -benefit related costs such as the carriers normal retention charges, are not identified - the City's premium, claims experience, as well as plan reserves data are available - dividends or excess margins are not refundable - under this concept, the carriers profit or retention charges are always equal to the excess of premium over incurred claims s The City's program has had excellent claims experience during the past three year period from July 1, 1978 through June 30, 1981. 0 The results of your paid premium to paid claims ratios for the past three years are set forth in Exhibits A and B attached. A summary for all plans is as follows: Paid Loss Year Paid Premium Paid Claims Ratio % 1978-79 $ 134,355 $ 80,173 60 1979-80 208,344 163,190 79 1980-81 246,953 170,225 69 TOTAL 589 652 413,588 70 -13- THE Q1/Q11 COMPA%y 31( M C } ♦ Under the pooling concept, it can be easily demonstrated that those groups, such as the City, with consistently good claims experience, pay for other employer's bad experience and costs. ♦ One of the primary objectives of this study was to evaluate the potential cost savings available to the City if you established an experience -rated or improved funding concept. - Exhibit H is a financial illustration of results, or cost savings, available to the City under an experience -rated program based upon your past three-year plan financial data - the three-year result is that a $84,512 cost savings would have been achieved using an improved funding concept known as fully experience rating on a retention charge basis. ♦ Exhibit C and D provide the three-year accounting results of the Life and Long -Term Disability plans which during that time were underwritten by Standard. - Standard now underwrites only the LTD plan - the City's past life plan experience was more or less in a breakeven position - the LTD experience was favorable ♦ Due to good LTD plan experience, we perceive that the City can probably provide the improved program at the same or less than current plan costs. ♦ All of the above indicate that the City should change funding concepts by negotiating with existing carriers for imore cost efficient contracts. B. Improved Funding Concept ♦ Based upon the City's current group size, the most likely type of funding concept best suited to your needs would be a fully experience -rated, retention charge basis contract. ♦ Under the experience rating concept, your program's net cost is based upon your own claims experienre plus a reasonable expense factor to administer and underwrite the program. - benefit expenses are paid claims plus reserves. Paid claims plus reserve adjustments for a given time period equal incurred claims -14- THE l OMP'AN t _IJ non -benefit expenses are known as retention charges. Retention charges are those monies retained by a carrier to pay administration expenses, premium taxes, underwriting and risk charges, plus provide a margin for profit (1) ... if commissions are paid to a broker or agent, these costs are paid from the retention formula - in addition to retention charges, most plans of your size purchase special risk and/or pooling insurance at various levels to protect against excessive shock or catastrophic types of claims. These charges represent pooled premium to the carrier and a pooling expense to the policyholder's plan 0 In any plan year that plan income exceeds plan expenses, all excess plan margins are refunded to the policyholder. - they may also be used to forego rate increases, set up special reserves, and may be held by the carrier in a high interest type reserve. - however, all excess margins belong to the policyholder and are usually subject to call at any time • If the plan's expenses exceed income, a deficit occurs which is usually recouped in the form of a rate increase and/or from future plan year surpluses. - dividends are not paid until the deficit is recouped by the carrier Our findings indicate that the City should improve indemnity plan design and seek to increase that plan's participation levels. - the plan's cost wilt then be based upon your own experience and benefit payments - you can also design your own benefit plans and better manager long- range costs • All plan coverages should be combined under one contract where feasible. - the current Long -Term Disability plan requires a separate contract with an LTD and/or specialty risk carrier (1) Retention charges for your program should not exceed 10% of paid premiums, an industry benchmark. Our comparison Exhibit H used a 12% retention factor to allow for commission payments to the broker. -15- IML Wall CQM PAN I I xG I life, dental, and vision claims experience, which are historically good risks, will serve to offset medical claims experience fluctuations carrier profit and expense margins will be reduced commission payments can be eliminated or reduced to futher reduce costs • We find no reason to leave the Crown Life or Standard to obtain these funding concept advantages. • At our request, Crown Life has proposed an experience rated, retention charge concept which appears to be competitive. - their retention charges as a percentage of premium range from 9 percent to 10 percent based upon past and projected future loss ratio figures • In addition, we find the City should evaluate other alternative funding concepts such as delayed premium and retrospective rating. These are plan cash flow efficiency techniques. - under a retrospective rating' arrangement, the City would pay the carrier, prospectively, a rate which is from 10% to 20% below normal insured rates. ... after the plan year accounting is completed a surplus or deficit will occur ... if a surplus occurs, the City receives a refund or dividend equal to the surplus ... if a deficit occurs, the City pays an additional premium equal to the discounted, retrospective premium. Any excess deficits must be carried forward by the carrier ... the City could leave the carrier and thus not pay the deficit delayed premium usually involves paying the carrier in arrears by two to three months of premium both of the above techniques serve to place -plan cash flow into the hands of the City rather than the carrier. When combined, they are equal to holding your own plan reserves and can represent from 25% to 40% of plan income -16- 7NE Jn(l COM RAyY M SECTION IV PROGRAM PARTICIPATION AND PERCEIVED ANTI -SELECTION PROBLEMS A. Current Plans and Procedures Under the current arrangement, all employees are required as a condition of employment to have basic life, LTD, and medical coverage for themselves. Employees can select dependents medical, dental and vision care plus dental and vision care for themselves. s Group benefit plan rates are based upon a minimum level of eligible participants being enrolled under the plan. when this does not occur, you have in effect reverted to individual benefit plans and anti -selection by only those most needing the benefits occurs • On a national average, 55% of the population requires eye care. - if given the option, it stands that only 55% of a given group would select vision coverage - when and if this occurs, normal plan rates double - the same or similar situation occurs with optional dental 0 When anti -selection occurs in a medical plan, whether it be employees or dependents, the claims experience results are often devastating to plan costs. • Employees are quick to evaluate spouse coverages, out-of-pocket costs and potentials for selecting a plan for a given year at a too low cost thus actually profiting from the plan. • These profits came at the expense of the employer and the current and future group of employees. 0 The attached "Summary of Employees Active as of October 1, 1981" indicates the following participation levels for each plan: POTENTIAL PARTICIPANTS ACTUAL PARTICIPATING Coverage Category 100% Medical Dental Vision Employees 300 300 187 179 Employees with Dependents 222 123 101 102 -17- 55% of employees with dependents have coverage 62% of employees have self dental coverage 45% of employees have their dependents covered for dental 60% of employees have self vision coverage 45% of employees have their dependents covered for vision care • The above indicates a severe anti -selection situation currently exists with the City's group. • This problem is now resulting in a mid -contract year rate increase of 25%. - we anticipate it will continue and the situation will get worse, not better. • The Life and LTD plans do not have these problems. There costs are also stable. B. Improved Plans and Procedures We recommend the City adopt a new participation requirement as follows: • Every employee must have Basic Life and Medical, Dental, Vision and LTD coverages. • Employees can be allowed to refuse medical, dental, vision coverages but only if they provide proof of other medical coverage. • Employees can elect medical, dental and vision coverages for their dependents but if they do they must insure all eligible dependents for all coverages. • Allow employees to refuse dependents coverage but if employees refuse dependents coverage, they must refuse all coverages. If adopted, the above will correct the anti -selection problem and return the plan to a more stable financial position. • If the situation is not corrected, the carrier will simply keep increasing rates and the plan will eventually reach a cost prohibitive condition. • Under the current contract, Crown life can increase plan costs at any time and frequency by giving 30-day notice to the City. • Fortunately, this problem is just starting to surface and can be corrected with new participation rules. -18- THE �li%Iif c0"PAr1V SECTION V PROGRAM COSTS AND SUBSIDY LEVELS Cost Subsidy Levels A. The Current Plans The City currently subsidizes plan costs as follows: • Miscellaneous and Manager :ent Employees city Pays - the City pays 100% of Basic Life plan costs - the City pays 100% of LTD plan costs - the City pays 100% of medical, dental and vision plan costs for employees and dependents up to a $115 per month maximum credit - the City refunds, in cash, to the employee any unused plan costs which are less than the $115 credit Employees Pay - employees pay the excess cost, if any, of medical, dental and vision care - employees pay 100% of supplemental life plan costs • Fire Employees City Pays - the City pays 100% of Basic Life plan costs - the City pays $33.14 of medical, dental and vision plan costs - there is no cash refund of unused plan contributions provision Employees Pay - employees pay 100% of Supplemental Life plan costs - employees pay all medical, dental and vision care plan costs which exceed the $33.14 monthly credit(_0 r��—" — 3 18 2 —19— .. T11E a/I% l( COMHANI - -- ,A, I we find these out-of-pocket costs to be excessive as well as not tax efficient from a compensation and benefits standpoint ... the "Summary of Current Plans, Costs, and Subsidy Levels" section of our report documents actual individual employee and City costs Police Employees 0 Police employees are treated in the same manner as fire employees except: - their monthly credit for medical, dental and vision plan costs is $70 per month - the out-of-pocket cost for dependents coverage is less than'for police but is still too high • The proposed as well as future rate increases will further increase police and fire employees out-of-pocket costs unless an improved cost sharing Ievel is adopted. B. Improved Plans We find the ultimate goal of the City should be to improve the cost subsidy levels by reducing employee out-of-pocket premium costs and an eventual termination of the cash refund system. Perhaps this can not be achieved immediately due to contracts with the miscellaneous and management group. We recommend the following test subsidy levels for the improved program. All Employees City Pays • 100% of Basic Life plan costs. • 100% of LTD plan costs. • Medical/Dental/Vision program. - employee ... 100% of costs in excess of $5 to $10 per month - employee with one dependent ... 100% of costs in excess of $17 to $34 per month -20- T04E Q11afl COMPANY I/ I Om Illustrations of individual and total plan costs summaries are provided attached to this report under "Summary of Improved Plans, Costs and Subsidy Levels" number 1 and 2, respectively. • Our findings indicate that these cost levels are competitive realistic and cost efficient. - they facilitate the concepts of improved participation requirements previously discussed in Section IV Discussion In the interim, for miscellaneous and management employees, we suggest that if the cash refund system and anti -selection is permitted to continue for these employees, the City should increase or have a separate rate for this group. Another consideration is to provide the improved benefits package but use any increases in costs to apply against the cash refund or credit, now. For a group of only 300 employees, we find that flexible benefits options and cash refunds defy the spirit of group underwriting and benefit planning. Program Costs A. Current Plans • Current plan monthly premium rates, by plan,_ are outlined in Exhibit "E". These rates were effective as of October 1, 1981. - Crown Life notified the City of a 25% medical plan increase to become effective March 1, 1982 (see Exhibit F for March 1, 1982 plan rates if medical plan costs increase 23%) 61) - otherwise they will seek the full rate increase April 1, 1982 and possibly more increases will follow on July 1, 1982 - Standard Insurance Company has not proposed any rating action on the current plan B. Improved Plans • Improved plan monthly premium rates, by plan, are outlined in Exhibit "G". Ll r2AW 5 -`dAeA6 dt 3 3.1q t— 36-9 s -21- _THQ gl,lJif COMPANY i _ II t� I i a- :F i i ;k } t �i • The Crown life and Standard plan costs for the improved plans will result as follows: - life rates decrease 28% - medical rates increase 11.3% - dental and vision rates are unchanged - LTD plan rates decrease 2396 Current and improved plan costs under the various cost subsidy level alternatives are set forth in special cost Exhibits K-1 and K-2. - K-2 outlines annual plan costs by plan - K-1 outlines annual plan costs broken down between the City and employees • The "cost summaries" attached to this report provide data as to individuals versus City costs. • Our findings indicate an overall improved program can be.provided at only a slight cost increase the City depending upon the subsidy level adopted. - total elimination of the cash refund system will reduce City costs below the current cost level for the iml -222_ , k // F SECTION VI GOVERNMENT LEGISLATION IMPACTING GROUP BENEFIT PLANS AND THEIR COSTS • The Federal Pregnancy Disability Act requires your group medical plan to cover pregnancy the same as any other illness. - with only an average female content in your current group, you do not have a significant exposure to increased costs due to pregnancy - you should, however, adopt a more restrictive pre-existing conditions and extended benefits provision clause to prevent over -utilization of your program in the future • The Age Discrimination Employment Act, ADEA, requires your plans to continue existing coverages for the protected group, age 40 to 70, in a non -discriminating manner. - active employees continue to be covered to age 70 - no reductions in benefits or increases in costs are allowed, except those which can be cost -justified - life insurance past age 60 or 65 with no reductions exposes the plan to higher death and waiver of premium exposures - medical, dental, and vision plans are less affected by this practice ... medical plan can coordinate with a Medicare plan at age 65 - eliminating waiver of premium and AD&D, plus a cost reduction of about 8% per year in life amounts at age 60 or 65, are effective ways of minimizing exposures and lowering long-range life plan costs ... making a. one-time reduction at age 65 of 35% with the reduced amount continuing to age 70 is another acceptable reduction method • The Health Maintenance Organization Act, HMO, of 1973 - this federal law requires employers with at least 25 employees to offer an HMO type plan to their employees if they also have an indemnity type medical plan - the HMO plan is a pre -paid health care plan of one of two types. Either a group practices model, like Kaiser, or an individual practice association, IPA, like the General Medical Centers Health Plan -23- THE 'Unto[ f A M PAN v qi( you have an exposure to offer one of each type of plan in each HMO service area where you have at least 25 employees t the City has never been mandated by a HMO HMO plans, traditionally, are more expensive than indemnity type plans. They should be even more costly as they phase into federally mandated coverage levels, start paying back government subsidy loans, eta since HMOs provide no accountability for plan benefit dollars and based upon other employers experiences with HMOs, the -City may wish to curtail or discourage future HMO penetration having a broad -based indemnity benefits package at a lower than HMO plan cost is the most effective HMO deterrent • Summary of Legislation Matters t - - we have purposely designed the City's improved program to coordinate, comply, and be competitive with the above government legislation. The improved program should also assimilate well with the proposed National t ' Health Insurance plans of the future t� �k f t� . t jf �I 4{ i' Y, i t; i I, -24- THE V//P11 GOM PAN i h SECTION V1I EMPLOYEE COMMUNICATIONS A. Current Procedures • Your current employee communications program consists of plan booklets prepared by Crown and Standard. - as a government agency, you are exempt from the Summary Plan Description requirements of ERISA - we anticipate the passage of a Public Employees Plan law in the future which will require a Summary Plan Description as well as reports and filings to the government agencies such as IRS and DOL - your booklets are written in somewhat complex legalize language - meeting with employees will be required to communicate the improved plans and how they work • Group benefit plans now represent a substantial part of employees non -cash compensation. - the value of providing excellent benefits for employees is often lost in poor communications B. Improved Program • We recommended the development of an improved employee communications program for the City's employees. Included should be: - meetings with all employees and their representatives to explain the improved program - develop effective plan booklets which describe your plans in layman's language - develop simplified, one -page graphic illustrations of each plan - provide assistance with improved program enrollment -25- s i t _ CURRENT GROUP BENEFIT PLANS THE V/,/(W C 0 M PANE L� _._ ___ _ __ t TYPE OF PLANS UNDERWRITTEN BYs SCHEDULE OF BE NEFITSt Employee Life Insurance Supplemental/Voluntary Life `Dependent Life se ChU en Accidental Death Benefit Dismemberment Benefit Yoluntsry AD&D Benefit Yaiver of Premium Termination of Insurance Conversion Privilege at Termination Maximum Coverage Witt" Insurability Reduction of Insurance Eligibility Plan Effective Date Retiree Coverage (1) tip to a S)0,000 per person mak.,mum. EXHIBIT 1 CITY OF CARI.SBAD SCHEDULE OF BENEFITS AND PROVISIONS OF YOUR CURRENT EMPLOYEE CROUP LIFE PLAN Life and Accidental Death & Dismemberment (AD&D) Insurance Crown Life Insurance Company Amount by Employee Classification Classification s C- Managers 1 x annual pay(1) 1 x annual pay(1) Safety Members $ 2,000 $ 2,000 All other Employees S 13.000 $ 13,000 Yes, Employee may purchase up to 1 x annual pay SI,300 f 100 up to 6 months; $1,000 thereafter One times basic Hle Insurance amountl none for voluntary or dependents life plans One times basic life Insurance amount for loss of both hands, feet, sight of eyes (or any combination of one eye and one hand, etch 1/2 of basic life Insurance amount for loss of one hand, foot, sight of eye None Yes - total and permanent disability prior to age 7D Date of Termlri..�on or Retirement Yes - may convert all amounts but without AD&D or Waiver of Premium None for Basic Plan; evidence required for supplemental plan amounts Basic and AD&D benefits reduce by 30% at age 70. AD&D ceases at age 70 Same as Medical Plan Same as Medical Plan None - may convert to Individual plan Y IIE Q�0 f! COMPANY - I r s EXHIBIT IV CITY OF CARLSBAO SCHEDULE OF BENEFITS AND PROVISIONS OF YOUR CURRENT CROUP MEDICAL PLAN TYPE OF PLANt Comprehensive Major Medical Plan UNDERTRITTEN BYt Crown Life insurance Company ,SCHEDULE OF BENEFITS PROVIDE.Dt Spedsd Accident Expense Benefit (no deductible, no coinsurance) $300 (Includes hospital room and board, hospital miscellaneous services and supplies. Including emergency room, surgeon and doctor fees, diagnostic X-ray and lab and nursing care services) Dedtctible $100 per person, per calendar $200 family maximum (three month carry overXI) (not applicable to hospital, surgical or DXL) NA)OR MEDICAL EXPENSES A"M THE DEDUCTIBLES Major Medical Plan Maximum $1,000,000 per person, lifetime CoWumna Rate 100% of first $3,000 for Hospital/Surgical charges plus 10% of first $21300 of all other covered expenses during calendar year, expenses durlr4 the calendar year, up to the maximum for the following Hospital Room and Board Up to semi -private room rate Hospital Services and Supplies Usual, reasonable, and customary Intensive Cue/Cardlac Care Unit Usual, reasonable, and customary, up to three times seml•prlvatt room rate Extended Care FacUlty(2) 30% of semi•prlvate room and board rate Doctor Visits In or Out of Hospital Usual, reasonable, and customary (Includes office visits) CWAWIlr,g Physiclans/Speclausts Usual, reasonable, and customary (Includes office visits) Surgeon and Assistant Surgeon Usual, reasonable, and customary Anesthetists Usual, reasonable, and customary Diagnostic Laboratory and X-ray, DXL Usual, reasonable, and customary (In or out of hospital) X-ray and Radiation Therapy Usual, reasonable, and customary (1) Deduetlble carryover for charges Incurred during October, November and December to meet next year's deductible. (2) M EFC licensed In California whose primary purpose Is to provide services timllar to a hospital, but for the recoupment from an Illness or Injury where normal hospitalization Is not required. Must follow a hospital stay and enter facility within 14 days of hospital discharge. THC Pyal'l COMPANY , d i W' i EXHIBIT IV Page t MA7OR MEDICAL ZXPENSES ARTPJt THE DEDUCTIBLE ont rtue Oxygen, Anesthetics and Their Administration Usual, ceasonable, acid customary Blood, Plasma, and Their Administration Usual, reasonable, and customary Prescription Drugs Usual, reasonable, and customary Ambulance Service Usual, reasonable, and customary (Including air ambularxe) Rental of Iran Lung or Other Durable Therapeutic Equipment Usual, reasonable, and customary Prosthetic Appliances Including Artificial Limbs Usual, reasonable, and customary (replacement not covered) Mental and Nervous Olsordirtm bs.Hospltsl Usual, reasonable, and customary Out of Hospital Doctor visits and consultations - 50% of covered charges up to $60 per person, per visit, $1,500 maximum per calendar year - $23oOOO lifetime per person maximum Christian Science Practitioners Usual, reasonable, and customary Nursing Care Usual, reasonable, and customary (registered, graduate nurse) Prelnsncys Normal Usual, reasonable, and customary (except well -baby csreX1) Complicated Usual, reasonable, and customary (elective typea of caesarean, miscarriage, and abortion not covered unless the result of a complicated pregnancy)(l) Elective Sterilization Usu*l$ reasonable, and customary for tubal Illations and v►seetomles Pap Smears Usual, reasonable, and customary foe nors-routine odnckups (must Include M.D.'s diagnosis) Cosmttle Surgery Accident only Dental Services Accident Only Eye Care Accident Only Limitations Sect Pregnancyl Outpatient Psychlatrlel and Coordination of Benefits Provlalons (1) Same coverage tot employees as wall as dependents. Q ExHtsIT Y Pap ) MlA�30RTHZ MWIIC�AL FXPENSk3 n—ued)—�_ (Continued) Exeluslons Routine physicals, well -baby care, excessive or medically w4ceuary charges, abortion, non -accident -related dental services, cosmetic surgtrY or treatment except for accident -related Injuries, eyeglauts and hearing aid% Ilnciuding exams, flttings, tests, eta), all free services, sickness or accidents relm"' to an act of war, expenses Incurred prior to plan effective date, hospital room u.. board charges In exces' of daily semi -private room rate, and custodial or rest care OTHER PERTW ENT INFORMATIONS Rsotoratlon of Plan Maximum Not Applicable lore-axisting Condition No payment for services provided In connection with prtaxlsting medical conditions during first 12 months of plan coverage for which treatment was proscribed or adminlstertd during a period of six months prior to, plan effective date) all conditions covered thereafter (or after a f04ay treatment•frot period, whlchever Is earller). Waived for existing plan participants Csotdintlon of bemfIts Yts—other group plan and all other similar programs Including Medicare Conversion Privilege for Terminating Employees Yes, msy convert to an Ind(vidual policy of !nsurance Rttlree Coverage Yes. To be ellgtble, participant must have five years of continuous service with the City and attained age 30. between ages 30 and 67 coverage Is existing group medical plan. At age 63, plan supplements Medicare 01 l"an Ellglbi0ty Re"Irementu Employ" All full-time employees scheduled to work at least 30 hours per week Dependents Spouse an, dependent children to age If (up to *;a 21 If dependent upm employee for at least 30% subsistence, physically/mentally handicapped and full-time college students) Flan Effective Dates Employee On the first day of :he month following date of employment cad actively at works otherwise, the day the employ" return to work Dependents Same as employ" and rat confined at home or In a hospitall otherwise, the day of recovery Termination of Plan benefits 30 days following date of employment termlMtlon, or retirement Prevision for Plan Continuation During Authorlsed Leave of Absence Yet, as established by the personnel office for all types of medical haves (three months outomatiq renewable monthly, not to exceed six months) lxtentlon of benefits tf Disabled Plan coven the 4sabling condition for up to 12 months. Convenlon plan, If elected, covers all other condition Contlnustion of Coverage for Dependents of Deceased Employ"s Covered dependents of a deceased employte, who are otherwise eligible, may have continuous coverage under the Plan, provided contributions continue to be paid by the participant to the employer) however, all coverage will cease on the date of en, survlving "set remarriage, or after six (6) months, whichever occurs first. (1) Employ" pays 100% of plan onto for refer" coverages. 1 EXHIBIT YI CITY OF CARLSBAD SCHEDULE OF BENEFITS AND PROVISIONS OF YOUR CURRENT EMPLOYEE CROUP DENTAL PLAN LYPE OF PILAW Scheduled Dental Plan UNDERWRITTEN BYs Crown Life Insurance Company SCHEDULE OF BENEFITSt Annual Maximum $1,713 per person, per calendar year Deductible $23 per person, pet calendar year for all classes Coinsurance Rate Class 1 services . 80% of a scheduled dollar maximum per procedure or service (1) Class 11 services .10% of a scheduled dollar maximum per procedure a service (1) Class 111 services . 30% of a sche6uled dollar maximum per procedure or service (1) Class 1- Preventive Cleaning of teeth (ore per person per six (6) month perlod)l flouride treatments (one every six (6) Services and Supplies months); space malntalners and fittings for children. Clan p - Basic Dlagnostics office visits, oral exams, X-rays (Including full mouth), tests, and Services and Supplies lab exams (2) Basic Restorative and Therapeutics Fillings - amalgam, sillicate, acrylic and plastlq gum treatments, extractions, Impacted teeth, pulp app(ngl malntenana of bridgework and dentures, recementatlau, rebasingl oral surgery and anestheslal emergency treatment of Pain Class 111- Mayor Ma Restoratives Root canals, fillings and crowns - gold foil, gold inlays, procelain, acrylic. sliver. Services and Supplies stainless steell preparation and installation of bridgework and dentures- full uppers, lowers, partials, and pontics (limited to five-year age factorU as well as endodontles Waiver of Premium No Coordkstlon of Benefits Yes Termination of Insurance Same sa Medical Plan Extenalon of Benefits at Termination nlrty days for certain types of services In process Conversion Privilege at Termination No Retirees Covered No Eligibility Some as Medical Plant participation is voluntary Plan Effective Date Same as Medical Plan Pre -Treatment Review Procedure Yes, for all courses of treatment over $100 (1) Schedule equals approximately 10% to 60%of San Diego Area dentists usual, reasonable and customary charges. (2) X-ray$ are limited to one set per 21 month period and only for persons age II and over. (3) Initial Installation must ocarr after the and of insured first insurance year. N ,..e �i.�u ......Law. 7-1 C. I i ExHIBlr.va CITY OF CARLSBAD SCHEDULE OF BENEFITS AND PROVISIONS OF A RECOMMENDED GROUP DENTAL PLAN jYrE OF PLAN Comprehensive Dental Plan UNDERWRITTEN BY Crown Life insurance Company SCHEDULE OF BF1dEF1 fS A.Wwal Maximum $1.000 per person, per calendar year (1) Deductible 0 per person, per calendar year for Claues 0 and Ili (see below) (2 do 3) V30 maximum for families (three per person, per year) Coinsurance Rate Class I services . 3096 of usual, reasonable, and customary charges Class 11 services ■ 20% of usual, reasonable and customary charges Class III services ■ 60% of usual, reasonable, and customary charges Clue I - Preventive Servicaa and Supplies Cleaning of teeth (one every six (6) monihs)I flourlde treatments (one every six (6) monthsh space maintainers and fittings for children, office visits and exams related to preventive are Claw It- We 3ervicas and Supplies Diagnostics office volts, oral exams, X-rays (including full -mouth), tests, and lab exams Buie Restorative and Therspeutiet Fillings - amalgam, silicate, scry0e and plastiq root canals, gum treatments, extractions, Impacted teeth, pulp ceppingl main. tenance of bridgework and denturesl recementatloes, rebasing; oral surgery and anetheslal emergency treatment of pain Claw III - Major Services and Supplies Major Restorative Flllings and crowns - gold foil, gold inlays, porcelsin, silver, stainless steell preparation and Installation of bridgework arid dentures - full uppers, lowers, partials and panties (Umlted to five-year age factor) Waiver of Premium No Coordination of Benafits Yes Termination of lmurance Same as Medial Plan Extension of Benefits at Termination Thirty days for certain types of services In process Conwralon Privilege at T.rmlmtion No Kati" Covered None Eligibility Same as Medical Plan Plan Effective Date Same as Medial Plan fire Treatment Review Procedure Yes, for all courses of treatment over $U0 (1) Speeiflatlons will include a $t,300 annual maximum plan, as well as a 30% $300 annual orthodontia benefit alternative, (2) Deductible waived for Claw I services. (3) Deductible carry over for charges Incurred during October, November, and December to meet next years deductible. �v A— 1 ` E S 4 i S i • t ' f I � ± eXHIBIT nR CITY oF,cARLSBnD r r scfleouLe of BeNePrrs AND PRonsroNs f.. J ( OF YOUR CURRENT CROUP VISION CARE PLAN i i � '. TYPE OF PLANt Scheduled Vision Care Plan o f I UNDPRVRITTFN BY. Crown Life Insurance Company _ y SCHEOULe OF BFNEWSs Examinations dt Fittings (includes glaucoma tests) g Opt$S31.50 Optometrist metrbt $37.30 i i Materials h Supplies Lenses Lenses, Each A pair Single vision prescription $13.30 $27.00 Bifocal prescription 111.73 37.30 Trifocal prescription 23.00 30.00 Lenticular prescription 100.00 200.00 { Contacts (neeessaryXl k 3) 200.00 Contacts (cosmetic) (1,2 &3) None 40 i Frames None $23 Eligibility Same as Medical Planl participation Is voluntary i Retirees Coverage None } Ltrt)(tatlons Exams - one per person, per 12-month 24-month period, Lenses - two Period; Frames . one pperson per Fair t per person, per 12-month peer riod � E>!duslons benefits Provided by another r Prescription sunglasses, medical or plan, r Z1 placeementpofilost at brokeglasses and frames, duplicate glasses, teases or frames, prescrip. drugsflon (1) Contacts (Plan I and Plan 11) must be medicail , Ical tion al lenses, at following cataract surgery as Certified by physielan,to eorvwshen treatment on to Is required be0 in the better causetof aonmed. (2) Special Ballow (such for elective�contact or l nenses not ottherwise covered (see (1) above). 0) Lifetime maximum is $230 for contacts. NOTES Current schedule equals approximately % of San Diego area usual, reasonable and customary chargef. THE /�((f� C 0 M PANY i FJ(IfIBIT X CITY OF CARLSBAD SCHEDULE OF BENEFITS AND PROVISIONS OP YOUR CURRENT LONGTERM DISABILITY PLAN TYPE OF PLANS Long -Term Dbablilty Plan UNDERWRITTEN BY: Standard Insurance Company SCHEDULE OF BENEFITSg Monthly Benefit Slxtyslx and two-thirds (66 213) of basic monthly earnings up to $11330 (see definition of basic monthly earnings on page two) up to plan maximum while totally and perms ently disabled, subject to integration with all (family) federal snelal security benefits, state disability plans and other Income such Income replacement plans providing non lump -sum disability benefits (see definition of other Income below) Maximum Per Month $900 Minimum Per Month None Benefit Payment Period Accident and Sickness Age At Begiming Of Maximum Total Disability Benefit Period 61 or younger To age 63 62 3 years, 6 months 63 3 years 60 2 years, 6 months 63 2 years 66 1 year, 9 months 67 1 year, 6 months 69 1 year, 3 months 69 1 year 70 or older 0 Ellminnitlon Period 90 days Death Benefits Disability benefits are continued for three months 11 disabled employee dies and are payable to surviving spouse and/or any one or more surviving children (not subject to deductible benefits reduction) Special Dismemberment Benefits Lou of the following will be construed to be total and ptwmamnt disability for benefit payment purposess 1) Complete severance of both entire hands, feet, tight of both eyes, or one entire hand and toot for a live (3) year period 2) One hand, one foot, or one eye for a six-month period Waive. of Premium Yes Vocational Rehabilitation Program Yes, as established and approved by Insurance carrier (formal or InformaD Rehabilitation Program Earnings IA) Monthly rehabilitation earnings deducted from gross earnings (see Return -To -Work Incentive II) THE ar"I'll COMPANY t ttI e1 PXIIJBIT X .2- I TANG -TERM DISABILITY Mont.) Definition of Deductible Benefits (integration or correlation of other Income benefits) Reduced by the following benefits payable under other programs: U All eligible federal social security benefits (family) 2) Rehabilitation program earnings 3) Current or future employer -sponsored benefit plans (disability provisions) a) Workers, compensation 3) All other earnings from employment (or self-employment) 6) Slckleave 7) Government -sponsored plans, such as Veterans Administration, armed form, etc., providing Income replacement Definition of Disability Total and permanent disability as certified by a licensed physician and unable to engage In gainful employment as followst First two earrsst Unable to perform any and/or all duties of present occupation during 2% consecutive months Income payment period After two ears: Any occupation for which suited based upon prior work experience, e t on, an or approved work rehabilitation program after 24 consecutive months Income payment period Definition of Basic Monthly Earnings Basic monthly salary (excluding overtime, bonuses, commissions and extra compensatlew effective on date of disability Social Security Freeze For deductible beneflt purposes, the social security benefit (reduction) will be (remain the same as) the amount in effect on date of disability Return -To -Work incentives 1) While disabled person Is working under an approved rehabilitation program, the rehabilitation earnings are deducted from gross earnings (at disability) before �. applying the 60%formula. Examplet Employee at $1,000 monthly earnings level receives $160 extra benefit payment (rehabilitation plus long-term disability) as an Incentive toward rehabilitation 2) Return to work during elimination period - may attempt to return to work without renewal of eliminatlon period as followst five (3) days for each 30 days of elimination period allowancel under a plan with a two -month elimination period, 10 days Is the total allowance possible 3) Recurrent disability provision - It disabled emloyee returns to work and later becomes disabled due to same condition within six (6) months, the elimination period Is waived i r EXHIBIT X .3. Regular permanent full-time employees scheduled to work at least 30 tours in a 40 hour week are eligible on Date of employment (U Same as Eligibility date Yes, for any accident or sickness for which treated within six (6) months of plan effective date; no benefits for twelve (12) consecutive months of coveragel thereafter, all conditions covered (1) Benefit payments are restricted to a 24-month period In the case of non-conflned mental and nervous dlto(dei related dbabilltics No benefits are payable for the folowingt 1) Benefit accruals, if any, during eligibility or elimination period 2) Benefit payments while disabled person Is outside continental Utnits of U.S., Hawaii, Alaska, or Canada unles: disabled person returns upon request for physical evaluation and disablement certification 3) Disabilities caused or contributed to by war (declared or uxdectared)i self-inflicted in)wles (sane or lntane); alcoholism and drug addictlon Yes, as determined by tlm personnel office Yes, may be continued for one month THE 0111 �E COMPANY ,i i � {s 1 � 1 1 4 t E ' t t _ r � e — A t f - _ 1 i-* r . PROPOSED IMPROVED GROUP BENEFIT PLANS THE QI/lll, GVMl•AN r f"`!3 EXHIBIT a • COP_•_ITY _,_ CARLSBAD SCHEDULE OP BENEFITS AND PROVISIONS OF IMPROVED/RECOMMENDED CROUP LIFE PLAN TYPE OP PLAN, Life Insurance UNDERWRITTEN BYt Crown Life Insurance Company SCHEDULE OF BENEFITS: Basic Employee Life Insurance Employee Class Insurance Amount Mayor, Council Members $23,000 and Elected Officials Manager, Assistant Managers and Department Heads 2 x Annual Pay All other Employees I x Annual Pay Dependent ure: Choose ChildrensI,300 $1,300 Voluntary Supplemental Life Insurance Employee Class insurance Amount All Additional I Times Basic Amount Acch.enul Death Benefit No Dismemberment Benefit No Waiver of Premium Yes(1) Termination of Insurance 31 days following employment termination or retirement Conversion Prlv!lege at Termination Yes Maximum Coverage Without insurability To be negotiated with carrler(2) Reduction of Insurance Eligibility 33% Insurance reduction at age 63, level to coverage age 70, and $1,000 at age 70 Same Same as Medical Plan Plan Effective Date Same as Medical Plan Retiree Coverage Yes ld no (2) Amountconsider l ging from $200,0000 to $300. 0emium p would be A normal Carrier,Benefit evvidence maximum forfor a use of this site. THE v//Y9,111 COMPANY CITY OF CARLSBAD EXHIBIT BI SCHEDULE OF BENEFITS AND PROVISIONS OF A RECOMMENDED/IMPROVED GROUP VOLUNTARY AD&D LIFE PLAN TYPE OF PL Accidental Death and Dismemberment (AD&D) Insurance UNUERNRITTEN B To be selected SCHEDULEOFBENEFITS VIDED, Personal Accident Life Insurance Employees may select any of the following plants' Special education, Employee Spouse Each Child Per Child Plan A Plan B 23,000 I2,300 (1) 1,230 12) 300 (3) Plan C 30,000 23,000 (1) 113D 2,300 (2) 1,000 (3) Plan 0 73,000 37,"0 (1) ),730 (2) 1,300 ()) 000 73,000 (1) 7,300 (2) 2,300 (3) SpeC!U Dismemberment Benefits All Plash- One times PAI amount for loss o1 both hands, feet, sight of both eyes (or any mbinatlon of - one eye and one hand, etch 1/2 of PAI amount for ton of one foot, or sight of one eye. OTHER PERTINENT INFORMATION, waiver of Premium None TermlMtlon of Insurance 31 days following employ t termination or retirement Conversion Prlsllege at Termination Yet Maximum Coverage without Insurability To be negotiated with Carrier Reduction of Insurance None Eligibility Same as Medical Plan Plan Effective Date Same as Medical Plan Retiree Coverage None COST PAM BYs Employer Pays(, Pays at work IS hours per day) cost which Is 3)% of Personal Accident Life Plan Costs Employee Pays`I > Pays not at work (16 hours per day) cost which Is 67% e The plan maximum can not exceed 10 times annual employee earnings. For example, an employee earning $10#000 or less could select A, Be and C but not Plan 0 (1) 30% of employee amo,ntl 40% It children Insured under family plan. Cr (2) 3% of employee amount; 1096 It no spouse coverage exists. (3) 296 of employee amountl It attending full-time college or university uIs to $2000 maximum, per child Cf � CITY qw:D ,THE O0-11 COM PANT 3KWa414A;& 14V 'r0 S &PTU$fa t— Onppfee ' jr4jtb I w W CITY OF CARLSBAD EXHIBIT Y SCHEDULE OF BENEFITS AND PROVISIONS OF IMPROVPD/RECOMMF_WED CROUP MEDICAL PLAN TYPE OF PLANS Comprehensive Major Medical Plan UNDERWRITTEN BYs Crown Life Insurance Company SCHEDULE OF BENEFITS PROVIDEDs pry Special Accident do Outpatient Misr Surgery do DXL Expense Benefit (no deductible, no coinsurance) $500 (Includes hospital room and baud, hospital miscellaneous services and supplies, Including emergency room, surgeon and doctor fees, diagnostic X-ray and lab and nursing care services) Deductibles $100 per person, per calendar $300 family maximum (three month carry overXI) MA70R MEDICAL '"PENSES AFTER THE DPDUCTIBLEs Major Medial Plan Maximum $1,000,000 per person, lifetime Wroursnce Rate Lf ar, plus 100% of 20% of first $2,100 of covered expenses during calendarremaining covered expenses during the alendu year, up to the maxim maximum(2) Hospital Room and Board Up to semi -private room rate Hospital Services and Supplies Usual, reasonable, and customary Intensive Care/Cardiac Care Unit Usual, reasonable, and customary Extended Care Facility (2) Usual, reasonable, and customary Doctor Visits In or Out of Hospital Usual, reasonable, and customary (Includes office vlsltsX0 Consulting Physicians/Specialists Usual, reasonable, and customary (includes office visits) Surgeon and Assistant Surgeon Usual, reasonable, and customary Anasthetists Usual, reasonable, and customary Laboratory and X-ray Usual, reasonable, and customary (in or out of hospital) X-ray and Radiation Therapy Usual, reasonable, and customary (1) Deductible arryover for Borges Incurred during October, November and December to meet next year's deductible, (2) Also covered at 100% through next calendar year for a continuing disabling condition. (3) An EFC licensed in California whose Is primary Illness or Injury where normal hospitalization purpose to provide services similar to a hospital, but for the m=wment from an b not required. Must follow a hospital stay and enter facility within 1/ days of hospital discharge. (4) Includes podiatrists. CJ, i2.� GtM.t �u.1zi.�aDtg7laaJ t S Fc�2 qv �'o �lp y�o i a MA30R MEDICAL FXPENSPS AFM THE DEDUCTIBLE tt:onnnuedr Oxygen, Anasthetice and Their Administration blood, Plasma, and Their Administratlon Prescription Drugs Ambulance Service Rental of Iron Lung or Other Durable Therapeutic equipment Prosthetic AppIl:nces Including Artificial Limbs Mental and Nervous Disorders In -Hospital Olt of Hospital Christian Science Practitioners Nursing Care Prgrsancys Normal Complicated Elective Stetwx4tion Pap Smeata Cosmetic Surgety Dental Services eye Care Limitation (U Same coverage for employees as well as dependents. EXHIBIT V Pap 2 Usual, reasonable, and customary Usual, reasonable, and customary Usual, reasonable, and customary Usual, reasonable, and customary (Including air ambulance) Usual, reasonable, and customary Usual, reasonable, and customary (replacement not covered) Usual, reasonable, and customary Doctor vlalts and con ultatlons - 30% of covered dwiles up to $30 per person, per vbit, per calendar year - $2,000 annual per person maximum! $20,000 lifetime per person maximum Usual, reasonable, and customary Usual, reasonable, and customary (registered, graduate nurse) Usual, reasonable, and customary (except well -baby ureXl) Usual, reasonable, and customary (elective types of caessnsn miscerrlals ; aid abortion not covered unless the result of a complicated pregrancyki) Usual, reasonable, and customary for tuba! Illations and vasectomles Usual, reasonabM, and customary for non routine checkups (must Include M.D.% dlsgnosts) Accident only Accident Only Accident Only Sees Prgnaneyl Outpatient Psychlatrlq and Coordination of Benefits Provblon //%r a!! v,, i T i i i i 1 it S i c i r� i •i 4' Lk. t 110"IN MA30R MEDICAL EXPENSES P�flA TH! DFDUCTIbL! (Continued) exclatlona OTHER PERTINENT INFORMATIONS Restoration of Plan Maximum Praelbting Cooditlas Coordkutlon of Densflb Converslon Privilege for Terminating Employees Retiree Coverall Plan EUgtblUty It"Irements, Employee Dependents Plan Effective Date Employee Dependents Termination of Plan btn tilts Provision for Plan Continuation During Aui..,xized Leave of Absence lxtenth n of benslits U Disabled Continuation of Coverall for Dependents Of Dee04sed employees (1) lmployte pay$ 100% of plan Costs for refine coverages. Routine physicals, well -baby are, excessive or medically unnecessary Charla$, abortion, non.accident•relatsd dental /ervlces, cosmetic surgery or treatment excet ttiras tor efts, etc.), all fret se)rvlsei sickness or W-ldents rasses and elated toAida Mandsett of war, exp..uts Incurred prior to plan effective data, hospital room and board dwln In excess of dally seml•private room rate, and custodial or rest are Not Applicable No payment for services provided In connection with pro-exLsting medical crAdltlons dring first 12 months of plan coverage for which treatment was prescribed or admint+tered during a period of six months prior b plus effective datel all conditions covered thereafter (or alter a 904ay treatment•Irae period, whichever is aariler). Waived for existing plan participants Yes —other group plans and all other Similar programs Including MeacAn, Yes, may convert to an Individual policy of Insurance Yes. To be eligible, participant mutt have ten years of continuous $arvlCff with the City and attained age 30. between else 30 and 43 coverall is existing group medical plan. At sga 63, plan supplements Medicare (if All full-time employees scheduled to work at least 3o hours pet week Spoufor Atleast30% ssuib�lst�nee�, pthyesluU �metnu� ahhandica dependent rpm employee students) y r cupped and fuU•tlme croUege On the first day of the month following date of employment and actively at work, otherwise, the day the employee returns to work Same as employee and not confined at home or In A hospital, otherwise, the 4y of recovery 30 days following date of employment turnlnatlon, or retirement Yes, as established by the personnel office for all type$ of medical here$ (three months automatic, renewable monthly, not to exceed six months) Plan coven the disabling condition for up to 12 months. Cmvenlon plan, If elected, Covers $11 other conditions Covered dependents of a deceased employee, who are otharwise eligible, may have Continuous Coverage under the Plan, provided contributions eontlnw to be pold by the 3pant to surviving the employ$t1 however, all Coverege will Cease on the date of the g spouse9 remarrege, or after six (4) month$, whichever occurs first. ('0M PAN t PJtMBIT YU CITY OF CARL58AD SCHEDULE OF BFNEFtTS AND PROVISIONS OP A RECOMMENOM GROUP DENTAL PLAN TYPE OF PLAN Comprehensive Dental Plan UNDERWRIr"N BY Crown Life Insurance Company SCHEDULE OFBFNEFITSt Ll Annual Maximum $1,000 per person, per calendar year Deductible $30 per person, per calendar ye ur for Claws U and Ili (see below) U k 2) ISO maximum for families (three per Person, per yew) Colmurance Rate Clan 1 service . 80% of usual, reasonable, grid customary charges Clan It services . 90% of usual, reasonable and a stomuy charges Clau III services . 60% of usual, reasontable, and customary charges Clan I - Preventive Services and Supplies Cleaning of teeth (one every six (6) months)i flourlde treatments (one every six (6) months); space maintaltrers NW fittings for chlldren, office visits and exams related to preventive are clan U - Basic Service and Supplies Dlaghosticn office vlsint,oral exams, %•rays (Including IUU.moutW, test, and lab exams Basle Restorative and Therspeutla Fillings -amalgam, slliate, &MUcand plasllty root canals, gum treatments, extractions, Impacted teeth, pulp appingi main• tenance of bridgework and dentures; recornentatlons, rebasingl oral surgery and anethesla; emergency treatment of pain Clan lU - Mayor Service and Supplies Mayor Restorativei Fillings and crowns - gold foil, gold Inlays, porcelain, silver, stainless steel, preparation and Installation of bridgework and dariures . full uppers, lowers, partials and panties (Umlted to five-year age factor) Waiver of Premium No Coordination of Benelits Yes Termnation of Insurance Same as Medical Plan Extension of Benefits at Termination Thirty days for certain types of services In process Conversion PrlvUege at Termination No Retirees Corered None EllglbUlty Same as Medical Plan Plan Effective Date Same as Medical Plan Pro -Treatment Review procedure Yes, for all courses of treatment over silo Deductible for Clam I services. t^ t2) Dedu;tlbts over Az art for chat&*$ Incurred during October, November, and December to meet text yeori deductible. ((� DRxflobo.u-rri� Cou�X p(a�- Fe►�tjDN ��r,- G1{�Lc�/1t�J !S /�-��clruw•tt�t1 rice TnE r/(/tP COMPAN Y- 1,w EXHIBIT EX CITY OF CARISBAD SCHEDULE OF BENEFITS AND PROVISIONS OF A RECOMMENDED GROUP VISION CARE PLAN TYPE OF PLANT Vision Care Plan UNDERVRRTFN BYs Crown Life Insurance Company SCHEDULE OF BFl1EFUSt Examinations do Fittings (includes glaucoma tests) Opthalmologist $)7.30 Optometrist 37.30 Materials & Supplies Lenses, Lenses, each A Pair Single vision prescription $13." $V.00 Bifocal prescription 111.73 37.30 Trifocal prescription 23.00 30.00 Lenticulu prescription 100.00 200.00 Contacts (recessaryXl do 3) 200.00 400.00 Contacts (=metic) (1,2 BJ) None None Frames $23 ulglblilty Same as Medical Plan Retirees Coverage None Limitations Exams - One per person, per 12-month period, Frames - one per person per 24-month period, Lenses - two pair per person, per 12-month period Exclusions Benefits provided by another group plan, vision training, orthoptica, plain or prascrlptW sunglasses, medial or surgical treatment, replacement of lost or broken glasses and frames, dupllate glasses, lenses Or frarras, preserlp. tlon drugs (U Contacta ruust bo %.edlcally rs:cessary to corrat vhiau to 20/10 in the better oye' with conventional lenses, or followl%a cataract surgery as certified by phyticlan, or when treatment Is required beauty of a medial condition (such as Kerataaws or r.nlsometropia). 12) Special allowance for elective oontsct lenses not otherwise covered (see (1) above). ()) Lifetime maximum is $230 for contacts. n +9 THE 01// If COM PAN I 1 n% P.xlaelr xt CITY OF CARLSBAD PROPOSED SCHEDULE OF BENEFITS AND PROVISIONS OFA RECOMMENDED LONGTERM DISABILITY PLAN TYPE OF PLAN # Long -Term Disability Plan INSURANCE COMPANY/PROVIDER Standard Life Insurance Company SCHEDULEOP BENEFITSt Monthly Benefit 60% of basic monthly earnings up to $3,333 Gee definition of bulc monthly earnings below) up to plan maximum while totally and permanently disabled, subject to integration with all (family) federal social security benefits# state disability plans and other such Income replacement plans proving non lump•sum disability benefits (see definition of other Income below) Maximum Pei Month $3,000 Minimum Per Month Nona Benefit Payment Period Accident and Sickness Age At Beginning Of Maximum Total Disability (1) Benefit Period 61 or younger To age 63 62 3 years, 6 months 6) 3 years 6i 2 years, 6 months 63 2 years 66 1 year, 9 months 67 1 year, 6 months 63 1 year# 3 months 69 1 year 70 or older 0 EUminatlon Period 90 days (three months) (IX2) Death Benefits Disability benefits are continued for three months if disabled employee dies and are payable to surviving spouse and/or any one or more surviving children (net subject to deductible benefits reductions) Special Dismemberment Benefits Loss of the following will be construed to be total and permanent disability for benefit payment purposest 1) Complete severance of both entire hands, feet, sight of both eyes, or one entire hand and foot for a Z-month period 2) One hand, one foot, or one eye for a six-month period (1) Ninety -day elimination period toe employees earning $13,000 or more annually. (2) Two Hundred and Seventy days elimination perlod for employees earning under $13,000 annually. THE Vll1lal COMPANY 1 i I i 61INT X1 -2- LANG-TERM DISABILITY ont. Waiver of Premium Yes Vocational Rehabilitation Program Yes, as established and approved by Insurance carrier (formal or informal) Rehabilitation Program Earnings Monthly rehabilitation earnings are deducted from gross earnings Definition of Deductible Benefits (integration or correlation benefits) Reduced by the following benefits payable under other programs, I All eligible federal social security benefits (family) 2) Rehabilitation program earnings 3) Current or future emp;oyer-sponsored benefit plans (disability provisions) 4) Workers' compensation 3) All other earnings from employment or self-employment 6) Sick leave 7) Government -sponsored plain, such as Veterans Adminbtratlenr armed faces, eta, providing Income replacement Definition of Disability Total and permanent disability as certified by a licensed physician and unable to engage in gainful employment as follows, First two ecru Unable to perform any and/or al) duties of present oceupallon durleg 24 consecut ve months Income payment period ter two ears: Any occupation for whlch suited based upon prior work -experience, educatlont or approved work rehabilitation program alter 24 consecutive, months Income payment period Definition of Basic Monthly Earnings Basic monthly salary (excluding- overtime, bonuses, commissions and extra compensation) effective on date of disability Social Security Freeze For deductible benefit purposes, the social security benefit (reduction) will be (remain the same as) the amount In effect on date of disability Return -To -Work Incentives t) While disabled person is waking under an approved rehabilitation program# the rehabilitation earnings are deducted from gross earnings (at disability)before �iesthe 6tntiis, level eves $160exra benefit payme(rehablitIon Plus lublty; as an Incentive toward rehabiltatlon 2) Return to work during elimination period - may attempt to return to work without renewal of elimination period as followst five (3) days for 30 days each of elimination period aliowancei under a plan with a two -month elimination period, !0 days Is the allowance possible 3) Recurrent disability provision - It disabled emloyee returns to work and later becomes disabled due to same condition within six (4) months, the elimination Is waived period THE q aff CO.PANY r.� ,I i MGMM7 DISABILITY anurAx OTHP.R PERTINENT WFORMATiONt Eligibility Employees earning $20,000 or more per year All others Plan Effective Date Pre -Wiling Conditions Limitation Limitatfons Exclusions Continuation of Plan During Leave of Absence Medial Leave of Absence Nan-Medlcal Leave of Absence (1) Requests waiver for existing employees only. 11�1'4 , IXMIHT XI _3- First day of employment First day of the month following 12 consecutive months of employment Same as eligibility date Yes, for any accident or sickness for which treated within six (6) months of plan effective (late; no benefits for 12 consecutive months of coveragq thereafter, all condition covered (1) Benefit payments are restricted to a 24-month period In the cast of non confined mental and nervous disorder related disabilities No benefits are payable for the folowingt 1) Benefit accruals, If Any, during eliglbility or elimination period 2) Benefit payments while disabled person Is outside continental limits of U.S., Hawaii, Alaska, or Canada unless disabled person returns upon request for physical evaluation and disablement certification )) Disabilities caused or contributed to by war (declared or undeclared), set( -inflicted Injuries (sane or Insane)[ alcoholism and drug addictlon Yes, as determined by the personnel office Yes, may be continued for one month • .1 r r!lJ {, 01! . o ,... - PAST STATEM 0 INCOME Premium r" EXHIBIT "A"I CITY, OF CARLSBAD Recap of Medical Plan Financial Results for the Period July 1, 1979 through June 30, 1981, Under the Current Funding Concept Three Years 1978-79 1979-80 1980-81 Totals 55 134 355.15 $164,784.22 $195,387.93 $494,527.30 zo.0 id Claims $ 80,172.60 $140,437.82 $145,170.08 $365,780.50 74.0 ginning Reserve (34,061.55) (39,452.17) (39,963.73) (34,061.55) N/A ding Reserve 39,452.17 39,963.73 46,528.49 46,528.49 N/A :urred Claims 85,563.22 140,949.39 152,246.40 378,759.00 M 6 tention Charges 48,791.93 23,834.94 _ 43,141.53 115,768.30 23.4 tal Expenses 111IL155.15 $164,784.22 $195,387.93 $494,527.30 100.0 nual Contract Gain or Loss N/A N/A N/A N/A N/A oidends Paid -0- -0- -0- -0- N/A mulative Contract Gain or Loss N/A N/A N/A N/A N/A Crown Life understated Reserve by $511.63 which equals the increase in reserve for the 79 year. $47,040.05 is the actual/correct reserve on hand per Wyatt figures. �4 Exhibit "A" (continued) f' REAKDOWN OF RETENTION Three Years CHARGES 1978-79 1979-80 1980-81 Totals % immissions $ 1,547.51 $ 5,075.35 $ 2,305.58 $ 8,928.34 fministrative Services N/A N/A N/A N/A :quisitions Costs N/A N/A N/A N/A her Expenses 19,479.07 11,452.50 13,188.68 44,1M.25 xes 3,157.35 3,872.43 4,591.62 11,621.40 sk & Contingency Charges N/A N/A N/A N/A l Other Retention Charges 242608.00 3,434.56 23,055.65 51,098.21 tal Retention Charges JILZ91.93 LLLL34.84 43 141.53, $115,768.20 serves as a % of Paid Claims 49.0% 28.0% 32.,0% N/A n } Exhibit "B" I CITY OF CARLSBAD Recap of Dental/Vision Plans Financial Results for the Period July 1, 1979 Through June 30, 1981 Under Current Funding Concept Two Year INCOME 1979-80 1980-81 Totals % Paid Premiums $ 432559.73 51 565.87 95 125.60 100.0 EXPENSES Paid Claims Beginning,Reserves Ending Reserves Incurred Claims Retention Charges Total Expenses nnual Contract Gain or Loss ividends Paid umulative Contract Gain or Loss $ 23,472.17 24,335.85 47,808.02 50.0 (-0-) (6,288.32) -0- 6,288.32 8,327.41 8,327.41 N/A 29,760.49 26,374.94 56,135.43 59.0 13,799.24 25,190.93 38,990.17 41.0 43 559.73 51 565.87 95 125.60 100.0 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2 i ,l r. 'i I. 2 I 1 Exhibit "B" (continuecO REAKDOWN OF RETENTION Two Year CHARGES 1979-80 1980-81 Totals Commissions $ 3,245.20 $ 3,501.31 $ 6,746.51 Administrative Service Fees N/A N/A N/A Acquisition Costs N/A N/A N/A Other Expenses 6,163.71 5,749.59 11,913.30 Taxes 1,023.65 1,211.80 2,235.45 Risk & Contingency Charges N/A N/A N/A All Other Retention Charges 3,366.68 14,728.23 12,094.91 Total Retention Charges 13 799.24 25 190.93 38 990.17 Reserves as % of Paid Claims 27.0% 34.0% N/A _ THE Qlll ll COMPANY "- 0 CITY OF CARLSBAD Recap of Grout) Life Plan Financial Results for the Period July 1, 1974 Throug June 30, 1981 Under the Standard Insurance Company Contract INCOME Paid Premiums $ 122,939 EXPENSES Paid Claims 123,000 Beginning Reserves: ACL(1) IBNR(2) Ending Reserves: 33,0003� ACL(1) IBNR(2) 3,603 Incurred Claims 159,603 Retention Charges4/ 28,516 Conversion Charges 1,800 Total Expenses 189,919 Cumulative Contract Gain or Loss (66,980) 1/ Active claim reserve for currently disabled persons. 2/ Incurred but not reported, or paid, claims reserve. 3/ Represents a reserve for waiver of premium for disabled employees. 4/ BREAKDOWN OF RETENTION CHARGES: Commissions $ 8,417 Premium Tax 2►767 Other Expense & Risk Charges 17,332 Total Retention Charges 28,516 Exhibit "C" I (Z*V i f Exhibit "D" CITY OF CARLSBAD Recap of Long -Term Disability Plan Financial Results f_or the Period September 6, 197Z Throutth June 30 1981 Under the Current Concept With Standard INCOME Amount % Paid Premium 251,461 100.0% EXPENSES Paid Claims $ 89,640 36.0(memo) Beginning Reserves: ACR (_a) IBNR Ending Reserves: ACR 31,122 IBNR 14,692 Incurred Claims 135,454 54.0 Retention charges(1) 54,859 22.0 Contingency Charge (includes profit margin) 61,148 24.0 Total Expenses 251,461 100.0 1/ BREAKbOWN OF RETENTION CHARGES: Commissions $ 27,386 Premium Tax 5,906 Other Expense do Risk Charges 21.567 Total Retention Charges 54,859 I xr COMPARISON OF CURRENT VERSUS IMPROVED FUNDING CONCEPTS " F. Q T lflflll , 13 1.1 F, I I V K- EXHIBIT "IT' CITY OF CARLSBAD Comparison of Current VersusIm2rroved Funding Concepts for the Past Three Years for the City's Group Benefits Program • Medical/Dental/Vision Plans, Life Plan Excluded(!) Cost Difference "Pooling" "Experience Rating" or Cost INCOME Current Concept_ Improved Concept Savings Paid Premium 589,652 $ _ 589,652 EXPENSES Paid Claims $ 413,588 $ 413,588 Beginning Reserve (34,061) (34,061) Ending Reserve 54,855 54,855 Incurred Claims 434,382 434,382 Retention Charges 155,270 70,758 Total Expenses $ 589,652 J_ 505,140 Annual Contract Gain/Loss N/A 84,512 Dividends Paid N/A 84,512 Cumulative Contact Gain/Loss -0- 84,512 Plan Net Cost $ 589,652 $ 505,140 84,512 (1) This exhibit represents a simplified version of the concepts; it does not include the Life Plan which would be combined for accounting purposes; an average retention of 12 percent.of premium was assumed. H E . i:�!-1 '- DM FH%Y ._...,�.,...t . — - - — - - � _ a . - - - I ;i [ 0 a ,Z - CURRENT PROC T H c } �� . � | � �, `] { - , . � d� \ { . / � \ i l� CITY OF CARLSBAD Statement of C..trrent Monthly Plan Costs, By Plan, as of October _ 1, 1981 Life Plan Basic Employee Life and AD&D (per $1,000 of insurance) Supplemental Life (per $1,000 of insurance) Dependents Life (per unit of coverage) Medical Plan Employee Dependents Employee plus dependents Dental Plan Employee Dependents Employee plus dependents Vision_ Plan Employee Dependents Employee plus dependents Long -Term Disability Plan Rate as a % of Covered Payroll �z)�`7S.$g �F�c't'ri�E 31�1Sz l3)al�z,s3 �ri�� WZ Exhibit "Ell Monthly Rate/Cost $ .39 .55 .75 $ 33.14 C1� 65.99 CZ� 99.13C•'1) $ 8.43 16.41 24.84 $ 2.19 3.98 6.V .75% - y wr, ` Exhibit "F' CITY OF CARLSBAD Statement of Current Monthly Plan Costs, By Plan, to Become Effective on March 1, 1982 �1) Life Plan Monthly Rate/Cost Basic Employee Life and AD&D (per $1,000 of insurance) $ .39 Supplemental Life (per $1,000 of insurance) .55 Dependents Life (per unit of coverage) i .75 I Medical Plan Employee $ 41.43 Dependents 82.48 Employee plus dependents 123 M Dental Plan -Employee $ 8.43 Dependents '16.41 Employee plus dependents 24.84 Vision Plan Employee $ 2.19 Dependents 3.98 Employee plus dependents 6.17 Long -Term Disability Plan Rate as a % of Covered Payroll .75% �J "�p e4S OyF � f � %$Z/Q�j�'�'F"V.4C.. /3'lE�lG4-<- iZAa'F-=••JC.�rSt3 t'b._;CO_ �GLt+'E�•�il nlf • o M. Na'� f /1 d IMPROVED PROGRAM COSTS 1 E Qlllh�lll C Q M il A N Y ft_ ---- -; -- - I Exhibit "G" CITY OF CARLSBAD Statement of Moniiuy Plan Costs For The Improved Plans Effective 4 1/82 Life Plan Monthly Rate%Cost Basic Employee Life and AD&D (per $1,000 of insurance) $ .28 Supplemental Life (per $1,000 of insurance) N/A (1) Dependents Life (per unit of coverage) .86 Medical Plan Employee $ 36.95 Dependents 73.58 Employee plus dependents 1,10.53 Dental Plan Employee $ 8.43' Dependents 16.41 Employee plus dependents 24.84 Vision Plan Employee $ 2.19 Dependents 3.98 Employee plus dependents 6.17 Long -Term Disability Plan Rate as a % of Covered Payroll .58%�?.� (1) Because of lack of participation, Crown Life will no longer offer this plan at a 1~riWaL, 4uOTO- F'24►rA s1—.9.u(b.ia& =.,-iS . '-s .4l8nq 471) j`.cu4AO;,K iS COOA- Df>J4?s;L Cl., i z H 5"r7i7V-- &16 , 1dt� '0010� THE ll%1 COM PA t�FY If f 1 Exhibit "G" preset group rate. Plans can now be made available on a 5 year step rated basis. Supplemental Life Plan Monthly Premium Rates Age Group Per $1,000 Under 30 $ .10 30-39 .11 40-44 .21 45-49 . M 50-54 .58 55-59 1.03 60-64 1.64 65 or Over 2.46 I 1, , lt4vj� I I IM CURRENT PROGRAM i m I I I -- A EXHIBIT "I" Explanation of Current Program Cost 5ubsidy Levels Plan City Pays Employee Pays Basic Life 100% -0- Supplemental Life -0- 100% Dependents Life -0- 100% Long -Term Disability 100% -0- Medical/Dental/Vision: Fire 33.14(1)(2) Remainder(2) Police 70.00(1)(2) Remainder(2) Miscellaneous 115.00(l)(2) Remainder(2) (1) For Medical/Dental/Vision, employee is allowed a credit of up to the specified amounts. - miscellaneous and management employees can receive a cash refund if their actual cost is less than the credit - police and fire personnel are not given cash refunds (2) The employee pays the remainder of plan costs in excess of the credit amount. Note: As part of this arrangement, employees are permitted to select those plan coverages he/she wants and to decline unwanted plan coverages. This results in sizable cash refunds for certain categories of employees in the "miscellaneous" category. It results in large out-of-pocket costs for certain Fire and Police categories with families. " ni{S t 64r 4> rnu nntir t, - e - -- -- — - - Oak rt Sii IMPROVED PROGRAM COST SUBSIDY LEVELS , i M EXHIBIT 113" CITY OF CARLSBAD Explanation of Improved Monthly Program Cost S si y Lev as Proposed by The Wyatt Company Level #1 Plan City Pays Employee Pays Basic Life 100% -0. Supplemental Life -0- 100% Dependents Life 100% -0- Long-Term Disability 100% -0- Medical/Dental/Vision: o All Employees Remainder(1) $ 5 - Employee only - Employee + one dependent Remainder(1) 10 - Employee + two dependents Remainder(1) 17 Level 02 Basic Life 100% -0- Supplemental Life -0- 100% Dependents Life 100% -0- Long-Term Disability 100% -0- Medical/Dental/Vision: o All Employees - Employee only Remainder(1) $ 10(2) - Employee + one dependent Remainder(1) 20(2) - Employee + two dependent3 Remainder(1) 34(2) (1) City would pay remainder of combined program costs in excess of drnployed, contribution requirement. (2) Employee could refuse all coverages or elect a!! coverages as follows: - employees without dependents would have Basic Life, Medical, Dental, Vision, and LTD for a cost of $5 or $10 per month, for self only - employees with one dependent would have Basic Life, Medical, Dental, Vision and LTD for a cost of $10 or $20 for self and one deperdent - employees with two or more dependents would have Basic Life, Dependents Life, Medical, Dental, Vision and LTD for a cots of $17 or $35 per month for self and all dependents - employees with dependents coverage must insure all dependents Note: Employees would not be allowed cash refunds and the credit amount per employee system would be abolished. r� SPECIAL COST EXHIBIT K-1 CITY OF CARLSBAD Comparison of City and Employee Group Benefit Program Costs Using Current and Revised Costs, Benefits and Cost Subsidy levels #1 #2 Eniployee Cost $ 31,130 $ 87,345 City Cost 272,485 290,453 TOTAL COST $323,615 $377,798 % of Payroll 5.8% 6.8% Cash Refunds $ 99,353 $ 84,831 City Cost 272,485 290,453 CITY TOTAL COST 371 838 $375,234 % of Payroll 6.7% 6.8% #3 #4 #5 $ 64,676 $ 50,358 $ 67,818 286,414 300,732 283,272 351 090 351 090 351 090 6.5% 6.5% 6.5% $ 91,658 $ 91,657 $ 91,657 286,414 300,732 283,272 378 072 112L389 12ZIL929 6.8% 7.0% 6.7% Explanation of Costs and Concepts: • #1 represents current benefits, current premium levels and current cost subsidy level. • #2 represents current benefits, a medical plan only premium increase of 25% and utilizes the current cost subsidy levels including the cost refund system for miscellaneous and management employees. 0 #3 represents the proposed improved benefit plans, revised premium costs and the current cost subsidy levels including cash refunds for miscellaneous and management employees. • #4 represents the proposed improved benefit plans, revised premium costs and revised cost subsidy level #1 for police and fire employees. • #5 represents the proposed improved benefit plans, revised premium costs and revised cost subsidy level #2 for police and fire employees. t„e%nff coy+PAN r ,l l 1 I 1 11 �t F SPECIAL COST EX19BIT K-2 CITY OF CARLSBAD Comparison of Annual Group Benefit Program Cobt, By Plan #1 #2 #3 #4 #5 Employee Life $ 16,525 $ 16,525 $ 22,415 $ 22,415 $ 22,415 Supplemental Life 6,343 6,343 3,717 3,717 3,717 Dependent Life 1,998 1,998 2,637 2,637 2,637 LTD 33,663 33,663 32,316 32,316 32,316 Medical 216,705 270,888 241,624 241,624 241,624 Dental 38,806 38,806 38,806 38,806 38,806 Vision 9,576 9,576 9,576 9,576 9,576 TOTAL 323 2 615 377 798 $351,090 $351,090 12L2090 % of Payroll 5.8% 6.8% 6.3% 6.3% 6.3% T..r of a// , n . on.,. r � x i GROUP INSURANCE PROGRAMS A Conceptual Discussion of Group Benefit Plan Financing Techniques 1. Group Insurance programs consist of: A. Health Care Reimbursement Plans B. Dental Plans C. Life and Accidental Death and Dismemberment D. Short- and Long -Term Disability E. Vision or Eye Care F. Prescription Drugs G. Prepaid Legal Plans Tl a type of plan, due to its risk and design features, is an important factor in determining the appropriate funding or underwriting concept utilized. 2. Funding Concepts A. Pooled and/or Non -Experience Rating Funding Concept Under a pooled or non -experience rated group insurance program funding contract, all of the premiums, claims, and expenses of the insurance company's individual group contractholders are lumped together in a pool. Premium rates are determined by the overall experience of the pool. Individual contractholders are not provided with claims experience accoun- ting information, and they do not share in any surpluses or gains as the result of their own good claims experience. All surplus margins are kept by the insurance company who, in turn, determines their usage. If the pool's claims experience is poor, everybody gets a rate increase to make up the deficit. Supposedly, if the opposite is true, rate increases are either foregone or reduced. In some instances, claims experience is provided to policyholders under pooled contracts. There is also a concept called "a partial pooled, partial experience -rated concept" where claims experience is accounted for; retention charges are net accounted for. Blue Cross, for example, calls this concept credibility pooling. Dividends are never payable under either concept. i"E QI�1111471ff COMPANY __ - -2- It is easy to see that a policyholder who has consistently, year after year, good claims experience, in fact, subsidizes other policyholder's costs. B. Experience -Rated F inding Concept Under an experience -rated funding concept, an indiviepal group contract - holder's claims and expenses (retention) are accounted Yor separately. The claims expereince of that group determines its costs (premiums). This is also known as a net -cost concept becauzm the cost formula is as follows: Claims (paid or incurred) plus expenses (retention) equals the pre- mium (necessary to fund the cost). Unlike the pooling concept, each experience -rated group program is eligible to receive excess margins after applying the formula of: Premium, minus claims, minus expenses (retention). An accounting of the above is provided on an annual basis. Surpluses may be returned to the policyholder in the form of a cash dividend, used to purchase increased benefits, reduce current premium rates and/or placed in a special interest bearing fund (reserve) to provide for overall program financial stability. The definition of premium under this approach is simply the carrier's actuary's best estimate of the amount of monies required to pay claims, set reserves, pay non -benefit expenses and allow a profit margin to the insurance company. 3. Self -Fun ' Conce is including partial self -funding) Self -funding (or self-insurance) of group insurance programs became popular in the 1960s when the larger employers started looking for alternatives to reduce group insurance plan costs (due to rising medical care costs which resulted in higher premium dollar outlays). In 1964, the American Management Association conducted an in-depth study of self -funding for group insurance programs. They concluded that in order for self -funding to be feasible, the employee group size should exceed 1,000 and consist of an annual premium of $500,000. This benchmark is still used. Several special risk category coverages, such as life and long-term disability, are usually too catastrophic in nature to self -insure at the above levels, if at all. There are two distinctly identifiable fixed and recurring cost savings to be derived from self-insurance. They are: A. Approximately 2 to 2.5% state premium taxes, and r� THE W11-11 COMPANY i B. Interest earnings on cash flow gains and/or plan reserves which are held by the, employer instead of the insurance company. Another possible cost savings (contingency savings) is the risk and pooling charges which are eliminated when the risk is transferred from the insurance company to the employer. This savings can, however, be offset by having to buy excess or stop -loss insurance coverage. Another area which makes the risk or pooling charges a contingency savings is the fact that a shock claim may occur which exceeds what the risk or pool charge would have been. There are many variations of self -funding and each alternative should be thoroughly studied to determine the most appropriate for a particular employee group. Several methods of self -funding are: A. Fully self -funded without excess risk insurance B. Administrative services only, ASO, contracts C. Delayed premium payment (insured concept; offsets carrier reserves) D. Retrospective rating contract (insured concepts C and D, when combined, are often used to emulate self.; funding) E. Minimum premium and split -funding F. Self -funding with stop -loss or excess risk insurance The above may be administered as follows: A. Using an insurance company by purchasing their services, ASO B. Contracting with a third party claims administrator C. Self -administration and claims processing D. A combination of the above DEFINITIONS AND TERMS a t 4. Premium Premium is the insurance company's best estimate of the monies required to pay claims, establish financially sound plan reserves, pay plan expenses (retention) and make a profit. 5. Retention Retention is that portion of the premium dollars necessary to reimburse the insurance company for expenses related to commissions, taxes, risk charges, claims administration, booklets and contract forms, as well as a margin of profit for the insurance company. Contrary to popular beliefs, retention is a negotiable item. The brokerage commission is also negotiable. Retention charges can be reduced through negotiations with the carrier, as well as non-payment of commissions. THC Q10 JQlf COMPANY 72 i 0 -Q- i' 6. Claims Reserves Claims reserves are established for the purpose of paying those claims which are incurred during the plan year, but not reported (or paid) by the insurance company until after the end of the plan year. The reserve is used by the carrier to pay incurred or unpaid claims in the event of contract termination. This + reserve is adjusted annually (increased or decreased) according to actual claims utilization and claims lag. The most often used name for this type of reserve is derived from its primary purpose —incurred but not reported OBNR) claims reserve. 7. Special Reserves Special reserves are plan monies available to provide extra financial stability to the plan. These monies are available to increase benefits, reduce costs, prevent rate increases and provide overall plan financial stability. Special reserves are sometimes earmarked for as special purposes (such as claims stabilization or contingency reserves). Another special type of reserve is the waiver of premium (W.P.) life plan reserve which is required by carriers to fund potential life plan losses in cases where employees have become disabled and exercised the W.P. provision. W.P. life reserves represent 75% to 100% of the insurance in force when disability occurs and can require (tie up) a substantial amount of group benefit premium dollars on a long-range basis. Special reserves, when held by the insurance company, usually bear interest. The going rate for 1979 is 8-1/2%. For 1980 — we have seen several offers of 9.5 - 10%. 8. Dividends Dividends are excess premium collars after paying benefits (claims and reserves) and expenses (retention). If dividends occur consistently — premium too high! SUMMARY The contents of this material discusses the basics of group benefit program funding, underwriting, and reserving practices. Chapters and/or books could be written about any one of the areas discussed above. Therefore, no final conclusions should be reached concerning a concept or its appli- cability to a particular group case solely on the basis of this material. s THE p# GOM PANV a 14EMORANDUM July 15, 1982 TO: CITY MANAGER FROM: Assistant City Manager/Administration F SUBJECT: CARLSBAD CITY EMPLOYEE ASSOCIATION (CCEA) POaITION ON REVISED INSURANCE PROGRAM I met with Tom Coleman, President of CCEA on Thursday, July 15, 1982 to clarify CCEA's position on the revised insurance program being recommended for adoption by the City Council. In a letter dated May 6, 1982, CCEA indicated they were opposed to the changes in insurance coverage proposed by Mike Baker of the Wyatt Company. CCEA also indicated another insurance carrier be researched. A copy of the letter is attached. In a letter dated July 13, 1982, CCEA recommended four changes in the existing insurance program and no other changes be made. A copy of the letter is attached. In our meeting of July 15, 1982, Mr. Coleman indicated that CCEA's present position is as follows: 1. CCEA is opposed to the changes in the program ' as recommended by Mike Baker. a: 2. Opposed to Crown Life as carrier. 3. Wants a claims review panel established to review disputed claims. 4. Wants Kaiser (HMO) coverage made available in January 1983. 5. Wants the present program to continue with changes -recom- mended in their July 13, 1982 letter. The revised program that the City staff is recommending for adoption would meet the recommendation in CCEA's July 13, 1982 letter, however, the design of the program would change. 1. Kaiser or another HMO would be made available in January 1983, if feasible. 2. Retired employees would be eligible for group medical insurance at the same rate as the employee rate. 3. The city has established a claims review committee. I ..A� 13uly, -L 19i32 CCEA/Revised Insurance Program Page 2 4. Improved claims processing procedures are being developed by the Personnel Department. In the Memorandum of Understanding (MOU) with CCEA which continues in effect until June 1983, the city agreed "to jointly study alternative health and medical, dental, vision, life, and long- term disability insurance programs and recommend modifications or improvements to the existing programs." The City further agreed in the MOU "that the present level of !, benefits for health and medical, dental, vision, life and long- term disability shall not be reduced except as may be recommended by the joint study committee. It is the intent of the City to provide an insurance program that will provide optional choices so that an employee may select coverage that will meet individual needs." The committee approach orif,inally contemplated in the MOU, did not work out successfully. The city then proceeded with the Wyatt Company study. After the Wyatt Company study was completed, city management and Mike Baker met with the presidents of city employee associations and developed the proposal being recommended for adoption by the City Council. The fire and police associations have agreed to the design of the program. Although the president of CCEA worked on the committee to help design the revised program, CCEA as an association is opposed to the revised program. The study committee composed of association presidents, although not the committee expressly outlined in the MOU, meets the city's obligation under the MOU to jointly study and develop revisions to the insurance program. The recommended program was developed out of consultations with the committee. In accordance with the provisions of the MOU with CCEA, employees have optional choices on coverage. Employees may choose between medical, dental and vision insurance on themselves or dependents. Miscellaneous employees are only required to take medical insurance on themselves. The revised program would require employees to taka not only medica'1 on themselves, but also vision and dental. In order to adhere to the provisions of the MOU with CCEA regarding optional choices, employees represented by CCEA would be allowed to select coverage of their choice as per the present practice. Although this will hurt the group approach, it is necessary in order to strictly adhere to the provision of the MOU. FRANK IMANNEN Assistant City Manager/ Administration FM:gb attachments 93, CA'RLSEAD CITY EMPLOYEES ASSOCIATION 1200 ELM AVENUE CARLSBAD, CALIFORNIA 92008 (714) 729-1181 May 6, 1982 Mr. Frank Mannen Assistant City Manager/Administration t ! City of Carlsbad `• 1200 Elm Avenue Carlsbad,CA 92008 ; i Re: Proposed Changes in Insurance Coverage (By Wyatt Company) i The members of the Carlsbad City Employees Association, yesterday, voted overwhelmingly in opposition to the changes in our insurance coverage proposed by Mr. Mike Baker of the Wyatt Company. ' The members also voted to request that another insurance ! carrier than Crown Life be researched. It is our feeling that better coverage is available for group i coverage, since we represent sufficient number of people to qualify for such consideration. Thank you. TOM COLEMAN, + President CCEA i i ) i IL 1 CA':LSBAD CITY EMPLOYEES ASSOCIATION 1200 ELM AVENUE CARLSBAD, CALIFORNIA 92008 (714) 729.1181 I July 13, 1982 To: Frank Mannen, Assistant City Manager/Adminstration From: Tom Coleman, President, CCEA We recommend the following changes in the insurance program be considered for adoption: 1 1. City t, offer employees the right to adopt Kaiser Plan IL in January, 1983 2. Retiree coverage rate to remain same as when employeed ,i 3. Adopt review panel to start functioning immediately 4. Research better methods of submitting claims for individuals to expedite claim payment }; M OL Presi ent, CCEA a �7