HomeMy WebLinkAbout1984-12-11; City Council; 7989; City employee benefits program reportCITY3F CARLSBAD - AGENDf -'ILL
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ATG. 12/11/84
DEPT. HD.~ZM REPORT ON CITY EMPLOYEE BENEFITS
PROGRAM
TITLE:
CITY ATTY
IEPT. I ~CIN MGR.&
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RECOMMENDED ACTION:
Review report and approve Resolution No. 783rappropriating funds for the
employee benefit program.
ITEM EXPLANATION
The city employee benefit program is insured through Crown Life for medical,
dental, vision, and life insurance. Standard Insurance Company provides
long tern disability insurance (LTD). A health maintenance organization
program (HMO), Kaiser Health Plan is also available to employees.
Medical care costs have risen at a rate substantially ahead of the general
inflation rate in the past few years. Escalating health care costs are a
national problem. The City of Carlsbad has realized increased costs like
all employers. In spite of large increases, city costs for premiums are
near the average for all industries according to the city's benefits
consultant, the Wyatt Company.
In the 1983-84 plan year which runs from August 1, 1983 to July 30, 1984
the Crown Life medical, dental, and vision plan suffered a substantial
deficit of $127,152 (claims and expenses in excess of premiums). In
accordance with the agreement with Crown Life, the city is liable for an
additional $61,321 of the deficit and Crown Life must absorb the remaining
$65,831.
cost inflation, and a few large claims.
The plan deficit is attributed to increased utilization of benefits,
FISCAL IMPACT:
Funds are allocated in departmental budgets to cover employee benefit costs.
The expenses are allocated on the basis of the premium rates therefore
no funds are available to cover the city's share of the plan deficit.
A total appropriation of $51,321 is needed to pay the city's share of the
1983-84 plan year deficit.
The $61,321 will be taken from various funds. $56,336 will be taken from the
general fund contingency account, the remainder of the money will be taken
from various other funds.
EXHIBITS :
1. Resolution No. 7836y appropriating funds.
2. Report from Assistant City Manager dated 11/2/1984.
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REsouTmON NO. 7838
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA APPROPRIATING FUNDS FOR
EMPLOYEE BENEFITS
WHEREAS, the City of Carlsbad provides an employee benefit program
nd
WHEREAS, additional funds are required to fund costs of the
rogram, and
WHEREAS, funds are available to pay these costs.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
arlsbad as follows:
. That the above recitations are true and correct.
. That fund transferNo. 748 on file in the Finance Department is hereby
pproved appropriating a total of $61,321 from various fund reserves to
epartmental accounts within those funds.
PASSED, APPROVED AND ADOPTED at a regular meeting of the City
ouncil of the City of Carlsbad held the 11th day of December ,
984, by the following vote, to wit:
AYES: council casler, wwis, Kulchin, chick ard Pettine.
NOES : Nom
ABSENT: Wne
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MARY H. ~ASLER, Mayor
TTEST :
LETHA L. RAUTENKRANZ, City Clerk d-
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November 2, 1984
TO : CITY MANAGER
FROM : Assistant City Manager
EMPLOYEE BENEFIT PROGRAM
The program provides the following benefits:
Medical Insurance
Dental Insurance
Vision Insurance
Life Insurance
Long Term Disability Insurance
The medical, dental, vision and life insurance is provided
by Crown Life Insurance Company. Medical care is also
provided through Kaiser, a health maintenance organization.
The long term disability insurance is provided by Standard
Insurance Company.
Medical. Dental and Vision
The City used to have separate pooled policies with Crown
for medical, dental and vision insurance plans. In August
1982 the plans were redesigned and combined into one
experience rated policy.
The following chart compares the performance of the program
during its first two years.
City of Carlsbad
Medical, Dental and Vision Programs
August 1, 1982 August 1, 1983
to July 31, 1983 to July 31, 1984 Change
Total Premiums $407,555 $465,538 + 14.2%
Total Claims 331,530 510,408 + 53.9%
Total Expenses 75 , 827 82,282 + 8.5%
Plan Surplus
or Deficit + 197 -127 , 152
City Refund or
Retrospective payment + 197 - 61,321
3
EMPLOYEE BENEFIT PROGRAM
November 2, 1984
Page 2
As shown above, claims increased dramatically from one policy year to the next. The increase in claims is primarily due to increased utilization of the program, cost inflation, and a few large claims. During the 1982-83 policy year the plan performed as expected, that is premiums funded claims and expenses with a slight refund to the city ($197). During the 1982-83 policy year-the plan ran a substantial deficit
($127,152).
In accordance with the contract with Crown Life Insurance Co.
the city will receive a refund of premium if the plan performs
better than expected or is liable for additional premium if the plan runs a deficit. The amount of refund the city may receive is not limited but the amount of additional premium (retrospective premium) the city is liable for is limited to an amount equal to 16% of expected claims (premium minus expenses).
The city will have to pay an additional $61,321 to Crown Life
Insurance Co, Crown Life will have to absorb the balance of
the plan deficit of $65,831.
Premiums have increased dramatically the past two years. The
following chart shows the changes in the monthly premium
for the first three policy years of the revised program:
City of Carlsbad Premiums for Medical, Dental and Vision Plans
Aug. 1, 1982 Aug. 1, 1983 Aug. 1, 1984
to to to July 31, 1983 July 31, 1984 July 31, 1985
Emp 1 o ye e $ 51.87 $ 62.10 $ 78.50
Only
Emp 1 oy ee 118.77 Plus One Dependent
Employee 183.32 Plus Two or
More Dependents
Amt. of Increase Over Previous Year
142 , 18 179.39
219.51 277.24
20% 26.4%
EMPLOYEE BENEFI'L PROGRAM
November 2, 1984
Page 3
Kaiser Health Plan
The city also offers medical care for employees and dependents
through a health maintenance organization (HMO) , Kaiser
Foundation Health Plan, Inc. An employee has an option of
enrolling in the crown program or the Kaiser program during
January of each year. There are currently 15 employees enrolled
in the Kaiser program. It is expected that enrollment in the
Kaiser program will increase when Kaiser opens a facility in
Carlsbad in early 1986.
The Kaiser Plan was begun on January 1, 1983. The rates for
enrollment in the plan are outlined as follows:
1983 1984 1985
Employee only $ 67.09 .$ 73.10 $ 78.91
Employee plus
1 dependent 134.18 146.20 157.82
Employee plus
2 or more dep. 191.10 208.31 223.47
Increase from previous year 9% 8%
The city and employee share the cost of Kaiser coverage.
The city pays the same amount toward Kaiser coverage as it
would toward Crown coverage and the employee pays any difference.
Controllinq Health Care Costs
All predictions are that medical costs will continue to escalate in the future. Advances in medical technology, inflation and greater utilization of services are cited as primary reasons for the increases. The city is continuing to investigate alternative health care delivery systems as a way of controlling health care costs. (See memo dated 7/12/84 for discussion of PPO'S.)
Escalating health care costs are a major national problem.
The federal government , employers, labor organizations and
the health care industry are seeking ways to control cost increases. A number of relatively new concepts and approaches are gaining favor or are being tried.
EMPLOYEE BENEFIT PROGRAM
November 2, 1984
Page 4
The most effective way to reduce the employers cost of health
insurance is to shift costs to the employee by increasing
deductibles and co-insurance amounts and by requiring the
employee to pay a larger share of the premium. This shifting
leads to a more selective use of health care services. The
trend is away from 100% employer paid plans with low deductibles to the employers and employees sharing the premiums and higher
deductibles .
The city has been seeking to have employees pay a greater share
of premiums during negotiations with employee groups. The
following chart shows the current premium cost sharing with employee groups:
Analysis of Monthly City & Employee
Premium Costs for Crown Insurance - 84-85 Policy Year
MANAGEMENT Total Premium City Pays Employee Pays
Employee Only $ 78.50
Employee + 1 179.39
Employee + 2 277.24
POLICE
Employee Only 78.50
Employee + 1 179.39
Employee + 2 277.24
FIRE -
Employee Only 78.50
Employee + 1 179.39
Employee + 2 277.24
MISCELLANEOUS
Employee Only 78.50
Employee + 1 179.39
Employee + 2 277.24
$ 70.30 $ 8.20
145.15 34.24
215.45 61.79
67.29
152 . 48
225.53
65.30
143.79
214.38
78.50
169.39 257.73
11 . 21
26.91
51.71
13.20
35.60
62.86
0
10.00
19.51
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EMPLOYEE BENEFIT PROGRAM
November 2, 1984
Page 5
Life Insurance
The city provides basic life insurance for all city employees.
The basic life insurance is paid by the city. The city paid
$37,993 for basic life insurance in 1983-84 fiscal year.
The premium for basic life for the current and part two policy
year is summarized as follows:
1982-83 1983-84 1984-85
2 9 C/lOOO 31C/1000 34C/1000
Life insurance is pooled, not experience rated. The pooled
approach has worked to the city's advantage thus far as
shown in the following chart:
1982-83 1983-84 Total
Premium $38,648 $ 33,655 $ 72,303
C1 aims $23,500 104,000 127,500
Claims have exceeded premium by $55,197 during the last two
pojti cy years.
Employees may also purchase additional life insurance equal to the amount of the basic insurance. The employee pays the
premium for this additional insurance. The premium varies
depending on the age of the employee.
The city also provides dependent life insurance. The premium
of 99C per month is paid by the city.
for dependent insurance in 1983-84.
Lonq Term Disability Insurance (LTD)
The LTD program is insured with Standard Insurance Co. The
program provides replacement income for disabled employees.
After a 90-270 day waiting period up to 60% income can be
replaced by the LTD program. All city employees are covered.
The premium is -59% of the insured payroll.
The city paid $44,741 in premiums during the last policy year and only $5,992 was paid in claims.
The city paid $1,807
7
EMPLOYEE BENEFIT PROGRAM November 2, 1984
Page 6
State Disability Insurance/SDI)
In accordance with a memorandum of understanding negotiated with
the Carlsbad Employees Association, non-management miscellaneous employees are eligible for SDI. The SDI program begins after a
seven day waiting period. SDI is a temporary disability program
that lasts approximately 270 days. After the SDI program runs out the employee is eligible for the LTD program.
All other city employees are eligible for the LTD program after
a 90 day waiting period but are not eligible for the SDI program.
The city paid $21,853 in premiums for the SDI program last year.
Paid claims are estimated to be $7,000. The combined cost of
the LTD and SDI programs was $66,594 last year. An estimated
total of $13,192 was paid in claims. This is fairly typical of
the performance of this program over the past few years. The
city's employee benefits consultant will be asked to prepare
a report on revising and possibly self-insuring all or a portion
of these programs.
Attached is a summary of the group benefits program financial
results prepared by the Wyatt Company, dated August 31, 1984.
The report is based on preliminary figures for the 1983-84 policy
year and was prepared prior to the final accounting done on the
program.
A report on the final accounting for the 1983-84 policy year
from Crown Life dated October 12, 1984 is also attached. The
plan losses for 1983-84 were greater than initially contemplated
by the Wyatt Company's report, resulting in a greater loss to
Crown Life.
FRANk MA"EN
Attachments
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Actuaries and Consultants
Employee Compensation Employee Administratwe Risk International
Benefits Programs Communication? Systems Management Services
Suite 220 3366 North Torrey Plnes Court LaJolla,Callfornla 92037 (619)455-5350
August 31, 1984
Mr. Frank Mannen
Assistant City Manager CITY OF CARLSBAD 1200 Elm Avenue
Carlsbad, CA 92008
Dear Frank:
The purpose of this letter is to provide you with a brief summary of the past two years'
group benefit program financial results. The programs evaluated were the Life,
Medical, Dental and Vision Care Plans underwritten by Crown Life Insurance
Com pa ny .
BACKGROUND INFORMATION
Prior to August I, 1982, the City had three separate pooled insurance plan contracts
with Crown Life. The coverages had been in effect for at least five years. Our initial
analysis/audit of the program indicated a need to change from a pooling approach,
whereby the city's premium and claims are commingled with other groups of
employers, to an experience-rated approach, whereby the City's costs are based upon
its own claims experience and nonbenefit expense factors.
A rather conservative comparison of the two concepts for the three years prior to
August 1, 1982, indicated a potential savings of about $85,000 could have resulted had
the City's program been experience-rated rather than pooled. Crown Life agreed with
our findings and agreed to provide the new funding concept.
THE OBJECTIVES OF THE NEW FUNDING CONCEPT
The objectives of the new concept were to:
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Provide the revised program on the lowest possible net cost basis;
Improve the Plan's cash flow advantage and have it favor the City rather than
Crown Life;
Keep carrier reserves and nonbenefit costs as low as possible; and
Retain an element of insurance and a reasonable maximum risk exposure level to the City.
Slodcholn
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Hhsh,npton. ac.
Mr. Frank Mannen
CITY OF CARLSBAD
August 31, 1984
Page 2
The new concept works as follows:
0 The City pays Crown Life an estimated monthly premium for medical, dental
and vision care which is expected to cover the cost of claims plus nonbenefit
costs.
- The rates are reduced prospectively by about 10% to 12% and the City
pays less up front dollars than it otherwise would without the retro
premium arrangement.
- In the event actual results at year end create a surplus, Crown returns the
unused premium as a dividend.
- In the event the actual results at year end create a deficit, the City is liable for an additional retrospective premium based upon a
predetermined formula. The formula is based upon expected claim levels
and maximum premium collectible.
The Life Plan is totally pooled for experience/dividend purposes. In the past,
City Life Plan claims exceeded premiums and for this reason, we feel that pooling is the best approach, currently.
0
THE PLAN'S FINANCIAL RESULTS UNDER THE NEW FUNDING CONCEPTS
The real test of any concept is how it works in actual operation.
financial results are now available and our analysis is as follows:
Two years of
Exhibit I sets forth paid claims for the most recent 12 months of August I, 1983 to
July 31, 1984. The claims are broken down by medical, dental and vision care as well
as by month and by employee and dependents. Our report last year provides the same
data for the first plan year under the new plans for the period August 1, 1982 to July
31, 1983.
As soon as the paid claims are known, the carrier then, in accordance with
predetermined cost formulas, does a financial accounting of:
0 Paid premiums
0 Paid claims
0 Beginning reserves
0 Ending reserves
0 Retention charges
0
0 Plan surplus/deficit results
Special risk and pooling charges
Mr. Frank Mannen
CITY OF CARLSBAD August 31, 1984 Page 3
Paid premiums are Plan income and all other items are Plan expenses. Plan reserves
reflect the estimated Plan liability at year end to pay for claims which are incurred
during the year but are, as of year end, unpaid.
In other words, if the Plan terminates or you change carriers, the reserve will be used
to pay off claims incurred under the Crown Life contract. Any unused reserves would
be returned to the City.
Exhibit I1 is a two year Plan financial statement for the period of August 1, 1982 to
July 31, 1984 under the terms of the contract and formulas in effect.
Our findings concerning the results of Exhibit I1 are as follows:
THE LIFE PLAN
0 Pooling of Life Plan premiums and claims results in claims exceeding premiums
by $19,033 during the two-year period of August 1,1982 to July 31, 1984.
- This deficit is not owed by the City, it cannot be recouped by Crown except
through improved future experience and or premium increases.
- Mad the Plan been experience-rated, reserved and retention charges applied,
a greater deficit would have resulted. That deficit would be collected by
Crown from future premiums. Dividends are not payable under the current
pooling concept and none would have been paid had your plan been
experience-rated.
0 The pooled Life Plan concept has worked to the City's advantage thus far.
MEDICAL/DENTAL/vISION PROGRAM
The First Plan Year
For the 1982-83 Plan year, the City paid $407,553 in paid premiums. Out of the
premium, the carrier paid $249,999 in claims plus $75,827 in retention and pooling charges. A Plan year ending reserve of $81,530 was also established and charged against paid premiums. The Plan experienced a somewhat favorable year and a $197 dividend was paid to the City. Overall, the carrier's premium rates were almost
exactly set to cover claims, reserves and nonbenefit expenses. The Plan incurred no
deficits, no single shock claims over $50,000, and no retro repayment events. You
should be reminded, however, that during this Plan year Crown paid off the claims
under the old contract from prior established reserves of almost $55,000. This
somewhat distorts the Plan's actual results.
Nonbenefit costs for retention were $59,095.
$7,766 and aggregate stop loss cost was $8,966. sized group, we find these costs were reasonable and competitive.
Specific stop loss coverage cost was
By industry standards for a similar
Mr. Frank Mannen CITY OF CARLSBAD
August 31, 1984
Page 4
The Second Plan Year
In the 1983-84 Plan year premium and claims increased dramatically. Premiums rose
an average of 20% while paid claims increased 49%. Included in this year's paid claims was a single claim which exceeded $50,000 which caused the claims levels to be higher
than expected.
Paid premiums were $507,100; paid claims were $490,858 and Plan reserves were
increased by approximately $21,550. The result is an ending reserve of $103,080 and incurred claims of $512,048.
Plan expenses for nonbenefit costs were:
0 Retention was $61,359
0 Individual specific stop loss cost was $13,564
0 Aggregate stop loss cost was $11,707
A program deficit of $91,938 resulted. The City will be required, about November
1984, to pay a retro premium of $60,000 to $67,000. Crown Life will do a complete
accounting to determine the exact retro payable. After adjusting for the pooled
individual shock claim amount and ending reserves for claim run outs after August I,
1984, the deficit could be reduced. To negate the potential cash flow payout of the
retro, the City can also implement a "reserve release" (take its reserves back or adopt
a "90-day premium delay" feature, if deemed necessary and appropriate).
The retention increased slightly and appears reasonable. The specific stop loss and
aggregate stop loss charges also increased but they were purposely under priced for
1982-83 because of perceived underexposures during the first plan year. Both stop loss coverages were very competitively priced by industry standards.
HOW THE CITY'S PLAN COMPARES WITH OTHER EMPLOYERS' PLANS
The benefits program for the employees of the City of Carlsbad is excellent when
compared to private industry, other government agencies and school districts in Southern California.
The overall program consists of:
0 Basic employee life insurance
0 Dependent life insurance
Voluntary supplement life insurance
0 Comprehensive major medical paid at 90% of usual, reasonable and
customary charges
0 Vision assistance plan
0 Long term disability plan
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Mr. Frank Mannen CITY OF CARLSBAD
August 31, 1984 Page 5
When the premiums of the City's Plan are compared with the costs of all other
industry plans the following cost summary for 1982-83 and 1983-84 result:
All Industries
Annual Cost Per Employee
1982 1983 $1,533 'm
City of Carlsbad $ 1,523 $ 1,894
Government agencies group and pension plan costs often exceed private industry as a
whole because of past compensation practices. Past practices have been to pay less than average cash compensation but provide better than average benefits.
The City's benefits and costs appear to be in line with other government agency plans.
Sincerely,
THE WYATT COMPANY
Michael D. Baker
Consultant
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Attachments
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CITY OF CARLSBAD
EXHIBIT II
Croup Benefit Program Financial Results for Past Two Years, 8/1/82 to 7/31/84, Under the
City's Life, Medical, Dental and Vision Care Plans
LIFE PLAN
Paid Premium
Paid Ciaims
Life Plan Surplus/ Deficit
MEDICAL PLAN
Income:
Paid Premium
Expenses:
Paid Claims
Beginning IBNR
Ending IBNR
Incurred Claims
Retention
Specific Stop Loss
Aggregate Stop Loss
Nonbenef i t Costs (Mem 0)
Total Expenses
Medical Plan
Surplus/Deficit
8/1/82
to
713 1/83
$ 38,649 23,500
$ 15,969
$ 407,553
249,999
-0-
81,530
$ 331,529
59,095
7,766
8,966
$ 75,827
$ 407,356
$ 197
8/1/83
to
7/31/84
$ 47,818
82,000
$ (34,182)
$ 507,100
490,858
(81,530)
103,080
$ 512,408
61,359
13,564
I 1,707
$ 86,630
$ 599,038
$ (91,938)
* * * * * * * *
Comb,.iec
811 182
to
7/31/83
$ 86,467
105,500
$ (19,033)
$ 914,653
740,857
-0-
103,080
$ 843,937
120,454
21,330
20,673
$ 162,457
$ 1,006,394
$ (91,741)
*
o Estimated 1984 Retro Payment due to Crown Life is $67,275; $24,466 is to be
written off by Crown and cannot be recovered or carried forward.
o Combined Paid Premium
for Life and Medical $ 446,204 $ 554,918 $ 1,001,122
0 Combined Claims and Expenses
for Life and Medical $ 430,858 $ 681,038 $ 1,111,896 IC
12 October 1984
Mr. Frank Mannen
City of Carlsbad
1200 Elm Avenue
Carlsbad, California 92008
Re: Group Policy Number 54018
Dear Frank:
The final accounting for your group insurance policy with Crown Life has been
completed for the 1983-84 policy year.
This report includes your Fourth Quarter Results, Quarterly Paid Claim Totals,
Monthly Claim Listings for the fourth quarter and the Final Accounting Breakdown.
Under the terms of our Retrospective Agreement, $61,321.00 is due to Crown Life.
Interest is payable on this amount from 1 August 1984 to the date of payment at
a rate of 9.78%, which is the prevailing 90-day Treasury Bill rate less one
percent. Please remit the amount payable with your regular premium payment
within 60 days.
We appreciate the opportunity of underwriting the City's group insurance plan.
As always, we are available to discuss ways to improve your plan. If I may be
of any assistance, please call me.
Group Sales Manager
BN/11
attch.
cc: Mike Baker/The Wyatt Co.
Crown Life Insurance Company SAN DIEGO GROUP OFFICE 1764 San Diego Avenue, Suite 21 48 San Di 0, California 921 10-1 995 Tel.: (6%) 692-3350 Telex: 695-071
FINAL ACCOUNTING
854018 - City of Carlsbad
Policy Year 1 August 1983-31 July 1984
1. Total Premium
2. Claims
a. Cash Claims
b. Less Pooled Claims
c. Less Reserve for
Incurred but Unreported
Claims at the beginning
of the Period $ 81,530.33
Incurred but Unreported
Claims at the end of
the Period $ 110,126.00
d. Plus Reserve for
Total Incurred Claims
3. Expenses (12.1%)
4. Specific Stop-Loss Charge
(3.36% of medical premium)
5. Aggregate Stop-Loss Charge
(2.9%)
6. Expected Claims (1-3-4-5)
7. Deficit (6-2)
8. Maximum Collectible (16%)
9. Retro Premium Due
$ 465,538.03
$ 489,502.09
$ 7,689.53
$ 510,408.23
$ 56,330.10
$ 12,451.09
$ 13,500.60
$ 383,256.24
- $ 127,151.99
$ 61,321.00
$ 61,321.00
10/10/84
/7
JULY 12, 1984 ,.-
TO : CITY MANAGER
FROM : Ass is t an t City Manager,
Administration
EMPLOYEE INSURANCE
Crown Life has notified the City of a 26.4% increase in the premium for medical, dental and vision insurance effective
August 1, 1984. The rate for basic life insurance will
increase 3$/$1000 of coverage. The increases in monthly
premiums are summarized as follows:
Life Insurance
Combined medical,
dental and vision
Existinq Premium
31 $/$lo00
Employee only
New Premium
34 e/ $100 0
$62.10 $ 78.50
Employee + 1 142.18 179.39
Employee + 2 or more 219.51 277.24
The increase in the life insurance rate can be attributed to the fact that there has been very little turnover in City staff and the group is one year older and life insurance rates increase with age of the insured.
The increase in the premium for the combined medical, dental and vision program is primarily due to the increased cost of medical claims and effects of inflation in the cost of medical care.
The premium increase broken down as to line of coverage is as follows :
Medical Premium Premium % Existing New
Employee $ 49.62 $ 65.00 31 %
Employee + 1 111.87 146.55
Employee + 2 or more 174.08 228.03
Dental
Employee -$ 10.14 $ 11.16
Employee + 1 25.28 27.81
Employee + 2 or more 37.73 41.51
10%
July 12, 1984
page 2
EMPLOYEE INSURANCE
-.
x
Vision Existing New Premium Premium
Employee $ 2.34 $ 2.34
Employee + 1 5.03 5.03
Employee + 2 + 7.70 7.70
%
0%
Combined Premium
Employee $62 , 10 $78.50
Employee + 1 142.18 179.39 26.4 %
Employee + 2 + 219.51 277.24
(The effect of this premium increase on employees in the
various bargaining groups is shown on Exhibit I)
As Shown in the above table the primary reason for the increase in the combined premium is the 31% increase in the
medical portion of the combined premiums. Paid claims during
the first ten months of the current policy year for combined
medical, dental and vision coverage was $431,866. Medical claims accounted for $364,230 of this amount. (See Exhibit I1
prepared by the Wyatt Company).
According to our consultant Mike Baker of the Wyatt Company,
the estimated financial results for the city's plan for the current year (August 1, 1983 to July 30, 1984) will show a projected loss of $138,561. The final results for the year will not be known until November when all claims incurred during the current policy year are paid off and a final accounting is completed,
Pursuant to the retrospective agreement the city has with Crown, the city will have to pay an estimated additional
$65,324 of the $138,561 loss and Crown will have to absorb
the remaining $73,237 because of stop loss insurance. !See Exhibit 111)
PPO ALTERNATIVE
Ways of reducing the costs of medical insurance have been
reviewed with Mike Baker. One alternative is through the
use of a preferred provider organization (PPO) in combination
with the existing insurance program. The PPO concept is
illustrated graphically in Exhibit IV.
Crown Life offers a PPO program in conjunction with the San
Diego Foundation for Medical Care. The Foundation has
contracts with 15 hospitals and over 1900 physicians who have agreed to provide services at a fixed rate or fee. The rates negotiated with member hospitals is shown in Exhibit V. 17
July 12, 1984
Page 3
EMPLOYEE INSURANCE
The way the PPO would work in Carlsbad is illustrated as follows:
Doctor Office Visit 1
Ins. Plan Employee
pays 90% Pays Charqe of Scheduled Chq. Remainder
PPO Dr. $40.002 $36.00 $4.00
Non-PPO Dr. $50 -00 $36.00 $14.00
Assuming $100 deductible has been met.
Scheduled charge according to contract between Foundation and Doctor.
Hospital Stay
PPO Hospital
Employee pays $100 deductible plus 10% of first $5,000
in charges. Insurance plan pays 90% of charges.
Non-PPO Hospital
Employee pays $350 deductible plus 10% of first $5,000
in charges. Insurance plan pays 90% of charges.
The basic incentive to the employee to use PPO providers is that the employee will have to pay more money out of pocket if he doesn't.
The advantage to the city and the employee is that the current
benefit design would not change except a schedule of fees and
charges would replace the usual, reasonable and customary provision and the deductible would increase $250 if you did not use a PPO hospital. Crown Insurance estimates that the 31% increase in the medical premium could be reduced to
approximately 11%. The effect on premiums is estimated as
follows :
Employee $62.10 $78.50 $68.58
142.18 179.39 157.02 Employee + 1
Employee + 2 + 219.51 277.24 242.44
Existinq New New with PPO
.- I
July 12, 1984 Page 4
EMPLOYEE INSURANCE
A meeting is scheduled with Presidents of Employee Association on Friday, July 13, 1984 to review the rate increase and discuss the PPO alternative. The concurrence of employee associations would be necessary in order to implement the PPO. In the meantime, the rate increase of 26.4% will go into effect on August 1, 1984. The PPO alternative could
be implemented at the beginning of any month during the
policy year.
FM:gb
Attachments
7/1--' 9 4 Exhibit I
MANAGEMENT
(split Ins. 1
-ANALYSIS OF CITY & EMPLOYEE
COSTS FOR CROWN INSURANCE (26.4% Increase)
Tot a1 City Employee Premium Pays Pays (Bi-weekly)
Employee Only $ 78.50 $ 70.30 $ 8.20 $ 3.78
34.24 15.80 Employee + 1 179.39 145.15
Employee + 2 277.24 215.45 61.79 28.52
(62.10)
(142.18)
(219 . 51)
POLICE - (5,7,10)
Employee Only 78.50 67.29 11.21 5.17
Employee + 1 179.39 152.48 26.91 12.42
Employee + 2
""-
277.24 225.53 51.71 23.87
- FIRE (split Ins.)
Employee Only 78.50 65.30 13.20 6.09
Employee + 1 179.39 143.79 35 . 60 16.43
Employee + 2 277.24 214.38 62.86 29.01
MISCELLANEOUS
(Split Ins. to 5,10,15)
Employee Only 78.50 78.50 0 O*
Employee + 1 179.39 169.39 10.00 4.62
Employee + 2 277.24 257.73 19.51 9.00
* Employee hired before 7/18/83 will receive a refund of $-
per month. Zz.539
34C/$1,000 - Life
99C - Dependent Life
I !
I
U I-
23
EXHIBIT m
CITY OF CARLSBAD
Estimated Plan Financial Results for the City's
Grmo Benefit PraPrams for the 1983-1984
Paid Premiums
Paid Claims
Beginning IBNR
Ending IBNR
Incurred Claims
Retention
Risk and Pool Charges
Total Plan Expenses
Annual Cain/Loss
Calculation of Retro:
# 1 # 2
$(546,836) $ 473,599 -
408,275 (408,275) -
8/1/83-
713 1/84
Plan Year
$ 500,092 -
$ 518,240
$ (81,530)
$ 110,126
$ 546,836
60,511
$ 31,306
$ 638,653 -
$ (138,561)'
I
Typical PPO Structure
for a reduced rate or fee
r
Exhibit Tv ... -
hospitals, doctors and
other health care providers
for a specific group of insured employees and retirees
but who will pay rm deductable or a reduced deductable or receive additional benefits
if the contracted provider is
used.
make contractual
agreements to provide
0 health service on a
f ee-f or-service
basis and participate
in a program of ut 1 liza t ion revie w
.
who may use any
hospital, doctor or
health care provider including those not on contract
There are many variations on this basic PPO structure but the fundamental
principles are the same regarding subscriber incentives, utilization controls and organizational compoaents.
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