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HomeMy WebLinkAbout1984-12-11; City Council; 7989; City employee benefits program reportCITY3F CARLSBAD - AGENDf -'ILL \B#.7989_ ATG. 12/11/84 DEPT. HD.~ZM REPORT ON CITY EMPLOYEE BENEFITS PROGRAM TITLE: CITY ATTY IEPT. I ~CIN MGR.& ~~ - 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. I 6 7 E 9 1c 11 12 12 14 1: 1E 17 1E 1s 2( 21 2: 21 24 2: 24 2: 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 I MARY H. ~ASLER, Mayor TTEST : LETHA L. RAUTENKRANZ, City Clerk d- .- 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 _- 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 FM:gb 8 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: e 0 e e 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 Wnw Tomto 'YMWUW 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 rnc watt COMPANY la .- 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 MDB:mei Attachments I AI u? I 41 u? 1 41 u, I 41 I - m 41 3 u? I 41 u? I dl v) I 41 v) L u a-. m u 5 U 0 Ul 5 5 E b h ._ n c 0 L ._ P a 4- Y) ¶ K ~ U m s: n f c 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. 5 I F & 0 rl rl (d C \ (D U 0 E m 00 m d w z 3 c, (do \In CN vz 0 m I .t rl c nl v3 0 X E a .& m alh cc % n w w ;I rl I z 0 c, c u rl w W w c a r3 c nl cn 0 X 2 z 0 H VJ cn Y * c a .- ~ cn 4 n cn 0 I a W n 5 0 a n n W a a w LL W a a 0 e e -% W 5 z Q: cn I- O z 0 a L i Y 0