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HomeMy WebLinkAbout1985-08-27; City Council; 8259-1; Employee benefits insurance\B# 82.57 -4f ATG. 8/27 185 IEPT. PE R RECOMMENDED ACTION: TITLE: EMPLOYEE BENEFITS INSURANCE CITY MGR.-.&z/ Reaffirm and modify its 3uly 23, 1985 action and direct the City's present consultant to prepare the necessary documents to solicit competitive bids for the City's employee benefits insurance program and approve attached consultant's proposal. Following award of the insurance program contract, direct staff to prepare requests for proposals for employee benefits consultant services. ITEM EXPLANATION At its 3uly 23, 1985 meeting (Item 41, the City Council reviewed Staff Agenda Bill 8259 (copy attached) concerning the City's employee insurance program. After some discussion, the Council: 1. Approved the City's participation in a Preferred Provider Organization (PPO) to be implemented through the medical plan; 2. Directed staff to continue to negotiate renewal of the current employee insurance program with the present carrier, Crown Life Insurance Company; 3. Directed the City's employee benefits insurance consultant, Michael D. Baker of The Wyatt Company, to prepare requests for proposals in anticipation of seeking competitive bids for the employee indemnity insurance program to include medical, dental, vision, and life. This excludes the City's Health Maintenance Organization (HMO) medical plan with Kaiser. Staff is additionally recommending that the employee beneift consultant services be subjected to competitive bidding following implementation of the employee insurance program. Formally bidding the employee benefits consultant/broker services will result an objective review of available services. The City's annual contract for employee insurance with Crown Life expired on July 31, 1985. The City is now operating on a month-to-month basis under the Crown policy until a renewal agreement is executed or a new carrier selected, and current policy terminated. There has been no loss of existing benefit levels under the various elements of the plan. Administration of the plan, in addition to the rate structure, remains the same. The employee groups have participated in discussions concerning the Preferred Provider Organization. (Reference attached staff report of 3une 25, 1985.) Crown Life's representatives have indicated their desire to continue to provide employee benefits insurance to the City. The City Council briefly discussed this subject again, of f-agenda, on 3uly 30, 1985. The Council requested additional information to clear up some apparent confusion as to the role of the City's employee benefit consultant versus a broker with respect to preparing requests for proposals (RFP) for the employee indemnity insurance program. I &/ PAGE 2 OF AB # f25y The basic differences between the employee benefits consultant and the broker are: A. 0. Responsiveness to City controlled work assignments; and C. Access to independent and objective actuarial services. Fee structure including method and amount of payment. The insurance consultant works on a fee-for-service basis and is paid by the City for each individual assignment. His work, and ultimately his fees, are controlled by the City. Conversely, the generally accepted method of compensation for the insurance broker is a commission paid by the insurance company based upon the total value of the premiums paid. This rate is subject to negotiation and can range between 2% and 8% of the anrual policy premium. Total premiums paid would normally include the brokers canmission and other additional fees. As an example, the low of 2% of the total premiums paid in fiscal 1984-85 of $690,858 would produce a brokerage fee of $13,817. Another significant difference between the insurance consultant and the broker is the availability of independent actuarial services. An actuary performs statistical analysis relating to the probability of the occurrence of certain events which directly effect insurance premium rates. Access to actuarial services is required to evaluate the insurance company's rate setting, expense and risk charges, underwriting, and reserving practices. Most employee benefits consulting firms specializing in this field of fer this in-house service. The City has retained the consultant services of The Wyatt Company since 3uly of 1981. The Wyatt representative, Mr. Baker, has worked for the past four (4) years with City staff and the employee units to provide structured, cohesive benefit programs and related services to the City. In response to the Council's direction, staff has been working closely with the City's current employee benefit consultant, Michael D. Baker of The Wyatt Company, to formulate a series of meetings with all employee groups to present the new Preferred Provide Organization medical program. These presentations have been scheduled for the week of August 26 through 30. Other services provided by The Wyatt Company include: defining program objectives and evaluating benefit structures; providing detailed management reports; conducting independent surveys of related programs and medical costs; and analyzing insurance canpany underwriting and reserving practices, premium rates and non-benefit costs, including independent actuarial services. As a result, staff recommends that The Wyatt Company be retained to develop formal bid requests for the medical, dental, vision and life insurance program. Following implementation of the insurance program, staff further recanmends that a formal bidding procedure be used to acquire consultant/broker services. This procedure will result in several advantages. First, all parties interested in providing the identified services will have the opportunity to submit proposals. Second, this schedule of events will allow sufficient time to identify services available and solicit proposals from qualified firms. Third, this schedule of events will result in the implementation of the indemnity medical plan on 3anuary 1, 1986, producing the following advantages: PAGE 3 OF AB # f23?9 */ 1. 3anuary 1 begins the calendar deductible year for most indemnity health plans; 2. Standardize the renewal contract dates for both health insurance carriers to 3anuary 1 of each year; 3. Coincide with the open enrollment period of the existing Kaiser medical plan. FISCAL IMPACT The costs associated with bidding a new health insurance program will be $8,000 - $10,000, not to exceed $10,000. EXHIBITS 1. The Wyatt Company's proposal as prepared by Michael D. Baker. 2. Agenda Bill #a259 with attachments. 3 EMPLOYEE BENEFITS COMPENSATION PROGRAMS EMPLOYEE COMMUNICATIONS ADMINISTRATIVE SYSTEMS RISK MANAGEMENT INTERNATIONAL SERVICES THE @%$!ti COMPANY ACTUARIES AND CONSULTANTS SUITE 300 9339 GENESEE AVENUE SAN DIEGO, CALIFORNIA 92121 (619) 458-3900 OFFICES IN PRINCIPAL CITIES AROUND THE WORLD August 22, 1985 Mr. Raymond Patchett Assistant City Manager City of Carlsbad 1200 Elm Avenue Carlsbad, California 92008 Dear Ray, The purpose of this letter is to provide you with an outline of our services and fees to perform a marketing evaluation of insurance company proposals and funding concepts for the City’s group benefits program. The effective date of any newly selected contracts will be January 1, 1986. BACKGROUND INFORMATION At the July 23, 1985 City Council Meeting staff was given direction to market the City’s group benefits program among various insurance carriers on a competitive bid basis. You requested that our firm provide a proposed methodology, level of services, and fees to perform this project. All plans are to be bid based upon the following criteria: o Carrier must be able to underwrite all coverages on a no-commissions paid basis. o Carriers with the ability to underwrite the exact plan benefit specifications and provide prompt accurate claims payment and financial management reports will be given priority. o The competitiveness of benefit payments versus non-benefit related costs will also be evaluated. o Companies should be major carriers with substantial size, experience and marketplace commitment. -.. OUR PERCEPTION OF YOUR NEEDS The plan benefits have been negotiated and agreed upon by staff, the bargaining units and the insurance committee. No deviations of plan design will be permitted. We will develop bid specifications for the exact plan(s) of benefits currently in effect using several funding concept attentives. They will be: o The current fully-insured experience rated, retention charge funding concept. - The City will pay carrier 90 days late and a retrospective premium feature will be used to maximize plan cash flow to the City. These features are worth about $150,000 to $200,000 based upon todays costs. o A minimum premium funding concept whereby the City is self-funded for claims up to the conventional insured premium level and insured for claims which exceed the fully insured level. - City may hold plan reserves and retain terminal liability for claims in the event of contract termination. The cash flow value is about $1 16,000. o We will also evaluate a self-funded concept whereby the City is self-insured up to 125% of expected paid claims and insured thereafter for medical care coverages. The life plan will be insured because of the tax aspects. - A separate plan document, booklets, trust fund and other documents will be required. The concepts described above will allow the City to retain (or sell to the carrier) appropriate levels of risk at reasonable costs. o We find a need to evaluate carrier services and claims management reports to support the program. o We also find a need to evaluate the proposals of 10 to 15 major carrier and special risk carriers to compare a broad range of companies. o The Hospital Review and Preferred Provider features of the various carriers will be an important selection criteria. OUR CONSULTING SERVICES Based upon our perception of your needs we will take the following steps to bring this project to a successful close: o Collect and prepare employee census and plan participation data. o Prepare program bid specifications including plan benefits, past claims experience, underwriting and reserving questionnaires as well as premium and insurance cost exhibits. o Market bid proposal specifications among 10 to 15 major insurance carriers. o Evaluate each insurance company’s proposal and perform a spreadsheet analysis of each proposal. Included will be total costs, net costs, adherence to specifications and design features as well as carrier claims systems, management reports and service capabilities. o Prepare and present our report of findings and recommendations of the carrier(s) and funding concepts best suited to meet the City’s needs. o Assist staff with carrier liaison and interviews of finalists. o Assist with plan enrollment, employee communications and employee meetings as needed. o Attend meetings with staff, insurance committee and City Council as required. OUR FEES AND METHOD OF COMPENSATION Our fees are based upon the hourly rates of the staff assigned to each project and the hours each member spends on a particular task. Based upon the services outlined in this proposal we estimate our fees will range from $8,000 to $10,000. We will agree not to exceed a total fee of $10,000. PROJECT STAFF AND TIME SCHEDULE This project will be managed by Michael Baker of our San Diego office group benefits staff. He will be assisted by Steve Eschbach, Fellow of the Society of Actuaries, F.S.A., and other benefit consultants and actuaries as required by this assignment. Mr. Baker’s and Mr. Eschbach’s resumes and qualifications are attached to this proposal. -3- THE 6k$&# COMPANY We suggest a consulting project schedule as follows: o Collect program census and financial September 15, 1985 data, prepare bid specifications and obtain City’s approval of their accuracy. o Market bid specifications among September 20, 1985 carriers. o Deadline for receipt of carrier October 31, 1985 proposals. o Evaluate carrier proposal and November 15, 1985 present a report of findings and recommendations. o Select carrier(s). November 20, 1985 o Plan enrollment and employee communications. December 15, 1985 SUMMARY As fee for service consultants and actuaries we will negotiate all insurance coverages on a no-commissions basis. This will result on lower plan costs currently as well as on a long-range basis. Our fees for this project will be no more than commissions normally payable to a broker or agent. This assures the City’s recoupment of our fee during the first plan year. More importantly, our approach allows us to be totally independent and objective in the performance of all of our analysis. We look forward to working with the staff and the insurance committee on this important project. Assuming we are retained to do this project we are prepared to start work immediately. Sincerely, THE WYATT COMPANY Consultant MDB/k tp Enclosures 7 STAFF RESUMES BIOGRAPHY MICHAEL D. BAKER Michael D. Baker is a group benefits consultant for The Wyatt Company in Southern California. He has over ten years of consulting experience in all aspects of group insurance consulting and plan benefit design, as well as underwriting and funding principles. His work background includes financial analysis in claims experience, preparation, and comparison of insurance company bid proposals, and insurance company reserving practices, as well as preparing and summa- rizing employee benefit surveys. He is also knowledgeable in the technical aspects of the Health Maintenance Organization (HMOs) and California Know- Keene Health Care Acts and their effect on benefit programs. Included is his ability to establish guidelines and procedures for compliance with the HMO Act and the evaluation of HMOs and prepaid provider organizations. Included as part of his overall group benefit plan background is experience in the development of all types of self-funded programs which include self- administration, Administrative Services Only (ASO), minimum premium, 501 (c) (9) trust, stop-loss, and other modern funding techniques and contracts avai 1 ab1 e for group programs. Mr. Baker is also responsible for client compliance procedures for all government agency reporting requirements of the Employee Retirement Income Security Act (ERISA) , which includes summary plan description, annual reports, forms 5500, and EBS-1 filings. He has performed a number of group benefit plan design and funding concept analysis projects in the public as well as private business sector. These projects have included the analysis of partial and total sel f-fundi ng. BIOGRAPHY STEVE A. ESCHBACH Mr. Eschbach is a consultant and actuary in The Wyatt Company's West Coast Flexible Compensation Consulting Group. Most recently, he has been assisting in the implementation of flexible benefits programs at MCorp (Texas) and U.S. Bancorp (Oregon). Since joining Wyatt, he has conducted many funding and/or plan design studies with respect to group insurance. Mr. Eschbach spent three years at Metropolitan Life Insurance Company in the San Franci sco technical services unit conducting fi nanci a1 and funding arrangement analyses for large group insurance policyholders. Three years were spent in the New York home office group insurance pricing area developing the manual life insurance rates for the field offices and analyzing the company experience as it relates to their dividend formula. Mr. Eschbach is a Fellow of the Society of Actuaries, an Enrolled Actuary, and has a B.S. degree in Mathematics and Statistics from the University of Washi ngton , Seattle. 10 THE wUc!k COMPANY CLIENT REFERENCE LIST .- LIST OF LOCAL REFERENCES CITY OF CARLSBAD CITY OF SAN DIEGO COLUMBIA SAVINGS & LOAN ASSOCIATION FOTOMAT CORPORATION HOME FEDERAL IMPERIAL CORPORATION OF AMER I CA SAN DIEGO HOSPITAL ASSOCIATION VAGABOND HOTELS, INC. VILLAVIEW COMMUNITY HOSPITAL WASHINGTON INVENTORY SERVICE, INC. XSCRIBE CORPORATION Frank Mannen Assistant City Manager (619) 438-5638 Connie Fedel i Employee Benefits Manager (619) 236-6676 Pat Conners Personnel Di rector (714) 776-7101 Sandy Haynes Benefits Manager (813) 823-2027 Joe Turner V.P. Personnel (619) 238-1040 Li nda Ha rmat i u k Manager Employee Benefits (619) 692-6660 Dean Crowder, CEO (619) 292-2207 Les Biggins Control 1 er (619) 578-8710 Ron Lepowsky Sen i o r V . P . / Fi nance (619) 582-3516 David Seeley Treasurer (619) 461-8111 Eileen Wi 11 iams Treasurer (619)457-5091 13 THE @?%$if COMPANY REPRESENTATIVE CLIENT LISTINGS REPRESENTATIVE GROUP BENEFIT PROGRAM AND GOVERNMENT AGENCIES CLIENT LISTING CITY OF ANTIOCH, CALIFORNIA CITY OF CARLSBAD, CALIFORNIA CITY OF CHICAGO CITY OF LA MESA, CALIFORNIA CITY OF LONG BEACH, CALIFORNIA CITY OF LOUISVILLE & BOARD OF HEALTH CITY OF MODESTO, CALIFORNIA CITY OF MADISON, WISCONSIN CITY OF MILWAUKEE CITY OF NATIONAL CITY, CALIFORNIA CITY OF OCEANSIDE, CALIFORNIA CITY OF SAN DIEGO, CALIFORNIA COUNTY OF MARICOPA, ARIZONA COUNTY OF SAN MATEO, CALIFORNIA GOVERNMENT OF ONTARIO, CANADA HENNEPIN COUNTY, MINNESOTA MINNESOTA STATE TEACHERS RETIREMENT SYSTEM ORANGE COUNTY WATER DISTRICT, CALIFORNIA STATE OF CALIFORNIA STATE OF ILLINOIS RETIREMENT SYSTEM STATE TEACHERS RETIREMENT SYSTEM, CALIFORNIA STATE OF VERMONT MUNICIPAL EMPLOYEES RETIREMENT SYSTEM TEACHERS RETIREMENT SYSTEM, TEXAS UNIVERSITY OF MINNESOTA Iq THE COMPANY REPRESENTATIVE CLIENT LIST NATIONAL ACCOUNTS AMERICAN MOTORS CORPORATION ADDRESSOGRAPH-MULTIGRAPH CORP. THE ANACONDA COMPANY BEATRICE FOODS CO. BENDIX CORP. BORG-WARNER CORP. DOW CHEMICAL CO. ESMARK, INC. GENERAL ELECTRIC CO. GENERAL MOTORS CORP. GOODYEAR TIRE & RUBBER CO. GULF & WESTERN INDUSTRIES, INC. INTERNATIONAL BUSINESS MACHINES CORP. KIMBERLY-CLARK CO. K-MART CORPORATION N L INDUSTRIES, INC. RELIANCE ELECTRIC CO. REPUBLIC STEEL CORP. ROCKWELL INTERNATIONAL CORP. SOUTHERN RAILWAY CO. STANDARD BRANDS, INC. STANDARD OIL CO. (INDIANA) UNITED AIRLINES, INC. WHITE CONSOLIDATED INDUSTRIES, INC. THE wft COMPANY /5’ REPRESENTATIVE SAN DIEGO CLIENT LIST "A" COMPANY, INC. AMERDYNE INDUSTRIES, INC. ATLAS HOTELS, INC. CHEM-TRONICS, INC. CITY OF CARLSBAD CITY OF LA MESA CITY OF SAN DIEGO COLUMBIA SAVINGS & LOAN ASSOCIATION CONTINENTAL AIRLINES FOODMAKER, INC. FOTOMAT CORPORATION FRAZEE PA1 NTS HOME FEDERAL JOHN HINE PONTIAC IMPERIAL CORPORATION OF AMERICA IRVINE RANCH WATER DISTRICT KYOCERA INTERNATIONAL, INC. LA JOLLA COUNTRY CLUB LUCE, FORWARD, HAMILTON & SCRIPPS MONITOR LABS NATIONAL PUMP & INJECTOR SALES & SERVICE, INC. PALOMAR POMERADO HOSPITAL DISTRICT PROVIDENT CAPITAL CORPORATION $AN DIEGO HOSPITAL ASSOCIATION SEA WORLD, INC. SOUTHWEST BANK SUN SAVINGS & LOAN ASSOCIATION TITAN SYSTEMS, INC. TORREY PINES BANK VAGABOND HOTELS, INC. VILLAVIEW COMMUNITY HOSPITAL, INC. WASHINGTON INVENTORY SERVICE W IC KES CORPORAT I ON WINDOWMASTER PRODUCTS, INC. XSCRIBE CORPORATION i6 THE WC?~ COMPANY HEALTH AND WELFARE SERVICES T H E COMPANY THE WYATT COMPANY WELFARE PLAN SERVICES 1. PLAN DESIGN o Benefit surveys o Benefit model analysis o Model claim comparisons 2. FINANCIAL AUDIT o o o Reserve liabilities o Risk sharing arrangements o Cash flow position o Alternative funding mechanisms o Claims patterns--comparison of actual to expected claims Retention or operating expense charges Cost trends and emerging liabilities 3. CLAIM AUDIT o Turnaround time o COB savings o Reasonable and customary medical charges o Payment according to contract 4. ADMINISTRATION o Fi nanci a1 experience reports o Data bank development o ERISA compl i ance THE waft COMPANY l8/ 5. EMPLOYEE COMMUNICATION PROGRAMS o Graphic illustrations o Booklets and SPDs o Employee meetings o Total production and benefit statements 6. ANNUAL SERVICES o Analysis of statistical and financial experience exhibits o o Cost projections o Economic forecast Identification of emerging claim experience trends o Legislative and o Liaison between o Day-to-day prob tax counse management em solving and providers of services THE %ff COMPANY If