Honorable Mayor and Members of the City Council. Submitted by: David W. Hodgkins, Director of Human Resources

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1 Office of the City Manager To: From: Honorable Mayor and Members of the City Council Christine Daniel, City Manager Submitted by: David W. Hodgkins, Director of Human Resources Subject: Health Plan Rate Changes RECOMMENDATION Adopt two Resolutions: 1. Approving rate changes for the Kaiser Foundation Health Maintenance Organization (HMO) health plans as follows: 2.97% increase for Active Employees; 11.15% increase for Pre-Medicare Eligible Retirees; (-0.12)% decrease for Senior Advantage (Medicare Supplement) Retirees; and 2. Approving rate increases for the Health Net health plans as follows: 7.5% for HMO plan Active Employees; 7.5% for Point of Service (POS) plan Active Employees; 7.5% for Pre-Medicare HMO plan Eligible Retirees; 7.5% for Pre-Medicare POS plan Eligible Retirees; 0.0% for Seniority Plus (Medicare Supplement) Retirees; 9.85% for Health Net POS Post-65 Retirees The health plan premium rates will be effective for the period of January 1, 2013 through December 31, FISCAL IMPACTS OF RECOMMENDATION Health care premiums are quoted on a calendar year based on standard industry practices. On November 8, 2011, the City Council adopted Resolution No. 65,499-N.S. and Resolution No. 65,500-N.S. that approved rate increases covering the second half of fiscal year 2012 and the first half of fiscal year The City budgets on a fiscal year basis so half of the premium cost is known and the remainder is estimated based on Budget procedures and trends in medical premium costs. Funding for the health plan premium increases is included in the fiscal year 2013 adopted budget based on the City Council action cited above. Funding for the health plan premium 2180 Milvia Street, Berkeley, CA Tel: (510) TDD: (510) Fax: (510) manager@cityofberkeley.info Website:

2 Health Plan Rate Changes increases will be included in the fiscal year 2014 budget. Premiums are paid one month in advance; e.g., the January 2013 premium is paid in December Active Employees: In fiscal year 2012, actual health insurance premium costs totaled $16,471,748 ($12,013,705 for Kaiser and $4,458,043 for Health Net). The November 8, 2011 staff report estimated that the health care cost for fiscal year 2012 would be $16,780,000 ($12,140,000 for Kaiser and $4,640,000 for Health Net), so the actual costs ended up $308,252 below estimate. The City only pays the cost of the Kaiser HMO premium amount (single, two-party, or family rate). The Health Net HMO and POS plans have premium amounts that are greater than the Kaiser HMO rate and the employee pays the difference in cost. This payment is made as a payroll adjustment before taxes. For part-time employees, the City s contribution is prorated. The estimated expenditures for the first half of fiscal year 2013 (July 1 to December 31, 2012) will total approximately $8,102,000 ($5,976,000 for Kaiser and $2,126,000 for Health Net). The estimated expenditures for the second half of fiscal year 2013 (January 1, 2013 to June 30, 2013) will total approximately $8,440,000 ($6,154,000 for Kaiser and $2,286,000 for Health Net), for a total fiscal year 2013 projected cost of $16,542,000 ($12,130,000 for Kaiser and $4,412,000 for Health Net). This represents an approximate increase of $70,252 above FY 2012 actual premium costs. Fiscal Year 2013 First Half (July 1, 2012 to December 31, 2012) Fiscal Year 2013 Second Half (January 1, 2013 to June 30, 2013) Fiscal Year 2013 Total Kaiser $5,976,000 $6,154,000 $12,130,000 Health Net $2,126,000 $2,286,000 $4,412,000 Totals $8,102,000 $8,440,000 $16,542,000 Funding for the health premium increases for Active Employees from January 1 to June 30, 2013 was included as part of the Council authorized $16,623,109 expenditures included in the fiscal year 2013 adopted budget. The estimated cost for the first half of fiscal year 2014 (July 1 to December 31, 2013) will total approximately $8,440,000 ($6,154,000 for Kaiser and $2,286,000 for Health Net). Funding for July 1 to December 31, 2013 will be included in the fiscal year 2014 adopted budget. The Payroll Deduction Trust Fund, budget code , provides for these premiums. Retired Employees: The City s Retiree Health Premium Assistance Plan benefit contribution is capped at an annual increase of 4.5% for Miscellaneous and Berkeley Page 2

3 Health Plan Rate Changes Fire Fighters Association retirees, and 6% for Berkeley Police Association (BPA) retirees. Any premium increase above the City s premium assistance cap is borne by the retirees as an out-of-pocket expense. Retirees represented by the Berkeley Police Association who retired prior to September 19, 2012, and have a minimum of 10 years of City service (up to a maximum of 20 years of City service) are paid a pro-rated amount equal to the Active two-party Kaiser Plan rate. The rate increase of 2.97% for the Kaiser Health Plan Active Employee group will result in an increase in cost of this benefit of approximately $184,355 based on 134 retirees as of October 1, On September 11, 2012, Council authorized a successor Memorandum of Understanding with the Berkeley Police Association that included a provision replacing the cash benefit for a capped benefit as noted above for members retiring on or after September 19, Funding for retiree health premium assistance plan benefits comes from trust funds established for this purpose. The City has established separate retiree health premium assistance plans and trust agreements for the various unions and unrepresented employees. The City has established a practice to pre-fund each of these trust funds for the purpose of having assets available to pay for the benefit. CURRENT SITUATION AND ITS EFFECTS The City has contracts with Health Net and Kaiser to provide health benefits for all benefited employees, with 970 employees in the Kaiser HMO plan, 204 employees in the Health Net HMO plan, and 24 employees in the Health Net POS Plan. There are 172 employees receiving cash in lieu benefits. In August 2012, Kaiser and Health Net provided the City with insurance premium rate quotes for calendar year Kaiser quoted a 2.97% increase for the Active Employee group; an 11.15% increase for the Pre-MediCare retiree group; and a decrease of (-0.12)% for the Post-65 Senior Advantage group. Health Net initially quoted a 10.6% increase for the Active HMO group, the Active POS group, the Pre-Medicare Retiree group, the Pre-Medicare POS group; a 9.85% increase for the Post-65 Medicare POS group; and a rate pass for the Post-65 Medicare Seniority Plus group. However, Keenan & Associates, the City s benefits broker, was able to assist the City in negotiating a reduction to the rates quoted by Health Net by having them reexamine the medical claims experience and using the fact that double digit percentage increase by Health Net would further drive participants out of Health Net and into Kaiser. In the end, Health Net agreed to lower their increase to 7.5% for all of the groups except the Post-65 Medicare POS group, which will stay at a 9.85% increase. The health plan rates are based primarily on service utilization and claims experience. For calendar year 2012, the active employee group under Kaiser was fairly stable, while Health Net, with the active employee membership shrinking due to the continued migration of members to Kaiser due to increasing Health Net premiums, reported 22 Page 3

4 Health Plan Rate Changes claims in excess of $25,000. In addition, the Pre-Medicare retiree group population demographics experienced an increase in both utilization and claims experience resulting in higher premium increases for this group. However, the Medicare eligible groups, which were stable, were given a ratings pass by both carriers (Kaiser and Health Net). The 2013 rates for Active Employees will be: Active Employees Coverage Level 2012 Monthly Premium Rate 2013 Monthly Premium Rate Kaiser HMO Single $ $ Two Party $1, $1, Family $1, $1, Health Net HMO Single $ $ Two Party $1, $1, Family $2, $2, Health Net POS Single $1, $1, Two Party $2, $2, Family $3, $3, Employees enrolled in a health plan with premiums higher than Kaiser's rates must pay the difference in premium costs. Because the Kaiser premiums increased 2.97% while the Health Net premiums increased 7.5%, the net effect in 2013 is a 17.2% increase to the employee s out-of-pocket expense for family coverage from The total 2013 out-of-pocket expense ($ for Single; $ for Two-Party; and $ for Family coverage) the employee will pay represents 35% of the total premium cost: The 2013 rates for Pre-Medicare Retirees will be: Pre-Medicare Retirees Coverage Level 2012 Monthly 2013 Monthly Premium Rate Premium Rate Kaiser HMO Single $ $1, Two Party $1, $2, Family $2, $3, Health Net HMO Single $1, $1, Two Party $2, $2, Family $2, $3, Health Net POS Single $1, $1, Two Party $2, $3, Page 4

5 Health Plan Rate Changes And the 2013 rates for Post-65 Retirees will be: Post 65 Retirees Coverage Level 2012 Monthly 2013 Monthly Premium Rate Premium Rate Kaiser Senior Advantage Single $ $ Two Party $ $ Health Net Seniority Plus Single $ $ Two Party $1, $1, Health Net POS Single $ $ Two Party $1, $1, The retirees will have to bear most of these increases as an out-of-pocket expense since the benefits from the City s Retiree Health Premium Assistance Plan Trust is capped at a 4.5% annual increase (6% for BPA retirees). BACKGROUND The City has three (3) group health plans for employees: 1) Kaiser HMO, 2) Health Net HMO and 3) Health Net POS plans. The City has a contractual obligation to pay the equivalent of the basic Kaiser rates, including eligible dependents, for all benefited employees. Employees enrolled in a health plan with premiums higher than Kaiser's rates must pay the difference in cost of the premium. For example, the difference between the Kaiser HMO family rate and the Health Net HMO family rate is $ The exception to this rule is the City pays the full premium for employees represented by the Service Employees International Union (SEIU) Local 1021, Maintenance and Clerical Chapters (MC) and the International Brotherhood of Electrical Workers (IBEW) Local 1245, who were enrolled in a health plan with premiums higher than Kaiser s rates prior to January 1, The City pays the full premium for these two groups. All employees represented by either SEIU Local 1021 MC or IBEW Local 1245 hired after January 1, 2003, are required to pay the difference between the Kaiser HMO and the Health Net rates. Separately, the City offers three (3) group health plans for retirees (Kaiser, Health Net HMO, and Health Net POS). Employees who retired prior to July 1, 1998, pay the full cost of the health insurance premium. Employees who retired after July 1, 1998, who meet certain eligibility criteria, are eligible for benefits under the City s Retiree Health Premium Assistance Plan. Under the City s Retiree Health Premium Assistance Plan, the City pays a portion of the employee s health insurance premiums. The amount is prorated based on the employee s years of service. The City s annual contribution increase is capped at 4.5% (6% for BPA retirees). The retiree pays the difference between the City s monthly contribution and the actual monthly insurance premium charged by the health plan he or she has elected for retiree medical coverage. Effective September 19, 2012, eligible members retiring from the BPA will be able to participate in this Plan for the first time. Page 5

6 Health Plan Rate Changes RATIONALE FOR RECOMMENDATION Health insurance is an employee benefit required under various collective bargaining agreements with the City. ALTERNATIVE ACTIONS CONSIDERED Keenan & Associates continues to issue request for proposals (RFP) in an effort to secure alternative carriers. Carriers decline to respond primarily due to the Kaiser penetration level into the City s employee pool (currently around 80%). CONTACT PERSON David W. Hodgkins, Director of Human Resources, Human Resources, (510) Attachments: 1. Resolution to authorize rate increases for Kaiser 2. Resolution to authorize rate increases for Health Net Page 6

7 RESOLUTION NO. -N.S. AUTHORIZING RATE CHANGES FOR THE KAISER FOUNDATION HEALTH PLAN EFFECTIVE JANUARY 1, 2013, THROUGH DECEMBER 31, 2013 WHEREAS, the City pays for the full health insurance premiums for all employees enrolled under the Kaiser Health Maintenance Organization (HMO) health plan. NOW THEREFORE, BE IT RESOLVED by the Council of the City of Berkeley that a rate increase of 2.97% for the Active Employee Kaiser HMO Group; an 11.15% rate increase for the Pre-Medicare Retiree Group; and a (-0.12)% rate decrease for the Post-65 Retiree Senior Advantage group, all effective January 1, 2013, through December 31, 2013, as follows: Kaiser Plans City Pays Employee Pays Total Active Employee Kaiser HMO Group $0 office visits, $5 RX Single $ $ Two Party $ 1, $1, Family $ 1, $1, Pre-Medicare Retiree Group $5 office visits, $5 RX Single varies varies $1, Two Party $2, Family $3, Post-65 Retiree Senior Advantage $5 office visits, $5 RX Single varies varies $ Two Party $ Family $1, BE IT FURTHER RESOLVED that a record signature copy of said contract and any amendments reflecting these rate increases to be on file in the Office of the City Clerk.

8 RESOLUTION NO. -N.S. AUTHORIZING RATE CHANGES FOR HEALTH NET HEALTH PLANS EFFECTIVE JANUARY 1, 2013 THROUGH DECEMBER 31, 2013 WHEREAS, the City pays for the health insurance premiums for the Health Net Health Maintenance Organization (HMO) and Health Net Select Point Of Service (POS) plans up to the equivalent of the Kaiser HMO plan rate for all employees except employees under the Service Employees International Union (SEIU) Local 1021 Maintenance and Clerical Chapters (MC) and the International Brotherhood of Electrical Workers (IBEW) Local 1245 enrolled prior to January 1, 2003; and WHEREAS, the City pays the full premium for the Health Net HMO and Health Net Select POS plans for SEIU Local 1021 MC and IBEW Local 1245 enrolled prior to January 1, NOW THEREFORE, BE IT RESOLVED by the Council of the City of Berkeley that a rate increase of 7.5% for the Health Net HMO for Active Employees, Health Net Select POS group plans for Active Employees, Pre-Medicare Retiree Health Net HMO, and Pre-Medicare Retiree Health Net Select POS group plans; a rate pass for the Post-65 Retiree Seniority Plus plan; and a 9.85% increase for the Post 65-Retiree POS group plan, all effective January 1, 2013 through December 31, Active Groups City Pays Employee* Pays Total Health Net HMO Group #70077 $15 office visit, $10/$20/$35 RX Single $ $ $ Two Party $ 1, $ $1, Family $ 1, $ $2, Health Net Select Point of Service Group # $15 office visit, $10/$20/$35 RX Single $ $ $1, Two Party $ 1, $ 1, $2, Family $ 1, $2, $3, Page 2

9 Retiree Groups City Pays Employee* Pays Total Pre-Medicare Retiree Health Net HMO Group # $15 office visit, $10/$20/$35 RX Single varies varies $1, Two Party varies varies $2, Family varies varies $3, Pre-Medicare Retiree Health Net Select POS Group # $15 office visit, $10/$20/$35 RX Single varies varies $1, Two Party varies varies $3, Post-65 Retiree Seniority Plus Group # $15 office visit, $10/$20/$35 RX Single varies varies $ Two Party varies varies $1, Post-65 Retiree POS Group # $15 office visit, $10/$20/$35 RX Single varies varies $ Two Party varies varies $1, *all employees except SEIU Local 1021 MC and IBEW Local 1245 enrolled prior to 1/1/03 BE IT FURTHER RESOLVED that a record signature copy of said contract and any amendments reflecting these rate increases to be on file in the Office of the City Clerk. Page 3

Contract: Sutter Health Plus to Provide Group Health Insurance

Contract: Sutter Health Plus to Provide Group Health Insurance Office of the City Manager CONSENT CALENDAR January 19, 2016 To: From: Honorable Mayor and Members of the City Council Dee Williams-Ridley, Interim City Manager Submitted by: Sarah Reynoso, Acting Director