City of Stockton Council Chamber - City Hall 425 N. El Dorado Street, Stockton CA Legislation Text File #: 13-0364, Version: 1 TITLE MOTION AUTHORIZING THE CITY MANAGER TO ENTER INTO A CONTRACT WITH DELTA DENTAL OF CALIFORNIA, AS THE CITY OF STOCKTON DENTAL BENEFIT PROVIDER TO ADMINISTER THE SELF-INSURED AND FULLY-INSURED DENTAL PLANS RECOMMENDATION It is recommended that the City Council authorize by motion the City Manager to execute a contract with Delta Dental of California ( Delta Dental ) as the City of Stockton s dental provider to administer the self-insured and fully-insured dental health plans, effective July 1, 2013, with an initial term of three years for both plans. BODY SUMMARY Staff has completed the Request for Proposal (RFP) process and the Selection Committee recommends that the City Council contract with Delta Dental as the City of Stockton s dental provider for the self-insured and fully-insured dental plans, beginning July 1, 2013. Delta Dental has administered the City of Stockton s self-insured dental program for many years and is the current vendor. United Healthcare (UHC) has provided benefits for the City s fully-insured dental benefits and is the current vendor. UHC declined to submit a proposal and therefore, is not being considered to continue providing dental benefits for the fully-insured plan effective July 1, 2013. A contract termination notification was submitted to United Healthcare by the City on February 20, 2013, (as required under the current contract) and acknowledged by the UHC on March 1, 2013. The City s proposed contract with Delta Dental will provide benefits for the self-insured plan (Preferred Provider Organization, or PPO ), and a fully-insured plan (Dental Maintenance Organization or DMO ), with rates that are guaranteed for three years on both the PPO and DMO plans. The Delta Dental agreement has also provided for a fourth and fifth year that includes a 3.5% cap on increases for the PPO plan only. DISCUSSION Background A fully-insured DMO benefit has been offered to employees since 1972. The City first contracted with Health Benefits, Inc. (HBI), and subsequently HBI was acquired by UHC, who is the current provider. Since 1983, Delta Dental has been administering self-insured PPO dental benefits to City of Stockton employees and their eligible dependents. City of Stockton Page 1 of 6
Dental benefits are offered only to active full-time employees and their eligible dependents. The majority of the City s employees and dependents are on the PPO (self-funded) plan. As of April 1, 2013, there were only 20 employees and 33 dependents on the DMO (fully-insured) plan compared to 1,166 employees and 2,141 dependents on the PPO plan. The reason for the significant difference is due to the DMO plan having a very limited provider. Additionally, the few providers who are on the limited are often not taking new patients. Present Situation The City of Stockton provides dental benefits to approximately 1,200 employees and 2,200 eligible dependents. The City offers employees two dental plan options: Self-insured plan (referred to as the Dental PPO ). The City is the insurer of the plan and is financially responsible for all claims and administrative costs. The plan administrator processes claims and maintains the dental provider. The provider encompasses a large number of dentists and specialists. Plan benefits have an annual cap, so claims exposure is limited. Fully-insured plan (referred to as the Dental DMO ). The City pays a flat premium cost per member/per month, and the vendor is responsible for claims payments to providers. The provider is very limited, but benefits are more generous. The current dental providers have had long-standing contracts with the City of Stockton and its employees. In accordance with the City Council s Strategic Initiatives, Human Resources is rebidding all long-standing benefits vendor contracts to ensure the best possible services at competitive market rates. On December 11, 2012, Council adopted findings and authorized the issuance of a Request for Proposal (RFP) for dental services. Through this process, four proposals were received and accepted from the following dental benefit providers: Anthem (through Delta Health Systems) Delta Dental of California Premier Access United Concordia A Selection Committee ( Committee ) was established to review the proposals submitted in response to the RFP. The Committee was comprised of the following members: Human Resources Deputy Director and Supervising Analyst-Benefits Section, Administrative Services Finance Program Manager, and assistance from our health plan consultant, the Segal Company ( Segal ). Segal analyzed the pricing structure, administration services, and provider detailed in each submitted proposal, and provided expert industry advice and analysis throughout the RFP selection process. The Committee met on March 4, 2013, and evaluated all responses based on criteria defined in the RFP related to services and contractual requirements. The Committee voted unanimously for Delta Dental and is asking for the Council to approve their contract as the City of Stockton s self-insured and fully-insured dental provider. The following supports the committee s decision: City of Stockton Page 2 of 6
Cost: The City currently pays a composite rate of $51.15/per member per month for the DMO plan option. A composite rate is attained by averaging all of the risks in a plan, and then using that average to determine one premium rate. Under a composite rating, premiums are the same for each insured regardless of how many dependents are enrolled. The composite rate is the only cost to the City for this dental plan option, as the claims cost is borne by the insurance company. Based on current enrollment of 20 employees, the DMO plan cost is slightly over $12,000/year. Under the DMO plan, Delta Dental was the most reasonable plan cost option. The cost savings is 31% over the current provider, or $3,802/year, as noted in the table below: DMO Current UHC Plan Delta Dental Anthem (Delta) Premier Access United United Concordia ( Concordia Plan 1111) (Plan 1121) Monthly $51.15 $35.31 $43.82 $45.92 $49.59 $41.52 Composite Premium Rate $ Decrease -$15.84 -$7.33 -$5.23 -$1.56 -$9.63 % Decrease -31% -14% -10% -3% -19% The PPO option is structured differently than the DMO. The administrative fee paid by the City is for use of the administrator s and administrative functions, including claims processing. In addition to the administrative fee, the City also assumes the liability for all claims costs because the PPO plan is self-insured. As explained earlier, self-insured means claims costs are borne by the City to a specific annual limit per employee. Below is a cost comparison for the administrative fee only for each of the companies who submitted a PPO RFP: PPO Current Delta Dental Delta Dental Anthem (Delta) Premier Access United Concordia Administrative $7.82 $7.42 $4.33 $3.00 $3.35 Fee PEPM Year 4 & 5 N/A 3.5% cap N/A N/A N/A The PPO administrative cost difference between the lowest bid by Premier Access and Delta Dental is approximately $63,000/year. Administrative fees for FY 2012/2013 are estimated to be approximately $106,000. While this is not an insignificant amount, when considering other criteria, such as disruption in the provider and provider stability, as discussed below, the committee selected Delta Dental. Delta Dental did lower their fee by 5% and also capped any increases to 3.5% in the two, one year options that follow the three year base agreement. Claims costs are a separate expense of approximately $1.55 million/year, with an average enrollment for FY 2012/2013 of 1,185 employees. Serious concerns were raised about United Concordia s proposed conditions regarding required participation levels, as rates quoted in their proposal would not be honored if membership fell below a City of Stockton Page 3 of 6
minimum threshold. Additionally, all submitted proposals had issues with provider sufficiency and disruption, as discussed below. Provider Networks Segal conducted a disruption analysis to determine potential impact of a change in provider and as part of the RFP review. No provider offered the same extensive as Delta Dental. Though United Concordia has a similar total of general dentists in the PPO program, they fall far short on the specialty side compared to the Delta PPO. There is an even greater disparity in the DMO provider. Segal did further analysis that looked at the number of facilities currently being utilized by patients and the number of patients accessing providers and compared it to the facilities and patient levels in the s offered through this RFP process. This information is provided in the tables below: DMO Network Disruption Analysis Current UHC Delta Anthem Premier United Utilized Network Dental (Delta) Access Concordia Providers utilized in 22 15 68.2% 9 40.9% 9 40.9% 10 45.5% current compared to other RFP vendors Patients accessing 43 29 67.4% 19 44.2% 19 44.2% 20 46.5% As stated earlier, the current DMO vendor, UHC, did not submit an RFP, therefore, is not being considered to continue providing dental benefits to City employees and their dependents. PPO Network Disruption Analysis Current Utilized Providers Providers utilized in current compared to other RFP vendors Patients accessing providers within 709 (Total providers based on historical claims data) 5,100 (Total patients based on historical claims data) Delta Dental Network Anthem (Delta) Premier Access United Concordia 668 94.2% 202 28.5% 187 26.4% 360 50.8% 4,734 92.8% 1,271 24.9% 1,289 25.3% 2,341 45.9% When evaluating the use of the current of providers and facilities in the PPO plan (based on City of Stockton Page 4 of 6
historical claims data) against proposed s, 94.2% are being utilized under Delta Dental s proposal. The next closest usage is United Concordia at 50.8% of providers and facilities. When evaluating historical claims data on the patient s use of current facilities, 92.8% of patients (employees and dependents) are accessing Delta Dental providers and facilities. Although the City is currently utilizing Delta Dental for the PPO benefit, the comparison between historical claims data and the Delta Dental provider is not a 100% match because some employees choose to go out of the. Utilizing out-of- providers does result in a lower benefit to employees. The next closest usage is United Concordia at 46%. Changing from the current Delta Dental PPO plan would create significant discord in the continuity of care for our employees. The recommendation to award both the DMO and PPO services to Delta Dental took into account the effect of this disruption. In addition to no disruption issues, the recommended action considers the following criteria: Exceptional Customer Service: Delta Dental has provided the City with a dedicated Account Representative and team. Although staff has rarely had problems on the dental plan, if an issue has existed, the Delta Dental team has handled it quickly and professionally. Historical perspective and commitment to the City of Stockton: Delta Dental has had a long-standing relationship with the City spanning over 30 years. They have been committed to the City and have agreed to hold anticipated rate increases during the City s recent financial struggles. The Committee s selection was not based on cost alone, but consistency, continuity of benefits, performance levels, customer service levels, and turnaround time. Through this process, Delta Dental was also provided the opportunity to add the fully-insured DMO product, plus reduce the City s current self-funded administrative fee. Segal negotiated a decrease to the monthly administrative fee for the self-funded plan from the current $7.82/per member per month to $7.42/per member per month, a 5% decrease (an approximate $6,000/year savings). This rate decrease is guaranteed for the three year base period of the agreement. Additionally, Delta Dental has agreed to cap any increases to 3.5% each year in years four and five on the PPO plan. For the PPO and DMO plans, the contracts will become effective July 1, 2013, for an initial three-year term through June 30, 2016. Staff and the City s consultant, Tom Morrison of Segal, have reviewed the contracts (Attachments A and B), and are in agreement with the terms and conditions. FINANCIAL SUMMARY The total projected costs for the self-insured (PPO) and fully-insured (DMO) dental benefit for Fiscal Year 2013/2014 is included in the annual City Health Plan Cost Projection prepared by the City s health plan consultant, the Segal Company. The rates recommended in the annual health plan actuarial report (approved by Council on April 16, 2013) for dental plan costs will ensure sufficient funds are budgeted for Fiscal Year 2013/2014 in the Health Benefit ISF Dental Insurance account 552-5550-571. The anticipated annual cost for this benefit is approximately $1.8 million. This amount includes all administration and claims cost. Administrative costs account for approximately 10%, or roughly $180,000/year. City of Stockton Page 5 of 6
Attachment A - PPO Contract Attachment B - Fully Insured Contract City of Stockton Page 6 of 6