HomeMy WebLinkAboutAgenda Report - August 17, 1988 (94)COUNCIL. CGtiMUN I CAT! ON
T0: THE CITY COUNCIL
FROM: THE CITY MANAGER'S OFFCF
COUNCIL MEETING DATE
AUGUST 17, 19EX
SUBJFCr- ACCEPT CONCEPT OF SELF-INSURING MEDICAL BENEFITS
PREPARED B'i: psslstant City Manager
RECOMMENDED ACTIGN: That the City Council authorize the establishment of
a medical self-insurance program and authorize the
transfer of funds to establish a reserve pool.
BACKGROUND INFORMATION:. The City of todi has been fully insured for medical
insurance by Pacific Mutual Life Insurance since
1958. During that period of time, me have enjoyed a
good relationship and have never had a reason to shop for medical insurance.
This policy was initially brokered by Bill Stemler. About 10 years ago, 1Vh:
Stemler sold his business to William McCormack, DBA: Delta Benefit Plans.
For the past four years, our premiums have remained constant except for
specific changes made to the plan. This, in large part, was due to favorable
claims experience. In 1985, because of Federal law and the desires of our
employees, vie gave our employees an option to be insured with the Foundation
Health Plan, a health maintenance organization (HMO). This resulted i n a
number of people leaving the fully -funded plan.
There are some significant differences in the plans which made the HMO more
appealing to people with young families.
The net result is
that presently,
less than
50% of the City employees
subscribe to the fully -funded plan.
By the
same token, over 50% of the
retirees subscribe
to the fully -funded plan.
This selection has had an
adverse impact on our experience. For
instance,
between April 1987 and April
1988, paid claims
totalled $409,476.
Five persons, three of vhm were
retirees, had claims
paid i n excess of
$196,000.
This bad experience caused a rate increase of over 85% from $196.40 per family
per month, to $364.58 per family per month. W asked Pacific Mutual to review
this increase, but received a negative response. W attempted to market our
insurance plan with other insurers and again, received less than favorable
responses. At the same time, w received notification from Foundation Health
Plan that premiums increased from $205.05 per month per family to $234.55, an
increase of just over 14%.
After discussion with our broker and the General Manager of the Foundation for
Medical Care, it was determined that it was feasible and practical to
self -insure our medical plan.
Council Communication: ,.,,dical Insurance
August 17, 1988
Page Two
Self insurance is not new to the City of Lodi. We have been self-insured for
a number of years for Workers' Compensation, for employee dental benefits, and
for public liability.
Where available, we have purchased excess insurance to provide pr,,tection
against the catastrophic incident. In the medical insurance field, there are
two types of excess coverage: an individual stop loss, and an aggregate stop
loss. Tyre tndivi'tl Stop loss provides protection when an ind;vir;;al's
claims reach a particular- point. Aggregate stop loss provides protection for
the entire group against a large number of small losses. We propose to
purchase individual stop loss at 525,000 and an aggregate stop loss at
$500,000.
Costs will be controlled in two ways. The first and most important way is
through the use of preferred provider organizations (PPO). If these
facilities or doctors are used, a lesser rate is charged. In the case of
hospitalization, this can amount to significant savings. Secondly, for doctor
care, we are doing away with 100% coverage and requiring a 20%! co -payment up
to $5,000 of covered expenses. W the same token, we are eliminating the
present $100 deductible. W are also adding coverages which should make the
plan more appealing to younger families in order to increase the size of the
group.
We feel confident that financially, this plan is feasible. Using the premiums
schedul:: submitted by the Foundation Health Plan and the number of enrollees,
the plan will generate over $400,000 in premiunis.
Stop loss
insurance will cost approximately $88,000 and administrative
fees
will cost
approximately $10,000, leaving
just over $300,000 for claims.
Last
year, the
City had paid claims of
$409,476, however, five individuals
accounted
for over $196,000 of these
expenses. If these five cases are
eliminated
from our experience, the paid
claims for the remainder of the
group
was approximately $213,000. Stop loss
insurance, lower costs due to
using
preferred
providers, additional co -payments
and good luck should allow
this
project to
be successful.
in order to have funds available to pay claims, a reserve fund sho,:l d be
established. In order to be on the safe side, a fund of $100,000 seems
prudent. Therefore, Council is requested to transfer the following funds to
the Medical Insurance Reserve from:
General Fund Operating Reserve
Sewer Operating Reserve
Water Operating Reserve
Electric Operating Reserve
Library Operating Reserve
TOTAL
These allocations are based on proportion of payroll.
$ 78,000
4,000
2,000
13,000
3,000
$100,000
Council Communication: .,,:dical Insurance
.''gjust 17, 1988
Page Three
The changes in plans have been presented to employee groups with an
explanation of benefits for both the HMO and the Lodi Health Plan.
Respectfully submit -ted,
n
�JERRY L. GLENN
Assistant City Manager
JLG :vc
COJNC906/TXTA.01V