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LTC 266-2002 . . , , CITY OF MIAMI BEACH Office of the City M3 Letter to Commission No. .. .2t'tJ2 m , , To: Mayor David Dermer and Date: November 20, 2002 Members of the City Commission Jorge M. Gonzalez ~. A~ City Manager 0 "" d IMPLEMENTATION OF THE GROUP HEALTH INSURANCE TASK FORCE'S RECOMMENDATIONS From: Subject: In July of this year I met with members of the Group Health Insurance Task Force to review their final report and findings. This information was presented to you at the Commission meeting of July 31, 2002. Attached is a report from Administration that addresses, in detail, each of the Task Force's recommendations. The City appreciates the excellent work done by the Task Force and will continue to act on these ideas and recommendations within the financial guidelines of the City's budget. JMG\MDB\TCA\PH F:\HUMA\$all\Benefits\L TCTaskForce.doc " ADMINISTRATION REPORT AND ACTIONS INTRODUCTION This report lists the recommendations from the Group Insurance Task Force and addresses each of these in the form of history/prior action, issues that may effect the recommendation, and the City's action and/or possible solutions. The City recognized that, along with other public and private employers, it was experiencing significant increases in the cost of health insurance. These are a direct result of the increased cost of medical treatment and prescriptions, shrinking insurance markets and the failure of managed care. The Task Force was created with the objective of developing comprehensive solutions that address the City's continuing and growing challenges in the area of group insurance. The Task Force were asked to review the benefit levels, plan design, cost, coverage and measure the impact adopted changes might have tot he affected employee and retiree groups. The City's history alone, as it relates to health insurance, indicates some of the reasons that we are experiencing these significant cost increases. For example, when Police and Fire established their own individual health insurance trusts, these groups did not take their retirees with them into the new plans. Subsequently, their retirees remain in the City's insurable group. Both EO.P. and I.A.EF. agreed to participate on the Task Force but refused to address the health insurance premium amount paid by the City to their Trusts. In addition, the City has found a lack of participation on the part of most of the unions to actively participate in jointly managing the insurance program in a manner that will make the plans more cost effective for both the employees and the City. This year, the City offered two new plans that offered employees a means of accepting further responsibility for their own health care while the City assumed an increase premium amount (65% for employee coverage vs. 50%). Both C.W.A. and A.ES.C.M.E. refused to offer these plans to their respective groups. Implementing these two new programs are the forward looking steps the City must be taking in order to begin the process of controlling the skyrocketing cost of health care. It is imperative that we proactively address these issues with the unions during the negotiation process and look for positive interaction between the City and the Ulllons. Following are the recommendations that the Task Force made, along with the City's action plan. TASK FORCE RECOMMENDATION #1 Conform benefit plans - co-pays, Rx plans, co-insurance percentages, deductibles, out of pocket maximums - to current general industry levels, thereby reducing the overall cost of the Plans to the employees and the City. The examples of industry- accepted benefit plans provided by Gallagher should be used as a guide by the City, 1 but subject to required bargaining processes, good employee relations practices, and considerations of affordability by both the City and employees. The use of a separate Prescription Benefit Management Contractor should be considered. Historv/Prior Actions: a. The City has utilized Humana with the current plans (HMO, POS, and PPO) since 1988 with no change in benefit/contribution level. Issues: b. Union contracts require that any change to benefit/contribution be bargained. c. Requires Commission approval. Administration Action/Possible Solution: a. Current Year: Two plans in addition to the current plans (HMO & PPO) are being offered that provide coverage with higher co-pays and deductible, and with a lower premium. The new plans conform to general industry levels and will help the City move toward becoming comparable to other public employers. (Two Unions -C.W.A and AF.S.C.M.E. - declined the new plan offerings this year, preferring to negotiate the benefit. Police and Fire have their own Trusts and therefore also did not participate). This resulted in only members of the G.S.A bargaining unit, as well as Unclassified and Others, participating in the new offerings. This represents only 30% of the active workforce. Of those participating, 70 active employees made changes to the new plans. In addition, current retirees were also allowed to participate in the new offerings and 28 elected to make a change. b. Future Plan: The Administration will examine additional plans (Indemnity/Aggressive HMOIPPO) that will provide additional cost sharing by members resulting in lower premiums. In February 2003, the Administration, through the RFP process, will continue to approach all markets (both insured and self-insured) in order to obtain the best overall benefit for both employees/retirees and the City. The RFP will include request for proposals for medical (both fully funded and self-insured), separate medical coverage for active and Medicare eligible retirees, dental, life, supplemental Medicare plans, and voluntary benefits, including flexible spending accounts. This expanded scope may provide a lower premium on health insurance to the City. TASK FORCE RECOMMENDA nON #2 If an employee who has declined City coverage desires to enter the City's plan, or if a retiree who has not had City coverage desires to enter the City's plan upon retirement the City should impose a 12-month pre-existing condition restriction on coverage unless the person desiring coverage can provide evidence of previous certifiable coverage. This policy should be implemented as soon as possible. Issues: a. None. This process is already in place. 2 '. Administration Action/Solutions: a. No Administration action required. TASK FORCE RECOMMENDATION #3 The City contribution for coverage of active employees should be 80-100% of the individual employees cost for the "standard benefit plan" - which should be consistent with the benefit plan most used by employees of those employers considered to be competing with the City for employees (not necessarily the lowest cost plan offered by the City). The City should move toward having its contribution to individual coverage be the same amount for each employee regardless of plan chosen (e.g., HMO or PPO). However, recognizing the significant cost differences in the plan currently offered and the dislocation that may be caused by a sudden change in policy, a transition plan may be advisable. Whether a transition plan is necessary should depend upon the variation in cost of a new offering of plans provided by the current or a new insurer. Historv/Prior Actions: a. The City of Miami Beach amended the City's Related Special Act, Section 27:City's Health Plan for City Officers and Employees as a result of a Ballot Question on the November 6, 2001 Special Election. The Ballot Question changed the City's contribution to the health plan for City Officers and Employees from one-half of benefit costs to a specific benefit to be established by Ordinance. Issues: a. A contribution change from 50% (one-half) to 80-100% of the cost of premium represents a significant expense which cannot be absorbed in the 2003 budget. b. Should the City move toward having its contribution for each employee "equal", a long term transition plan would be needed to avoid dislocation and economic hardship for employees, retirees and the City. c. Union contracts require that any change to benefit/contribution be bargained. Administration ActionIPossible Solutions: a. The Mayor and Commission by Ordinance, amended Chapter 78 entitled "Personnel" to allow the contribution to the Health plan for City Officers and Employees to be determined by the amount of funds available each year and approved as part of the annual City Budget. The Ordinance will provide the City with more flexibility to implement needed changes. b. On October 1, 2002 the City began to contribute 65% of the employees cost for individual coverage for the additional plans (new HMO and PPO) being offered effective October 1,2002. The new plan benefits and cost sharing increases are consistent with recommendations of the Task Force. c. Contributions will be reviewed by the Administration on an annual basis as part of the budget process and changed if appropriate. 3 '. d. In addition, the City is working on identifying a "standard" plan on which to base contribution levels. TASK FORCE RECOMMENDATION #4 Contribution for Dependents: The Task Force recognizes the trend in the private sector, not followed in the public sector, for not contributing to dependent coverage. The Task Force believes that the City, as a public employer, should continue to support dependent coverage to remain competitive with other public employers and to remain consistent with its past commitments to its employees. Historv/Prior Action: a. Since the establishment of the "Employees' Benefit Plan" the City has provided contribution for dependent coverage. Issues: a. The cost associated with contribution to dependent coverage represents a significant expense to the City. b. Continued contribution by the City for dependent coverage is a benefit to employee members of the plan and will help the City to remain competitive with other employers. c. Union contracts require that any change to benefit/contribution be bargained. Administration Action/Possible Solution: a. The Administration concurs with the Task Force and will continue to support contribution for dependent coverage at this time. TASK FORCE RECOMMENDATION #5 The City should move from a 2-tier dependent premium structure to a 4-tier premium structure. The tiers are defined as follows: (1) Individual; (2) Individual + spouse; (3) Individual + children: and (4) Full family coverage. Consideration should be given to a 3-tier premium structure as well. *See Response after Ouestion #6 TASK FORCE RECOMMENDATION #6 The city contribution to dependent coverage should be a function of the following consideration: a. If the City makes a higher percentage contribution to individual coverage, it is appropriate to make a lower percentage contribution to dependents b. Affordability by the employees, with consideration given to the current 50% contribution to dependent coverage c. Affordability by the City relative to increase in contribution it may be making to individual coverage d. Practices of competitive public employers. 4 " Historv/Prior Actions: a. Since the establishment of the "Employees' Benefit Plan' the City through the RFP process has requested plans with optional tier structures. Issues: a. Employees pay the same amount for dependent coverage regardless of the number of dependents. Higher utilization of a plan results in higher premium. Employees with one dependent are bearing the increase in the cost of employees with more than one dependent (higher utilization). It appears that the premium cost for a 2- tier structure is not equitable among members. b. Changing from a 2-tier structure to a multiple tier structure will cause a shift in premium cost and will affect certain groups. For example, to change to a 3-tier structure under the HMO plan, the initial projected renewal would have been a 36% increase in the family rate for the October 2002 plan year. Changing to the 3-tier would have given the employee plus one a 10% increase in premium, but the 3rd tier (employee plus 2 or more) would result in a disproportionate increase of approximately 56%. c. Union contracts require that any change to benefit/contribution be bargained. Administration ActionIPossible Solution: a. It is the desire of the Administration that the Employees' Benefit Plan be equitable to all employees. To meet this challenge, the plans must first be comparable to current industry standards and mirror other public employers. The success of implementing changes discussed above directly affect the ability to change from a 2-tier structure to a multiple tier structure, while retaining affordability for all employees. The Administration will continue to assess the feasibility of changing from a 2-tier to a multiple tier structure. TASK FORCE RECOMMENDATION #7 The Task Force recognized that the prevailing South Florida public employer practice is to not contribute to retiree health benefits. The Task Force did not have a consensus about whether the City should make a contribution to retiree health benefits. However, the Task Force recommends: a. The City should assess whether it wishes to continue its 50% contribution level (or some other contribution), but any contribution should be based upon years of service. The Task Force believes that employees should serve at least 10 years before being entitled to the maximum City contribution (if any) to retiree health benefits. b. The 401(a) definition of retirement eligibility should not be applied to health benefit retiree health plan eligibility as it is now. The current policy is clearly inappropriate and should be changed as soon as possible. Retiree health plan eligibility should be based upon years of service. c. The City should aggressively pursue use of "Medicare HMO's" and "MedicareeSupplemental Policies" to provide coverage for its Medicare eligible retirees. Attention should be focused upon a viable Rx benefit. These products may 5 '. provide the opportunity to increase for retirees who chose them at lower cost to those retirees and the City. City contribution policy for retirees should be examined in the light of these "win-win" opportunities. Historv/Prior Action: a. Florida Statute 112.0801 provides that any state agency, county, municipality offer to its retirees and their eligible dependents the same health and hospitalization insurance coverage as is offered to active employees at a premium cost of no more than the premium cost applicable to active employees. While the statute does not mandate that the public entity contribute to the cost of insurance, the City of Miami Beach pays one-half the premium for both single and dependent coverage. The eligibility and contribution apply to any pension plan of the City (General, Unclassified, 401a). Retiree status exists as long as the individual receives a pension benefit. b. Pursuant to Chapter 78-31 the definition of a "member" is any regular employee of the city participating in the plan. c. Pursuant to Chapter 78-31(1) the definition of "regular employee" includes any member of the city commission, officer, department head, regular employees in the legal department employed on a full-time basis, servant or agent of the city regularly receiving compensation from the city for personal services and employees retired for service or disability under any city pension system-(active employee and retirees are treated the same). d. Pursuant to Chapter 78-31(2) retirees must be vested and receiving a pension benefit to be eligible. Issues: a. City must maintain compliance with Florida Statute 112.0801 b. Can the City change the contribution percentages provided for current retirees; for employees that are active now and anticipating a 50% City contribution; for those employees vested in their pension plan (vesting is immediate for those employees in the 401(a); and for employees hired henceforth? What are the legal or contractual issues with changing the contribution for each of these groups? c. Do changes in contribution have to be bargained as to effect on yet-to-retire employees? d. The City offers many different pension plans based on employee classification and personal selection. Should we strive for consistency as it relates to retirement benefit eligibility? e. Should the benefit contribution percent be based on years of service? Administration ActionIPossible Solution: a. The Administration has referred questions to the City Attorney's Office to determine what changes, if any, can be made to the City's contribution for current retirees, vested individual, active employees and future new hires (state law, federallaw, contractual issues). 6 " b. Assuming changes are allowed, the Administration will look at closing the gap between the retirement provisions of the City's Pension program and the City's 401(a) retirement plan to make them similar. It is anticipated that this is another area that must be negotiated. c. The City will include in the next RFP for health insurance requests for Medicare supplemental plans and Medicare HMO plans. d. Changes in this element may be better addressed when potential amendments to the various pension system are considered - as they directly correlate. TASK FORCE RECOMMENDATION #8 Based upon favorable experience with their plan, the Fire Department Task Force Members recommend that the City aggressively examine the option of self-insurance with a stop-loss. Historv/Prior Action: a. The City obtains all insurance through utilization of the RFP process. The City always includes self-insurance as an acceptable option, however all proposals to date have not been cost effective. In response to the last RFP issued, the following estimated costs were provided for Self-Funded plans: Vendor Humana CIGNA Benesight TPA (Benesight Excess) Benesight TPA (Lincoln Excess) Estimated Annual Cost $10,661,800 $11,456,487 $11,785,516 $11,755,352 By way of comparison, the Humana fully insured projected amount at the comparable time was $9,169,105, almost $1.5 million less. These costs were provided to our broker, Arthur J. Gallagher & Co. in October 2001 as a result of the RFP and are not reflective of current costs. Administration ActionIPossible Solutions: The City will continue to look at creative options to pursue the possibility of using self-funding versus, or in tandem with, fully funded plans. CONCLUSION The City appreciates the work of the Task Force and will continually and proactively move to review and implement changes that are cost effective for the both the City and our employees. The City began to make some of the requested, and necessary, changes this year and will continue with the RFP for health insurance and with the unions as the next negotiating sessions begin. Health care is an area of concern to management and employees and the City recognizes its responsibility to provide comprehensive and affordable alternatives. P:\HUMA\$aIJ\Bea.efits\l.:rc-tuldu'ce.doc 7