82-17210 Li,
RESOLUTION NO. 82-17210
A RESOLUTION OF THE CITY COMMISSION OF THE CITY
OF MIAMI BEACH, FLORIDA, APPROVING THE HIRING OF
JOHNSON & HIGGINS OF FLORIDA, INC. , AS THE IN-
SURANCE CONSULTING FIRM DURING THE ANALYSIS AND
REVIEW PROCESS OF THE CITY'S EMPLOYEE BENEFIT
SYSTEM.
WHEREAS, on September 15, 1982, the City Commission of the
City of Miami Beach directed the Administration to review the City 's
present standing with the Aetna Insurance Company; and
WHEREAS, on October 1, 1982 the Administration notified
the Commission that, pursuant to an option previously offered by
them, a new insurance consulting firm would be hired during the an-
alysis and review process of the City 's employee benefit system; and
WHEREAS, After comparative evaluations and recommenda-
tions by the Board of Trustees of the Retirement System for General
Employees and Elected Officials of the City of Miami Beach, the firm
of Johnson & Higgins of Florida, Inc. has been recommended to fill
the position of insurance consulting firm; and
WHEREAS, upon the approval of the City Manager as to ser-
vices and billings pursuant to the attached letter of proposal from
Johnson & Higgins dated November 29, 1982, and the terms set forth
in the attached Commission Memorandum No. 783-82 , the recommendation
of Johnson and Higgins is approved;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF
THE CITY OF MIAMI BEACH, FLORIDA, that the consulting firm of
Johnson & Higgins of Florida, Inc. be hired as the City's consultant
during the analysis and review process of the City's employee bene-
fit system.
PASSED and ADOPTED this 15th day of December ,
1982
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MAYOR
ATTEST:
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CITY CLERK '
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1292a Agenda Item C-4-A
(Requested by the Board of Trustees of the Retirement System
for General Employees and Elected Officials of
the City of Miami Beach)
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OFFICE OF THE CITY ATTORNEY-1700 CONVENTION CENTER DRIVE-MIAMI BEACH,FLORIDA 33139
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OFFICE OF THE CITY MANAGER CITY HALL
ROB W.PARKINS 1700 CONVENTION CENTER DRIVE
CITY MANAGER TELEPHONE: 073.7010
COMMISSION MEMORANDUM NO. /5)3l12'
DATE: December 15, 1982
TO: Mayor Norman Cime
Members of the Corn ssi• a
FROM: Rob W. Parkin
City Manager
SUBJECT:
RECOMMENDATION F0' INSURANCE CONSULTANT
In accordance with the Commission's directive of September 15, 1982 to review the City's
present standing with our primary carrier, The Aetna, and, if necessary, to solicit
comparative quotes from other insurance carriers/third party administrators, the
Administration notified the Commission on October 1st that the City would be utilizing
the option expressed by them of hiring a consultant, rather than using our present
consultant, Frank B. Hall. During the month of October, letters were sent to five
employee benefit consulting firms with the intent of soliciting comparative proposals in
order to hire a firm which would assist the City in reviewing the present healthcare
system (i.e. insurance carrier). Proposals were received from each of the consulting
firms identified by the Administration as potential candidates.
Each consulting firm outlined specific approaches involved in the process of
reviewing alternative financing methods and/or a more competitively priced
insurance carrier. The objectives identified by each firm are considered
fundamental or standard approaches used by all consultants for purposes of
reviewing an insurance plan. However, certain outside forces have had a strong
impact on our benefits plan, specifically, the entrance of H.M.O.'s, the increased
costs of the healthcare industry, the pending effects of the 1983 Medicare
legislation, and the large number of retirees in the system. These factors and more
have created the necessity for properly analyzing our present situation in order to
obtain an understanding of the effects past practices have had on the benefits plan
and to identify viable alternatives for future use.
Of the five firms evaluated, Johnson & Higgins of Florida, Inc. developed
approaches which would not only provide the City with guidance and
recommendations for our immediate needs, but would develop a comprehensive
plan of action for any future endeavors. The approach used by Johnson & Higgins
provides for the opportunity to gain a full understanding of the special problems
and needs distinctive to the City. The anticipated costs for their services is
between $14,000 and $18,000 with an estimated timeframe of four (4) months for
completion. Payment to the consultant will be made at the completion of each
review phase.
After a thorough review and discussion with members of the Pension Board, the
Board approved at their November 22, 1982 meeting, the Administration's
recommendation to hire the consulting firm of Johnson & Higgins. Attached for
your review is a copy of the firm's Fee Letter which has been reviewed by the
Legal Department, and the resolution to approve the hiring of the consulting firm.
SOURCE OF FUNDS •
Funds not to exceed $18,000 are to be appropriated from the City's Contingency Fund.
ADMINISTRATION RECOMMENDATION
The Administration recommends to the City Commission that the consulting firm of
Johnson ac Higgins of Florida, Inc. be hired as the City's consultant during the analysis and
review process of the City's employee benefit system. AGENDA
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CAILI ADO SS••KUOCIN" P.O.DRAWER
TIM'a.1104444 9300 S.DADELAND BOULEVARD
MIAMI,FLORIDA 33156
November 29,•
1982 TELEPHONE 665-9261 AREA CODE 305
Ms. Cheryl Moorehead
Personnel Representative
City of Miami Beach
1700 Convention Center Drive
Miami Beach, Florida 33139
Dear Cheryl:
You asked us to furnish you with a letter which will outline
J&H' s welfare plan consulting activity for The City of Miami
Beach.
We will begin with an evaluation of the underwriting-service
performance of your present group insurance carrier. We will
also recommend that you establish a centralized group health plan
i:inancial monitoring system within your department.
Upon the completion of the evaluation phase of the study we may
recommend that the City seek competitive quotations from other
insurance companies and possibly third party administrators. We
will then (with your participation) prepare specifications,
evaluate bid results, narrow the field to two finalists, and help
you select the funding service agency which will best serve the .
City's needs. Whenever appropriate we will prepare written re-
ports and, if you wish, appear with you before the Pension Board
and City Commission.
In our October 13th letter to you we quoted a fee range of ten to
eighteen thousand dollars. On November 23rd you conducted a
"finalist" interview in which we had the opportunity to discuss
in greater detail the 'Commission' s objective of controlling
health care costs, your strategies in implementing this objective
and the current status of your health plan(s) . As a result of
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Ms. Cheryl Moorehead
November 29, 1982
Page 2
this meeting, we continue to feel comfortable with our overall
fee range although we expect to allocate more time to the evalua-
tion phase because of the importance to the City of establishing
an ongoing financial monitoring system. Our fee is a function of
.. hours worked and the hourly billing rate of the level of the
consultant performing a particular task. We are prepared at any
time to render you a detailed accounting of our charges. We will
bill you as the interim assignments are completed. Preparatory
to each billing we will review our charges with you.
PHASE I - Fact Finding
This includes:
o An Audit and Reconciliation of Aetna Plan Experience for the
Policy Period ending April 31 , 1982 involving -
. Reserve(s) , Accumulation Function and Treatment
. Retention components
. Pooling charges and Experience
. Paid and Incurred Claims
. Calculation of (deficit) or surplus
o Contract Examination -
. Split Funding Agreement
. Deficit Recoupment Formula
` . Contract Termination Procedures
o Formulation of Monthly and Cumulative "Net Cost Statements"
from the Policy Period ending April 31 , 1982 to the Present
. Calculation of Insured Liabilities
. Calculation of Insured Charges
. Calculation of Uninsured Liabilities
. Calculation of Uninsured Charges
• . Calculation of (Deficit) /Surplus
o Examination of the Aetna's Service Performance
• COB Savings
. Report Format
. Claims
. Documentation
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JOHNSON a HIGGINS •
Ms. Cheryl Moorehead
November 29, 1982
Page 3
Comment: We anticipate that the Aetna will furnish us with most
of the documentation we require. We expect that the City will
furnish copies of some of the Aetna's monthly reports either from
the Personnel or Finance Departments. If the source material is
readily available we may be able to reconstruct monthly net cost
statements for the period May 1, 1981 to April 31, 1982. This
would be informative to the City because it would reflect the im-
pact on the plan due to the loss of approximately one third of
the active work force to HMO's. Completion of the net cost
statement subsequent to the end of the prior policy year will
enable us to accurately discern current claim trends, and most
importantly, determine the impact on experience of the recent
plan design modifications. Keep in mind that we'll also be
examining the funding of the City's group life plan.
We will request that Aetna segregate experience between active
and retired plan participants and their dependents. We will also
examine their capability to segregate experience between hospital
and surgical.
Upon the completion of Phase I we will prepare background mater-
ial suitable for an interim report to the Commission concerning
the Aetna's suitability to continue as the City's health care
carrier and whether it is, in our opinion, necessary to proceed
with Phase II.
PHASE II - Specification Development
Preparatory to the preparation of specifications we must decide ,
whether it is in the City's best interest to continue with the
present minimum premium (MMP) split funding concept or become
' fully self insured under a "Medical Reimbursement" approach
either through a third party administrator (TPA) , or an insurance
company administrative services only (ASO) contract. We think
you will want to weigh the pros and cons of each approach.
Specification format will depend on the nature of the funding
vehicle as discussed above. Our specification layout lends
itself to ease of comparison. We require competing parties to
sign off on each section and identify any deviations. In de-
veloping the loss fund we will take into consideration any
"claims runoff" for which the Aetna may be responsible. We will
set performance criteria.
The City will be required to provide a current participant
census.
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JOHNSON Ai HIGGINS
" Ms. Cheryl Moorehead
November 29, 1982
Page 4
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PHASE III - Carrier Selection
You indicated consideration of two insurance carriers (in addi-
tion to the Aetna) and three Third Party Administrators. We
applaud the idea of limiting competing service agencies. We
R think it is important though to make sure the competitors meet
our pre-screening criteria.
In picking the finalist we have formulated a "point" measuring
system to assist the City in its selection. In addition to meet-
ing our performance criteria we also require a service agency to
make available its most talented staff to the service of our
clients.
We look forward to officially commencing this study.
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4, Sincerely,
Herbert
Herbert C. Achtmeyer
Vice President
HCA/dmj
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