LTC 266-2002
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CITY OF MIAMI BEACH
Office of the City M3
Letter to Commission No. .. .2t'tJ2
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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
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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,
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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.
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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.
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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.
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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
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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).
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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.
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