HomeMy WebLinkAbout1997 BAKERSFIELD
CITY MANAGER'S OFFICE
MEMORANDUM
August 6, 1997
TO: Personnel Committee Members -
FROM: John W. Stinso~, ~stant City Manager
SUBJECT: Health Insurance Renewal/Marketing Summary Report
Attached are several key sections from the Health Insurance Renewal/Marketing Summary.
Report prepared by Herb Kaighan, of AON consulting. I am providing you with the Introduction
which describes the plans, the Renewal Summary, the Marketing Summary, the Executive
Summary and the glossary of terms. The remainder of the report which consists of the numerous
pages of detailed supporting financial and rate information and other backup information will be
available in the City Clerk's Office should you wish to review it.
Herb Kaighan will be attending the Personnel Committee meeting to provide an overview of the
report and its recommendations. He will also be able to address any questions you may have at
that time. The report has been reviewed by the employee insurance committee and staff. Their
recommendations will be presented at the Committee meeting on Monday.
PAATTASKS\Vacation request.wpd
Introduction
THE CITY OF BAKERSFIELD
INTRODUCTION
On behalf of the City of Bakersfield (City), Aon Consulting (Aon) has requested proposals for a benefits package including medical
[Fee-For-Service/Prudent Buyer (FFS/PB), Health Maintenance Organization (HMO) and Medicare Risk)] with prescription drugs and
dental (indemnity and prepaid) coverages. The reason for the marketing is to confirm that the City's current costs and benefit
programs are competitive in the marketplace.
The City offers Fee-For-Service/Prudent Buyer (FFS/PB) and HMO medical coverage with prescription drug benefits to actives,
COBRA-eligibles, and retirees and their eligible dependents. These plans are unde/'written by Blue Cross of California (Blue Cross)
on a fi~lly-insured basis. The FFS/PB portion is refi~nd eligible. Medicare Risk coverage is available to Medicare eligible retirees and
Medicare eligible dependents. These coverages are currently underwritten by Blue Cross and PacifiCare of California (PacifiCare) on
a fully-insured basis.
Active employees (including COBRA-eligibles) and their eligible dependents can also enroll in either the indemnity dental or a choice
between two prepaid dental plans. The City offers employees the Blue Cross indemnity dental and prepaid plans from Dedicated
Dental Systems, Inc. (DDS) and ltealth Benefits, Incorporated (HBI). These coverages are underwritten on a fully-insured basis by
the carriers. The Blue Cross plan is refund eligible.
1
7;28.'97 Edition
THE CITY OF BAKERSFIELD
INTRODUCTION
Census data received from the City indicates eligible parti~cipants are enrolled in either the FFS/PB, HMO or Medicare Risk and
indemnity or prepaid dental plans. Based on the above information, we requested proposals from insurance carriers to duplicate, as
closely as possible, the existing medidal (FFS/PB, HMO, and Medicare Risk) and dental (indemnity and prepaid) plans. Both the
specifications and bid list were approved by the City. Following is a summary of who received the specifications and their
response(s), or lack thereofi
· Aetna Quoted Medicare Risk.
· American Benefits Network (ABN) Quoted !)I'O medical.
· Ameritas Quoted PPO dental.
· Blue Cross Presented renewal of existing FFS/PB, HMO and Medicare Risk
and indemnity dental coverages and quoted prepaid dental.
· Blue Shield Quoted PPO and HMO medical and Medicare Risk.
· Care America Quoted Point-of-Service (POS) and HMO.
· CIGNA Quoted prepaid dental.
· CNA Declined to quote.
· DDS Presented renewal of existing prepaid dental.
· Delta Dental Quoted indemnity, PPO and prepaid dental.
· Dental Benefit Providers Declined to quote.
2
7/28197 Edition
THE CITY OF BAKERSFIELD
INTRODUCTION
· DentiCare Quoted indemnity, PPO, and prepaid dental.
· FHP Declined to quote.
· First Dental Health Declined to quote.
· Foundation Health Plan Quoted PPO and HMO medical.
· General American Declined to quote.
· Great West Declined to quote.
· HBI Presented renewal of existing prepaid dental.
· Health Net Declined to quote.
· Jefferson Pilot Declined to quote.
· Kaiser Quoted POS, HMO and Medicare Risk.
· Maxicare Declined to quote.
· MetLife Quoted indemnity, PPO, and prepaid dental.
· MetraHealth Quoted PPO and HMO medical.
· MIDA Dental Declined to quote.
· Mutual of Omaha Declined to quote.
· New England Declined to quote.
· NYL Care Declined to quote.
3
7/28/97 Edition
THE CITY OF BAKERSFIELD
INTRODUCTION
· PacifiCare Presente~l renewal of Medicare Risk and quoted HMO medical and indemnity
and prepaid dental.
· Prudential ' Declined to quote.
· ReliaStar Declined to quote.
· Safeguard Declined to quote.
· United Dental Declined to quote.
· Western Dental Declined to quote.
In addition, the benefit specifications were sent to any insurance carrier or broker that requested them. We received separate proposals
from several brokers duplicating the insurance carrier's proposals we had already received. The following brokers provided proposals
from the indicated carriers:
Broker Carrier(s)
· Cavale and Taylor MetraHealth.
· Clifford and Bradford Kaiser.
· Gagosian and Barks Blue Shield, Foundation, and Kaiser for medical and DentiCare for dental.
4
7/28/97 Edition
THE CITY OF BAKERSFIELD
INTRODUCTION
We were also informed by Care America that they prepared a proposal for a broker that did not want to be identified. It was released
directly to the broker. Care America was not willing to release a copy of it to Aon. However, Care America did submit to Aona
response to our specifications as indicated above. Their proposal was not competitive and was not included in the report.
Aon requested 1998 renewal rates from the City's current medical and dental providers. In light of the marketing results, the rates to
renew coverage with the incumbent carriers appear to be very competitive.
The most cost competitive alternative proposals for the £ollowing coverages were received from:
PPO/POS Medical HMO Medical Medicare Risk Indemnity Dental Prepaid Dental
Blue Shield (PPO) Blue Shield Blue Shield Delta Dental Delta Dental
Kaiser (POS) Kaiser
The Aetua, ABN, Ameritas, Blue Cross (prepaid dental), Care America, CIGNA, Foundation ltealth Plan, Kaiser (Medicare Risk),
Met Life, MetraHealth, and PacifiCare (HMO medical and indemnity and prepaid dental) proposals were not cost competitive or did
not meet the proposal criteria, therefore, no analysis of these programs is included in this report.
5
7/28197 Edition
THE CITY OF BAKERSFIELD
INTRODUCTION
Finally, the insurance carriers' proposals submitted by other brokers duplicated the proposed rates and benefits of the proposals
received directly by Aon from these carriers. These proposals have no advantage when compared to the proposals received directly
from the carriers. All proposals submitled by Kaiser, Foundation, and Denticare include commissions so rates were the same. Blue
Shield submitted their proposal to Gagosian and Barks and to Aon with commissions but agreed to remove commissions from Aon's
proposal. Therefore, the Blue Shield rates shown in our report are lower. MetraHealth's proposal to Aon and the broker contained no
commissions. Care America indicated their proposal to Aon and the other broker include commissions. Thus, the broker proposals do
not contain any information that is not ah'eady shown in our report. Table I summarizes if commissions are or are not included in the
proposals carriers released to Aon and to other brokers:
Table 1. Commissions Status
Cartier Aon Proposal Broker Proposal
Blue Shield Without comnfissions With commissions
Care America With commissions With commissions
Denticare With commissions With commissions
Foundation With commissions ~ With commissions
Kaiser With commissions With commissions
MetraHealth Without commissions Without commissions
6
7/28/97 Edition
THE CITY OF BAKERS'FIELD
INTRODUCTION
If the City decided to implement coverage with a carrier that included commissions in their rates, Aon would arrange to return
commissions directly to the City.
Our review focused on the City's ability to maintain, or to improve, the medical and dental benefits offered to eligible plan
participants with the least amount of disruption and minimal additional administrative change for the City. This could be achieved by
either:
· Renewing the existing benefits package with the current carriers, or
· Renewing some coverages with current carriers and moving other coverages to alternate carriers.
7
7/28'97 Edition
THE CITY OF BAKERSFIELD
INTRODUCTION
Our report is arranged as follows:
Section 1 '
· Part A Renewal infom~ation for the incumbent carriers (and Blue Cross' alternative Medicare Risk proposal).
· Part B Summary of viable proposals received from the marketing.
· Part C Executive summary.
· Section 2 Cost and benefit comparisons for the current FFS/PB and alternative PPO.
Section 3 Cost and plan comparisons for the current and alternative HMOs.
· Section 4 Cost and benefit comparisons for the current FFS/PB and altematiVe POS.
· Section 5 Cost and plan comparisons for the current and alternative Medicare Risk plans.
· Section 6 Cost and benefit comparisons for the current and alternative Indemnity and Prepaid Dental coverages.
8
7/28/97 Edition
THE CITY OF BAKERSFIELI)
INTRODUCTION
· Section 7 Glossary of Terms
· Section 8 Insurance Carrier Letters
9
7/28:97 Edition
Part A- Renewal Summary
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
The City offers FFS/PB and HMO medical to actives, COBRA-eligibles, and retirees and their qualifying dependents. Medicare. Risk
is offered to Medicare-eligibles and their dependents. Based on the census data received, the enrollment, and respective percentages of
total enrollment, by plan is approximately:
Plan Percentage of
Active Retiree COBRA Total Total Medical Plans
Blue Cross FFS/PB 488 158 3 649 46.6%
Call forniaCare HMO 580 121 3 704 50.6%
Blue Cross Medicare Risk N/A 10 N/A 10 0.7%
PacifiCare Medicare Risk N/A 29 N/A 29 2.1%
10
7/28 97 Edilion
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
For the dental programs, the enrollment and percentage in eaci~ plan are approximately:
' Plan Percentage of
Active COBRA Total Total Dental Plans
Blue Cross Indemnity 504 17 521 48.0%
DDS 128 N/A 128 i 1.8%
HBI 436 N/A 436 40.2%
The following summarizes renewals for the Blue Cross (including the proposed Senior Secure III, Medicare Risk alternative), DDS,
HBI, and PacifiCare coverages.
11
7/28,;97 Edition
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
BLUE CROSS PLANS
FFS/PB Medical Platt
· The current FFS/PB plan has an annual deductible of $150 for the individual; the family limit is three times the individual amount.
A 30 day supply of prescription drugs obtained at a pharmacy are covered after a $10 copay for brands and a $5 copay for generics.
Mail order prescriptions are covered after a $5 copay for a 60 day supply.
· The Blue Cross FFS/PB plan covers most inpatient network benefits at 100%, office visits at 80%, and other outpatient services at
80% to 90%. Non-network inpatient, authorized, benefits are covered at 80%, office visits at 80%, and other outpatient services at
70% to 80%. Blue Cross' network benefits arc bascd on negotiated rates; non-network benefits on usual and customary (U&C).
· Blue Cross pays claims at the 70th percentile; that is 70% of all non-network claims are paid with no cutbacks for excess over
U&C.
~, The renewal assumes indemnity claims will continue to be paid by the Kern Foundation.
· Based on the zip code information, Blue Cross produced a provider network match showing that 98.6% of eligible participants
would have access to two primary care physicians (PCPs) within 10 miles of their home residence; 93.2% would have access to two
specialty care physicians (SCPs) within 10 miles of their residence; and 99.9% would have access to one hospital within 30 miles
of their home residence.
12
7/28;97 Edition
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
· Blue Cross did not propose any changes to the current ~FS/PB plan of benefits for a January 1, 1998 effective date. Assuming
enrollment in the FFS/PB plan remains unchanged from the data included in the City's census file, annual FFS/PB premiums are
projected to be approximately $2,629,000, a decrease of about 7.6% (or $216,000) compared to current annual cost. Rates are
guaranteed for 12 months, through December 31, 1998.
· The City's pooling point is currently at $125,000. To increase the pooling point to $150,000, Blue Cross proposed a 1% decrease
(an additional $26,000 savings) to the renewal rates. To increase the pooling point to $200,000, the proposed rates would decrease
by 1.5% (an additional $39,000 savings) to the renewal rates.
· Blue Cross guarantees the following rating factors and components for the second and third year renewal calculations:
- Annual maximum medical trend factor will be: 8% for medical and 9% for prescription drugs.
- Retention will not increase more than 5% above $35.92 per contract per month for medical and prescription drugs.
- Pooling will not increase more than 5% above $13.71 per contract per month for a $125,000 pooling point, $1 I. 16 for a
$150,000 pooling point, or $8.69 for a $200,000 pooling point.
13
7/28t97 Editioa
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
HMO Medical Platt
· For services obtained from a participating provider, the Blue Cross HMO plan covers inpatient care at 100% and outpatient care
with a $5 copay. Prescription drugs are covered after a $10 copay for brands and a $5 copay for generics for active employees; a $5
copay for brands and a $2 copay for generics for retirees. Prescription drugs obtained through the mail order supplier are covered
after a $5 copay for actives and a $2 copay for retirees.
· Based on the census data, Blue Cross' HMO provider network match report shows that 94.9% of eligible participants would have
access to two PCPs within 10 miles of their hmne residence; 88.3% would have access to two SCPs within 10 miles of their
residence; and 99.2% would have access to one hospital within 30 miles of their residence.
· Blue Cross did not propose any changes to the current HMO plan of benefits for a January 1, 1998 effective date. Assuming
enrolhnent in the ttMO plan remains unchanged from the enrolhnent figures included in the City's census file, the Blue Cross
annual HMO premiums are projected to be approximately $2,337,000, producing a savings of 1.5% or $36,000 below current cost.
· For the second year, Blue Cross guarantees no greater than an 8% increase to the HMO renewal rates.
· If the City decides to implement the $3 office visit HMO plan, the projected annual cost, assuming current HMO enrollment, will
be $2,360,000, an approximate increase of 1% (or $23,000) over the HMO renewal rates.
14
8i4 97 Edilion
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
Medicare Risk Platt
· Blue Cross' Senior Secure Medicar6 Risk plan covers inpatient care at 100% and outpatient care with a $5 copay. Prescription
drugs are covered after a $5 copay for brands and generics filled only at a participating pharmacy or through mail order.
· Blue Cross also proposed an alternative Medicare Risk plan, Senior Secure III, which provides richer benefits than the current plan.
This plan covers inpatient care at 100% and most outpatient services are covered without a copay. Formulary brand prescriptions
are covered after a $10 copay; formulary generics after a $5 copay. The drug copays apply to those filled at a pharmacy or through
the mail order program. In addition, hearing supplies arc covered up to a $500 maximum per year.
· Blue Cross renewed the City's plan for a July 1, 1997 effective date at "zero premium". Blue Cross also proposes to offer the
Senior Secure I11 plan at "zero premium". According to Blue Cross, "zero prenfium" means the plan participants will not be
charged a premium cost for enrolling in the plan. The cost of the plan will be covered through capitation payments received from
the Federal Government by Blue Cross based on the number enrolled. Assuming enrollment in the Medicare Risk plan remains
unchanged from the enrollment information included in the City's census file, the projected annual Blue Cross Medicare Risk
premiums will decrease by approximately $3,000 compared to current annual cost.
· Rates are guaranteed for 18 months, through December 31, 1998.
7,2S/97 Edition 1 5
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
lndemnit~ Dental Plan
· The indemnity dental plan has a $50 individual deductible; the family deductible equals three times the individual amount.
Diagnostic and preventive services are covered at 100%; basic and major services at 80%; child orthodontia at 50%. Services are
covered at U&C.
· Blue Cross pays claims at the 70th percentile.
· The renewal assumes indemnity claims will continue to be paid by the Kern Foundation.
· Blue Cross did not propose any changes to the current indemnity dental plan of benefits for a January 1, 1998 effective date.
Assuming enrollment in the dental plan remains unchanged from the enrollment figures included in the City's census file, the
projected annual indemnity dental premiums will be $373,000, no change compared to current annual cost.
· For the renewal effective January 1, 1999, Blue Cross agrees that the retention component used in calculating the renewal will not
increase more than 5% above $4.08 per contract per month.
16
7/28, 97 Edition
A ou
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
DEDICA TED DENTAL S YS TEMS, INC.
.Prepaid Dental Plan
· DDS's current prepaid dental Plan covers most preventive, diagnostic, restorative, periodontic, and endodontic services at no cost to
the employee. Copays are required for crowns and bridges, pontics (with non-precious metals), prosthodontics, and oral surgery.
Phase I orthodontics is covered with a $575 copay and Phase II with an $1,150 copay. These amounts do not include applicable
copays for x-rays, case studies, diagnosis, and retention. The following benefits which were not covered previously will be covered
effective January 1, 1998 at no charge or with a small copay: additional prophylaxis, sedative base, space maintainers,
recalcification, extra stress breakers, removable unilateral bridges, denture adjustments, tissue conditioning, broken denture repairs
with no teeth involvement, and intra-oral I.C.D. of abscesses.
· DDS indicates they have twenty (20) primary dentists in their network of which 13 have offices with Bakersfield addresses.
· Effective January 1, 1998, assuming enrollment in the prepaid plan remains unchanged from the enrollment figures included in the
City's census file, the projected annual DDS prepaid dental premiums will be $65,000, a decrease of approximately 2.4% (or
$2,000) compared to current annual cost.
· DDS agreed to guarantee the proposed rates for three years.
17
7/28/97 Edition
x
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
HEAL TH BENEFITS, INC.
Prepaid Dental Plan
ttBl's current prepaid dental plan is similar to the plan proposed by DDS effective January 1, 1998 except that crowns, bridges, and
pontics require lesser copays, however, some periodontics, endodontics, veneers, and oral surgery require a 50% copay. In
addition, orthodontia benefits are subject to higher copays. (Phase I at $600 and Phase II at $1,200. These amounts do not include
the cost for records and retention.) Overall, the current tiBI plan provides a richer benefit compared the the DDS plan.
· HBI indicates they have twenty-four (24) primary dentists in their network of which 10 have offices with Bakersfield addresses.
· Effective January 1, 1998, HBI agrees to continue the current rates. Assuming enrollment in this prepaid plan remains unchanged
from the enrollment figures included in the City's census file, HBI's annual prepaid dental premiums will remain unchanged
compared to current annual cost.
· As an alternative, HBI can duplicate DDS' plan of benefits and proposed rates effective January 1, 1998. Using the current HBI
enrollment assumptions, the projected annual premium would be $217,000, a 2.4% ($5,000) decrease. We do not believe the
employee disruption caused by reducing benefits offsets the potential savings, especially since the majority of the City's prepaid
dental participants are enrolled in this plan.
· HBI guaranteed the renewal rates for both plans of benefits for three years.
7/28 97 L:dilion I 8
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
PACIFICARE i
Medicare Risk Platt ,
· PacifiCare's Medicare Risk (Secure Horizons) plan covers inpatient care at 100% and outpatient care with a $3 copay. Prescription
drugs are covered after a $5 copay for brands and generics filled at a pharmacy or through the mail order service. The plan also
includes a benefit for glasses and limited dental coverage (exams).
· PacifiCare proposed to renew the City's plan for a July I, 1997 effective date with no plan changes and a rate decrease. Assuming
PacifiCare retains their current enrollment, annual Medicare Risk premiums for the Secure Horizons plan will be approximately
$7,000, a decrease of 18.2% (or $2,000) compared to current annual cost.
· The proposed rates are guaranteed until for 18 months through December 31, 1998.
19
7125/97 Edition
THE CITY OF BAKERSFIELD
RENEWAL SUMMARY
CARRIER SUMMARIES
· To renew all existing Blue Cross medical (continue the current Medicare Risk plan or implement the new Secure Plan III) and
dental, DDS and HBI prepaid dental, and PacifiCare Medicare Risk coverages, the estimated annual renewal premiums (based on
the census data provided) will be approximately $4,973,000 for medical and $660,000 for dental. The overall premium reduction
will be approximately $258,000, or 4.4% less than current premium.
2O
8'4/97 Edition
Part B - Marketing Summary
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
BLUE SHIELD
Blue Shield proposed their PPO and HMO medical and Medicare Supplement coverages. They did not feel their indemnity dental
rates would be competitive compared to the Blue Cross plan and their prepaid dental network access levels were not comparable to the
DDS and HB1 networks, therefore, they declined to quote dental coverage.
PPO Medical Plan
· Blue Shield's proposed PPO plan matches the current individual deductible, however, the family deductible is $500 compared to 3
times the individual amount (or $450) under Blue Cross.
· Like the Blue Cross plan, Blue Shield covers most network inpatient benefits at 100%, office visits at 80%, and other outpatient
services at 80% to 90%. Network charges are covered based on negotiated rates. Blue Shield indicated "Standard Benefits Apply"
to non-network inpatient and outpatient hospital benefits. According to Blue Shield, this means that services are reimbursed at
slightly less than 80% of allowable charges and the patient is subject to balance billing. Therefore, these are lesser benefits
compared to the current Blue Cross plan. Office visits are covered at 80% and other outpatient services are at 70% to 80%. Non-
network services are covered at allowable charges. In addition, Blue Shield's proposed prescription drug benefit matches the
current benefit except for the mail order supply which is for 90 days compared to Blue Cross' 60 days.
21
7/28t97 Edition
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
· Blue Shield pays network claims between the 75th and 80th* percentile; non-network claims are paid at the 60th percentile.
· Based on the census data, Blue Shield produced a PPO Provider network match report showing that 98.4% of eligible participants
would have access to two PCPs withi'n 10 miles of their home residence and 99.3% would have access to one hospital within 30
riffles of their home residence.
· Assuming enrollment in the FFS/PB plan remains t,nchanged from the data included in the census file, the City's projected PPO
annual premiums effective January 1, 1998 will be $2,805,000, an increase of approximately 6.7% or $176,000 compared to annual
renewal cost. Blue Shield did not provide rate guarantees or caps for the second year.
· To increase the pooling point to $150,000 or $200,000, Blue Shield proposed a 1% decrease to the rates.
HMO Medical Plan
· For services obtained from a participating provider, the Blue Shield HMO plan covers inpatient care at 100% and outpatient care
with a $5 copay. Blue Shield was able to duplicate the current copays for prescriptions obtained through a participating pharmacy
or through mail order for actives and retirees. Blue Shield's prbposed plan provides richer benefits for routine physicals, tubal
ligation, and hospice care, however, benefits for allergy testing/treatment, durable medical equipment, vasectomy, home health
services, and therapy are covered subject to higher copays.
22
7/28/97 Edition
THE CITY OF BAK-ERSFIELD
MARKETING SUMMARY
· Based on the zip code information, Blue Shield produced a provider network match report for the HMO showing that 97.7% of
eligible participants would access to two PCPs within 10 miles of their home residence and 94.9% would have access to two SPCs
within 10 miles of their home residence.
· Assuming enrollment in the HMO plan remains unchanged from the enrollment included in the City's census file, the projected
annual lIMO premiun~s effective January 1, 1998 will be $2,243,000, a decrease of approximately 4.0% (or $94,000) compared to
annual renewal cost.
· Based on experience, trends, and group demographics, Blue Shield's rates for the second year will not increase more than 6% over
proposed.
· Blue Shield did not propose rates for the $3 HMO copay plan.
Medicare Risk Platt
· Blue Shield's Medicare Risk plan covers inpatient care at 100% and some outpatient care with a $5 copay. Prescription drugs are
covered after a $5 copay for brands and generics. Prescription drugs obtained through the mail order supplier are covered after a
$10 copay for brands and generics. In addition, coverage is available for hearing appliances which are not covered under the
current Blue Cross plan. The maximum benefit is $500 per year under the proposed Senior Secure Plan III.
23
8/4/97 Edition
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
· Assuming all enrollment in both Medicare Risk program is ~noved to Blue Shield (and assuming the City's current enrollment), the
projected annual Medicare Risk premiums effective January 1, 1998 will increase by approximately 119.0% or $9,000 compared to
annual renewal cost. The rates are proposed for one year:
Carrier Summa~_
Blue Shield's proposal is based on their replacing all existing medical coverages with their proposed medical plans or offering their
lIMO on a standalone basis. For Blue Shield to take over all of the medical (PPO, HMO, and Medicare Risk) coverages and leave tile
dental coverages with tile existing carriers, assuming no change in enrollment, the approximate projected annual medical premiums
will be $5,063,000 and the dental renewal premiums will be $660,000. The additional cost will be approximately $90,000, or 1.6%
more, compared to renewal costs.
Blue Shield is willing to replace the Blue Cross HMO with their proposed HMO on a standalone basis. However, Blue Cross will not
agree with this alternative. ~
24
8/4/97 Edition
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
KAISER
Kaiser proposed their POS, HMO, and Medicare Supplement coverages. The proposals for POS and HMO can be on a stand alone
basis or the POS can be offered as a total takeover of the Blue Cross FFS/PB and HMO plans. Or, Kaiser will offer their HMO as a
second HMO choice to City employees.
POS Medical Platt
· Kaiser's proposed POS is a three tier plan. To receive benefits under the first tier (HMO), employees must obtain services through
a Kaiser facility. The proposed first tier bcnclits cover inpatient services at 100% and most office visits after a $10 copay.
Formulary prescription drugs are covered at a $10 copay for brands and a $5 copay for generics whether obtained at a pharmacy or
through mail order. The second tier, which utilizes the CCN network, is equivalent to a PPO network plan; the third tier is
equivalent to an indmnnity or out-of-network plan. The individual deductible is $250; the family deductible is 3 times the
individual amount. This deductible applies to the second and third tier benefit levels. Under the second tier, most inpatient and
outpatient services are covered at 80%. Most third tier services are covered at 60%, with a separate $250 deductible per admission
for hospital services. Under either the second or third tier, prescriptions obtained at the pharmacy are subject to a $25 copay for
brands and $15 copay for genetics. Generally, second and third tier services are covered at a reduced amount compared to the
current Blue Cross FFS/PB which covers these services at 100% and 80%, respectively. Second tier services are covered at
negotiated rates; third tier at allowable charges.
7/28/97 Edition 2 5
THE CITY OF BAKERSFIELD'
MARKETING SUMMARY
· Kaiser indicates that claims are paid at the 85th percentile.
· Based on the zip code infom'~ation provided with the census data, Kaiser's PPO provider network match shows that 93.2% of the
City's eligible participants would have access to two providers within 10 miles of their home residence; 94.5% have access to 2
SPCs within 10 miles of their residence; and 98.7% have access to one hospital within 30 miles.
· The POS plan is not available to retirees age 65 and over. For our analysis, we assumed the retirees currently covered in the Blue
Cross FFS/PB are under age 65.
· Assuming enrollment in the FFS/PB only shifts to the POS plan, projected annual POS premiums effective January 1, 1998 will be
$2,433,000, a decrease of 7.5% (or $196,000) compared to annual renewal cost. The City should consider this plan design.
Hoxvever, before inaking a decision, Blue Cross should also be given the opportunity to provide a proposal for this type of plan.
The rates include commissions approximating a fiat amount of.8%. These are filed as part of Kaiser's rate structure and cannot be
removed. If any part of the Kaiser proposal is imple~nented, Aon would arrange to have these commissions returned to the City.
The projected POS cost assumes Kaiser's HMO will also be implemented. (Note: If Kaiser's POS and HMO are in place, the
HMO tier of the POS cannot be offered with the same office visit copay as the traditional Kaiser HMO.)
· Kaiser also proposed rates assuming the POS plan totally repla'ces both the Blue Cross FFS/PB and HMO plans. Combining
current enrollment in the FFS/PB and HMO plaps, the estimated annual premiums for the total replacement POS plan alternative
will be approximately $5,209,000, or an increase of 4.9% (or $243,000) compared to renewal costs. The estimate assumes retirees
in the FFS/PB plan are all under age 65 and assumes all over age 65 HMO enrollees are not Medicare eligible. Based on this
premium, the costs include fiat commissions approximating a .5% level which cannot be removed from the proposed rates.
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
· The proposed POS rates are guaranteed for one year.
· There will be no impact to the proposed POS rates to increase the pooling point fi.om $125,000 to $150,000 or to $200,000. Kaiser
will not write this on a refunding basis.
HMO Medical Platt
· For services obtained from a participating provider, Kaiser covers inpatient care at 100% and office visits with a $5 copay.
Prescriptions obtained through a participating pharmacy or through mail order are covered with a $5 copay for actives and retirees.
The maximum annual copay limit is $1,400 for the individual and $4,000 for the family; higher than Blue Cross which is $500 and
$1,500, respectively.
· Based on the zip code information, Kaiser's HMO provider network match indicates 91.8% of the City's eligible participants would
have access to one medical office within 10 miles of their home residence and 97.9% would have access to one hospital within 30
miles of their residence.
· Assuming the City's current HMO participants shift to the Kaiser plan, the City's estimated annual premium will be $1,993,000.
This is 14.7% less ($344,000) than the annualized renewal premiums for the Blue Cross HMO. Kaiser's rates include commissions
at a flat .9% level. This cost assumes retirees over age 65 who are Medicare eligible are enrolled in a Medicare Risk plan.
27
8,"4297 Edition
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
· Should the Kaiser HMO fully replace the Blue Cross HMO, Blue Cross indicated they would increase their proposed FFS/PB
renewal rates by an additional 1.5% ($39,000). Therefore, the requested FFS/PB annual renewal premium would be approximately
$2,669,000, a 6.2% savings ($177,000) compared to current rates.
· As an alternative, the cost for offering the Kaiser HMO in conjunction with the Blue Cross FFS/PB and HMO plans was calculated.
Kaiser indicated the proposed HMO costs will not change under this option. Blue Cross has agreed to no rate impact if Kaiser is
offered as a second alternative and the enrollment shift in the Kaiser HMO is 15% or less; if the enrollment in the Kaiser HMO is
greater than 15%, Blue Cross requires a 3% increase to their proposed rates effective January 1, 1998. Assuming 15% of the
current Blue Cross lIMO enrolhnent moves to the Kaiser HMO, the City's projected annual HMO premiums for this piece effective
January 1, 1998 will be an approximate savings of 2.6% (or $60,000) compared to Blue Cross' HMO renewal rates. Assuming a
30% enrollment shift to the Kaiser plan, the City's projected savings (with a corresponding 3% increase in the Blue Cross HMO
renewal rates) would be 2.7% (or $63,000). Both calculations assume only enrollment shifts for individuals currently enrolled in
the Blue Cross HMO. Since the Blue Cross enrollment percentage would not be known until after the enrollment is conducted, it is
not practical to anticipate a retroactive adjustment to rates if the Kaiser enrollment exceeds 15%. The monies in the current
Premium Deposit Fund could be used to satisfy any rate adjustments. However, Blue Cross indicates that from the Finance
Department's perspective, this would be administratively burdensome. Blue Cross would rather guarantee no more than an 11%
increase to the renewal rates effective January 19~99 (8% cap for the renewal plus 3% for enrollment shift).
· Kaiser did not propose rates for a $3 copay plan.
28
8!4,97 Edition Aon Consnhi q_'
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
· Kaiser guaranteed the above rates for one year and was only willing to guarantee the active and COBRA medical components of the
rates illustrated for two years with an increase of $2.00, $4.00, and $5.66 for single, two party, and family, respectively. Kaiser was
not willing to offer guarantees on the active (and COBRA) prescription drug components or the retiree (under and over age 65)
medical and prescription drug components.
Carrier Summa~
· The replacement of thc Bluc Cross FFS/PI5 and lIMO with thc Kaiscr POS and ItMO or with the Kaiser POS on a standalone basis
is probably not a realistic option. However, a reasonable alternative ~nay be to offer the Kaiser HMO as a second HMO choice to
the existing coverages. Using the 15% assumption described in the Kaiser HMO section, this would result in savings of
approximately 2.6% (or $60,000) compared to the renewal rates for Blue Cross' FFS/PB and HMO. Using the 30% assumption
and a 3% increase to Blue Cross' HMO rates, the savings would be approximately 2.7% (or $63,000).
29
8'4,97 Edition
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
DEL TA DENTAL
Delta Dental proposed their indemnity, ISPO and prepaid dental plans. Delta's rates are valid whether they takeover the total dental
program or if only the indemnity or the prepaid plan is implemented. Our analysis compares Delta's indemnity and prepaid dental
rates and plan designs to that of the inforce carriers.
Although the network portion of the PPO dental plan reimburses services at percentages similar to the current indemnity plan,
employees would be required to obtain these services from Delia's contracted providers. If employees receive care from non-network
providers, major services are reduced to a reimbursement rate of 50%. Even though replacing the current indemnity plan with a PPO
plan will generate additional savings for the City, the plan will be perceived as more restrictive for employees that currently have
access to any dental provider. Therefore, the PPO rates and plan design are not included in the analysis.
Blue Cross also has a PPO dental plan. We do not have information regarding their coverage, however, it can be requested if the City
would like to see a comparison of Blue Cross' and Delta's PPO plans.
7/28'97 Edition 3 0
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
b~demnit~ Dental Platt
* Delta's proposed indemnity dental plan has a $50 individual and $150 family deductible instead of a deductible that equals three
times the individual amount for the family, as under the current Blue Cross plan. Diagnostic and preventive services are covered at
100%; basic and major services at 80%; child orthodontia at 50%.
· In California, Delta has contracts with about 94% of the dentists. Payments to contracted providers are based on annual filed fees.
Non-contracted California providers are reimbursed at the 51st percentile of the average of the filed fees of the contracted
providers. Providers located out of state are paid at the 80th percentile.
· In Kern County, Delta has sixty-four (64) contracted primary providers, 52 of which have offices with a Bakersfield address. They
expect to have an additional provider available in Kern County effective July 1st and are trying to contract with three more dentists
in Bakersfield.
· Assuming enrollment in the indemnity dental plan remains unchanged from the enrollment included in the City's census file, the
overall indemnity dental annual premiums will be $385,000, an increase of approximately 3.2% or $12,000 compared to annual
renewal cost.
· The above costs assume rates for a one year contract. Delta's proposed rates for a two year contract that will be approximately
2.1% higher than for a one year contract. Rates for a three year contract will be approximately 12.3% higher compared to rates for
a one year contract.
· Rates will not change if only the current indemnity coverage is replaced or if both the indemnity and prepaid dental coverages are
replaced with Delta.
7/2897 Edihon 31
A
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
Prepaid Dental Plan
· Delta's proposed benefits for their ' prepaid dental plan require higher copays for most service categories compared to the
incumbent's prepaid plans.
· Based on the census data, Delta produced a provider network match report for the prepaid dental plan showing that 88.6% of
eligible participants would access to one dentist within 10 miles of their home residence.
· In Kern County, Delta has six (6) contracted providers, 4 of which have offices with a Bakersfield address. They expect to have an
additional provider available in Kern County effective July I st and are trying to contract with three more dentists in Bakersfield.
· Assuming total enrollment in the current prepaid plans is shifted to Delta's prepaid plan, the projected annual prepaid dental cost
will be approximately $220,000, resulting in a savings of 23.6% or $68,000 compared to annual renewal cost.
· The above costs assume rates for a one year contract. Delta's proposed rates for a two year contract will be approximately 2.0%
higher compared to a one year contract. Rates for a three year contact will be approximately 4.0% higher compared to rates for a
one year contract.
· Rates will not change if only the current prepaid coverage is replaced or if both the prepaid and indemnity dental coverages are
replaced with Delta.
32
7/28/97 Edition
THE CITY OF BAKERSFIELD
MARKETING SUMMARY
Carrier Summa~_
· The combination of Delta's indemnity and prepaid plans would reduce overall dental cost when compared to the incumbents'
renewals by $56,000, or 8.5% less.
THE CITY OF BAKERSFIELD
EXECUTIVE SUMMARY
Based on our analysis, we offer the following comments:
· The Blue Cross renewal for the FFS/PB plan is competitive. The overall premium reduction will approximate $216,000 (7.6%).
No other vendor was competitive £or the same plan design.
· Kaiser proposed a revised plan design using a POS approach. This would save the City an additional $196,000. If the City is
interested in this approach we should request a POS proposal from Blue Cross for co~nparison purposes.
· The Blue Cross renewal for the HMO plan is very competitive. The overall premium reduction is approximately $36,000 (1.5%).
· The City should seriously consider offering thc Kaiser HMO in addition to CalifomiaCare. Those participants that feel strongly
about their Blue Cross plan can maintain it at a higher payroll deduction; those that want a lower payroll deduction would select
Kaiser. The City will benefit from lower costs for those selecting Kaiser.
· The Medicare Risk programs with Blue Cross and PacifiCare are competitive. Serious consideration should be .given to
implementing the new Blue Cross Secure Plan III.
· The Blue Cross Indemnity dental renewal is based on the City's own claims experience. Based on our calculation, the Blue Cross
renewal is reasonable. Based on the marketing results, the Blue Cross renewal is also competitve.
· Delta has submitted an indemnity proposal at costs cmnparable to the current premium (slightly more expensive).
34
Aon Consulting
THE CITY OF BAKERSFIELD
EXECUTIVE SUMMARY
· The two current prepaid dental plans have provided good service to the participants and are competitive. The Delta prepaid
proposal has a variety of benefit differences. Therefore, the benefits are not comparable. This may account for the lower premium
(about $68,000 or 24%.).
Further negotiations should be conducted to determine the final offer on the incumbent pre-paid dental plans with respect to costs and
benefits.
In addition, renewals have been requested from Medical Eye Services Corporation (MESC) and Psychology Systems International
(PSI). We expect to have this information in early August.
Following is a summary of the City's projected annual costs for the current plans, incumbent renewals, and alternative vendors.
35
7/28:97 Edition
CITY OF BAKERSFIELD
Current and Renewal Annnal Cost Snmmary
Current Renewal Dollar Change/
Programs Programs .Percentage Change
FFS/PB - TOTAL Blue Cross Blue Cross Blue Cross'
~ $2,845,451:52 $2,629,224.58 -$216,226.94
-7.6%
lIMO - TOTAL Blue Cross Blue Cross Blue Cross
$2,372,293.20 $2,336,708.75 -$35,584.45
-1.5%
MEDICARE RISK Blue Cross/PacifiCare Blue Cross/PacifiCare Blue Cross/PacifiCare
Blue Cross $2,969.28 $0.00 -$2,969.28
PacifiC are $8,947.44 $7,322.04 -$1,625.40
TOTAL $ l 1,916.72 $7,322.04 -$4,594.68
-38.6%
DENTAL PLANS Blue Cross/DDS/HBI Blue Cross/DDS/HBI Blue Cross/DDS/HBI
Blue Cross $372,501.36 $372,501.36 $0.00
DDS $66,917.28 $65,310.00 -$1,607.28
H BI $222,159.36 $222,159.36 $0.00
TOTAL $661,578.00 $659,970.72 -$1,607.28
~ -0.2%
TOTAL MEDICAL AND DENTAL PLANS $5,891,239.44 $5,633,226.08 -$258,013.36
~ -4.4%
36
s:~,. 'mktg, 1997',EXHIBIT3.XI.S\total costs\8/4/97
('II'Y OF BAI(ERSFII,;I,I)
Renewal and Alternatives A~Hll[;ll ('osl Slimmary
I{enmv;ll Allernalive I)olhu' Change/ Alternative Dollar Change/
Ih'og/'LIn_~ Blue Nhiehl Percenlap~ ('hanl/e Kaiser* Option ! Percenlnge Change
H:S/I'B - TOTAL BhJc (;mss Blue Shield Bluc Shield Kaiser POS Kaiser POS
$_,6_ L__-I.58 $2,8o-1,732.0o $ 175,508.33 $2,433,026.88 -$196,197.7o
_ 6.7% -7.5%
IIM() -TO'I'AI. lilac (:~oss lilac Shield lilac Shickl Kaiser IIM() Kaiser lIMO
$2.33~ ,7118.75 52,242,502.60 -$94,206.14 $ 1,993,18800 -$343,520.75
-4.1)% - 14.7%
MEI)ICAIII5 RISK Bhlc ('r.ss/Pacifi( 'arc IIluc Shield Bhm Shicht PacifiCare Pacifi('arc
Blue Cross $(}.00 N/A N/A
PacifiCare ~7,322.04 N/A N/A
TOTAL $7,322.04 $ I ~,034.04 $8,712.00 $9,365.40 $2,043.36
II LO, _7..)
I)EN'I'AI. I'I.ANS Illut: ()oss,'l)l)h/lllll Ilhlc ('mss/I)l)S/lllll IIluc Cross/I)DS/llBI lilac Cross/l)DS/llBI Blue ('ross/DDS/ltBI
Blue Cross $372,501.36 $372,501.36 $0.00 $372,501.36 $(}.00
II BI ~=:=~.~'""" ..... ,' 5'} .-" ~* _') ......... ~ ') .' S'/ . ~'- }IL00 ~22~,~2:~ $1)
TOTAl. $659,970.72 $659,970.72 $0.01} $659,970.72 $0.00
0.{}%
T{YI'AI~ M I'~I)ICAI. AND DENI'AI, I'I,ANS 55,633.226.~18 $5,723,240.27 $90,014.18 $5,1}95,551 .I}{} -$537,675.O8
~ 1.6~o -9.5,,
* Kaiser premiums include ll~c following commissions:
POS- $19,149.08
lIMO- }~7,82956
Combined POS and lIMO- $36,978.64
Kaiser POS premiums assume current Blue Cross PPO retiree participanls
arc umtcr age 65. Thc respective Kaiscr POS inpatient / outpatient bcncfils
for most services} arc: Firsl Tier: I{}{}",~, / S11~ copay: Scctmd Tier:
80%/ 80% {after deductible}; and Third Tier: 61~",;~/(i0gl, {after
deductible}.
37
..'[,,/
I~ene~ :il ,,~llerl:;lli~ c I)olhu' ( 'hnn~e! AIlernnli~ e Doll:u- Chnn~c/
I"I:S/I'li - 'l'()'r..~,l. Illin: ('mss Kaiscl P( ).S KaisL'r I)()S Bh]¢ Cross Blue Cross
_,(,_ ).__.l.. s 55,2()t), li)7 8-1 $243,174.52 S2,()29,224.58
IIXI() - 'l'O'l'..~l. IHuc ('mss Kaiser I'()S Kaiser P()S lime ('ross/Kaiser lIMO I]lue (:ross/Kaiser It~1()
S2,33h.7(18.75 ncludcd wilh alm~c c()sl Sec above cosls $2,276,414.41 -560,294.34
-2.6%
Pii(illCare 57.322.(14 N,'A $7~322.()4
1'O'!':~ I. 57.322.u4 5'),3(~5.40 $2,043.36 $7,322.O4
I~lue ('r()ss 5372,5()1.3h $372,5()1.30 $0.~)0 $372,501.36
J)l)S 5~ 5, { I ~ ()) 5h5,3 J II {)(~ $0.()0 5(~5,3 I I).O()
*1.( ).1..~ I. $h 5,L,) 7() 72 $(,$,),,) 7(). 72 $().()() $05,L,) 7(). 72 $().()()
O.U%
0.1)
* Kaiser Option 2 pren~iums include tl~e t1~llowing commissions:
POS- $27,477.32
Kaiser Option 3 I~emiums include Ihe following collllllissiolls:
lIMO- $9,073.16
al g IIIIdgl ~lgc 05. 'Ibc Icspcclive Kaiser i)()% JnJ)alienl / t)tllj);llicnl benefits
for most services} at'e: First Tier: 10()% / 510 col)a),,; 5ccund 'l'icr:
80% / 8()?~ (after deductible); and Thil'd Tier: 60% ,' (~(i% (after
:T:; ~g J,,,,7 I:XIIIBI] ] Xl.5 it,iai costs (]} S 4 q7 deductible ).
38
('11'~' 01" BAKI~I~ISI:II='I.I)
Iten~:~s:ll and Alternatives Annual Cost .";um m:lry
Wilh Allerq:~live
I{t'mm :~1 Wilh AIIcr,~:~live I)oll'-~r ('h.'m~e/ I~:li.ser* Oplio~ 3 ami Doll:ir (
I~[',~g[:_~LID I)t'lla lit'hi:il I'ert'el~l'-ige Chati~e I)ell:l [)enlal/DD$/lllll I)ercenta~e Chfln~e
-,-~ .... -- ~ ........... $0.()() $2,629,224.58 $(l.00
I1.~1() -'1'()'1'..~1. I~luc('~ss I~luc('mss Biuc('ross Blue(;ross/Kais~rllM() Bh,~C,oss,'KfiscrllM()
52 T3( ,7( 875 S2,372,293.20 $35,584.45 $2,276,414.41 -$60,294.34
1.5 ~o -2.6%
51 [I)1{ '..X l{15 RISK Illuc ('~ss/l'acilff 'mc Illuc { 'f~ss/l':,cil'i( 'arc Bluc( 'ross/Pacil'i('arc Illuc ('ross/l~:~cil'i('arc Bluc Cross/Pacifi('atc
Illue Cross 5(} {)(1 5().()() $0.0()
I'acif'iCa re ~2.()4 $7,322 ()~ $7,322.()4
'I'()'I'A I. 57,322 O.1 $7,322.n.1 $().()(} $7,322.04
Illue ('ross $372,5(11.T6 $384,3 I 8.24 $11,gl6.88 $384,318.24 $11,816.88
I)l)S 5~5,3 I(}.~)(} Sql 781 52 -$14,529.48 $o5,3 l I).{)(} $(}.(1()
TO'IAI~ $659,97(L72 $604,O27.8() -$55,942.92 $671,787.60 S11,816.88
-8.5% 1.8
I'( )I'.X I. M I'~ I) I('A L AND DENTAL I'i.ANS $5.633,226.1)8 $5,612,867.62 -$21/,358.47 $5,584,748.63 -$48,477.46
-0.4% -0.
* Kaiser Option 3 prcmiums include thc fi~llowing commissions:
HMO - $9,073.16
39
THE CITY OF BAKERSFIELD
GLOSSARY OF TERMS
Fcc-For-Service/Prudent Buycr(FFS/PB) A type of medical program offering a network of physicians, hospitals and other
providers who deliver services at negotiated rates. Specifically, the current Blue Cross
, non-HMO medical plan.
Health Maintenance Organization (HMO) A managed care program that provides comprehensive health care in retum for a fixed
prepaid fee. If members use providers not included in the HMO for non-emergency
care, expenses are not covered.
Indemnity Plan An insurance program that allows participants to receive health care services from any
eligible provider chosen.
Medicare Risk The medical programs offered to Medicare eligible retirees and their dependents.
Network Providers or facilities the insurance carrier has contracted to provide managed care
services under the program.
Non-Network Providers or facilities the insurance carder has not contracted to provide managed care
services under the program.
THE CITY OF BAKERSFIELD
GLOSSARY OF TERMS
Non-Participating Providers or facilities that do not have an agreement in effect to provide services for the
carrier or their members.
Participating Providers or facilities that do have an agreement in effect to provide services for the
carrier or their members.
Point-of-Service (POS) A type of managed care plan that has a network of physicians, hospitals, and other
providers who deliver services at negotiated rates. The users can decide to go outside
the system when service is desired and receive a lower benefit reimbursement.
Specifically, the proposed Kaiser non-HMO medical pimp.
Pooling or Pooling Point A pure insurance arrangement by which the insurance carrier assumes all the clai~n risk
above a certain dollar maximum.
Preferred Provider Organization (PPO) A type of managed care network of physicians, hospitals, and other providers xvho
deliqer services at negotiated rates.
Prepaid Dental A managed care program that provides comprehensive dental care in return for a fixed
prepaid fee. The equivalent of the HMO for dental.
THE CITY OF BAKERSFIELD
GLOSSARY OF TERMS
Primary Care Physician (PCP) The plan participant's "personal health care manager." They act as the primary
caregiver for health care treatment by handling the majority of basic health care needs.
, Sometimes referred to as the "gatekeeper."
Rate Cap The maximum amount the insurance carrier can request when increasing premium
rates.
Retention The insurance carrier's cost of doing business or overhead.
Specialty Care Physician (SPC) A physician xvith expertise in a particular area of medicine. Under managed care, the
plan participant must receive written authorization prior to obtaining services.
Trend Factor The increase in the health care costs due to inflation and utilization.
Usual and Customary (U&C) Costs that fall within the range of charges or below a specified percentile within the
same geographical area for the same service or medical supplies.
,. .~/z o/? ?'
B A'__K E R S F I E L D
CITY MANAGER'S OFFICE
MEMORANDUM
MARCH 10, 1997
TO: PERSONNEL COMMITTEE
Patricia J. DeMond, Chair
Mark Salvaggio
Jacquie Sullivan
FROM: JOHN W. STINSO~, A~S~SISTANT CITY MANAGER
SUBJECT: REVIEW MATERIAL FOR PERSONNEL COMMITTEE MEETING
Please find the attached additional materials for the March 11, 1997 Personnel
Committee meeting for your information.
cc: Honorable Mayor and City Council
City Manager
Public Packet
Employee Benq~ts
ConsMting Group
Febmary21,1997
Mr. John Stinson
Assistant City Manager
City of Bakersfield
1501 Tmxtun Avenue
Bakersfield, CA 93301
Re: Consultant versus Broker
Dear John:
Last Spring the City Council contracted with Aon Consulting to market the medical and
dental benefits for City employees and retirees. This has not been done tbr six years.
The HMO portion of the benefits was marketed in 1991 and Health Net was replaced by
CaliforniaCare effective 1-1-92. We were hired April, 1992.
City Council made its decision to use Aon Consulting..tbr this current marketing task for
several reasons, not the least of which is our successful strategic approach in helping to
guide City staff, the insurance committee, the personnel committee and City Council
toward decisions that have been verv effective in managing benefit costs as well as
maintaining employee satisfaction with the programs. Over this five year period of
time:
The Blue Cross fee-tbr-service plan design has been fine tuned and modified to
both control and enhance benefit pertbrmance, both for the City. and employees.
The underwriting of the programs has been arranged for maximum
competitiveness and cost efficiencies.
The mental and nervous and chemical dependency benefits have been carved out
and placed with a managed care program, thus improving the benefits for
employees and keeping the costs neutral for both the City and its employees.
Quarterly experience reporting and annual financial accounting has kept the City
continuously inlbrrned on the actual cost and cost trends of the plans.
(21 ~)
Mr. John Stinson
February 21.1997
Page 2
Renewals have been requested, negotiated and confirmed well in advance of
their implementation date.
· The entire retiree situation has been reviewed and resolved with collective
bargaining consensus, including the implementation of an alternative benefit
program for Medicare eligible retirees and their dependents.
The City Council agreed with the ! 997 marketing strategy to allow for the realignment
of retirees participation due to the changes implemented 7-1-96 and again announced in
the open enrollment tbr an effective date of 1-1-97. Thus, an appropriate evaluation of
risk can be made by competing vendors as well as the existing vendor.
There are several reasons whv an employer chooses to work with a consultant rather
than a broker with regard to both obtaining employee benefit advice and/or performing
certain tasks such as marketing the coverages:
· A consultant is objective in that its compensation is derived from agreed upon
fees paid directly by the Citv. A broker receives compensation from
commissions paid bv a vendor with whom coverage is placed. This is usually
based on a percentage of premium. The rates determined by the underwriting
vendor would take into account this financial liability. Rates developed through
the consultant ~vould be net of commissions and there~bre lower than those
developed by a broker. In addition, some brokers have override commission
agreements with certain vendors which are not disclosed and could influence the
evaluation performed bv the broker and the final recommendations.
· A consultant has full access to the entire marketplace. Therefore, a consultant is
able to receive competitive proposals from ali vendors qualified to submit one.
· When an employer uses a single consultant to per/brm the marketing tasks,
uniform benefit specifications are submitted to the market place and a single
source of evaluation and analvsis produces an objective "apples to apples"
comparison of vendor proposals.
· When dealing with a consultant such as Aon, the City. is taking advantage of size
and leverage, both locallv and nationallv. Aon Consulting is the fourth largest
consulting firm in the United States and one of three largest Health and Welfare
practices in CaliIbmia. We are responsible [br placing a tremendous volume of
business with vendors and theretbre are able to develop very cost competitive
proposals as ~vell as demand the best vendor service teams.
Mr. John Stinson
February 21, 1997
Page 3
· Our Los Angeles office has 40 employees dedicated to benefits; 12 are
consultants and 8 are benefit analysts. The benefit analysts are all senior
underwriters from insurance companies and have been trained to understand plan
design and benefits pricing.
· The fee paid to a consultant for the marketing task is a one time fee.
Commissions paid to a broker are included in the rates and are paid annually.
· The continued use of Aon is based on a track record of expertise and satisfactory
performance.
· If City Council were to use a broker as a possible'altemative it would need to
determine the process of selection, both locally and non-locally, which could
become very political.
The purpose of the last personnel Committee meeting was to review and approve the
Request tbr Proposal, the list of carriers and the marketing timetable which had already
been approved by City, staffand the insurance committee. The decision concerning who
would perform those tasks had been decided by City Council over nine months ago.
Based on the City's desire to do a due diligence competitive bidding of its programs and
the possibility that one or more of these programs will be replaced with another vendor,
it is essential that the timetable be adhered to. Prior tO' hiring Aon Consulting, the City
had consistently experienced the chaotic results of last minute renewal negotiations and
new vendor implementation.
We look tbrward to discussing these issues at the next personnel Committee meeting.
Sincerely,
Her~-ert Kmghan
Senior Vice President
HVK/cl
cc: Carol Havcten
,~ Feb-25-97 01:44P
Paul Bechely & Associates, Inc.
PROFESSIONAl., LABOR RELATIONS REPRESENTATIVES
3440 Wilshire F~l vd. Phone (213) 487-906 !
Suite 860 "--~'~ (800} 499-0135
Los Angeles, CA 90010 Fax (213) 380-6685
February. 25, 1997
John Stimon
Asaiatant City Manager
City of Bak~-tafieJd
1501 Truxton Ave
Bakeratidd, CA 93301
Dear Mr. Stimon:
I hav~ bern advised that thc City of Bakcraficld is attcmplit~ to chang~ the medical
insuranc,~ structur~ without prior meeting, and conl~win8 with the long establiah~l Joint
Ci.ty Empioye~ -M~dical Insurance Committee.
Article 5.01 mandates that no changc may occur in th~ s~a'ucturc of thc mcdkal/dcmal
insurance without prior mectm8 and conferring with ~tafiv~a of each bargaining unit
at the City.
l'hcrcfore, I am inm~ that any issue concerning insurance bc placed i~,operly before the
Committee prior to anyone entertaining any. changcs to the sysiem,
Sinc~rdy,
Paul A. Beehely
PAB/Ia
cc: Bill Awny
city Bar aini units
Bakersfield Firefighters Labor Organization
Post Office Box 2233 · Bakersfield, CA 93303
March 6, 1997
Dear Council Person:
We have been informed that there is an effort to change the way the City obtains the medical insurance
offered to the various employee groups. The Board of BFLO (the firefighter's union) would like to state
that we have s~veral concerns regarding this change.
Currently the City uses a consultant to shop for equivalent medical insurance offerings from many
providers. The consultant then markets that to the City and the various employee groups. This works
extremely well for the City as well as including the interests of the employees.
Using this system, the City can deal directly with the insurance providers, eliminating the expense of an
insurance broker. This also allows for both the City and the employee groups to compare "apples to
apples" and to determine which benefits are needed, and which might need to be phased out. It also
allows for the various bargaining units to sit together with the City at one time to negotiate the insurance
benefits for all City employees.
Most importantly, our M.O.U. specifically spells out how changes in our health and welfare benefits are to
occur, and this is through the Insurance Committee. This system has worked well for many years, and
should continue to do so in the future. Any change to this arrangement needs to be negotiated during the
bargaining process. As negotiations for our group have just ended, we would be willing to entertain some
informational meetings regarding this subject, lint will hold off on any substantive changes until the next
bargaining session.
Sincerely,
Tim Luken, President
Bakersfield Firefighter's Labor Organization
Cc:
Robert Price, Mayor
Irma Carson, Ward 1
Pat DeMond, Ward 2 '
Pat Smith, Ward 3
Kevin McDermott, Ward 4
Randy Rowles, Ward 5
Jacquie Sullivan, Ward 6
Mark Salvaggio, Ward 7