City will cease paying for one type of coverage that has proven unneeded
As a result of a unanimous City Commission vote this week, the city will see a 9.7% increase — about $64,000 — in its health insurance premiums for the calendar year of 2019.
However, the city will save tens of thousands of dollars by discontinuing a practice that the director of the Human Resources Department says has been unnecessary.
The city has 641 employees and 274 retirees below the age of 65 who are primary members of its self-insured plan, according to a memo provided to the commission by Human Resources Director Stacie Mason prior to the Nov. 19 regular meeting.
The total cost of the 2019 coverage by Cigna Health and Life Insurance Co. will be about $728,840, the memo noted. “The payment of [the] costs is divided between the active medical fund, covering 70%, and the OPED fund (retiree medical trust fund), covering the remaining 30%,” the memo pointed out.
Staff also had recommended the city maintain its $250,000 deductible.
The “stop-loss cost” covering both active and OPEB funds is approximately $664,840 this year, the memo added. The Health Care Administrators Association explains on its website, “Stop-loss insurance (also known as excess insurance) is a product that provides protection against catastrophic or unpredictable losses. It is purchased by employers who have decided to self-fund their employee benefit plans, but do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy,” the association continues, “the insurance company becomes liable for losses that exceed certain limits called deductibles.”
Martin Hyde, who ran unsuccessfully for the City Commission in 2017, complained in remarks to the board that the premium for 2019 “is not insignificant.” The 9.7% increase will be covered by the taxpayers, he said, not by city employees and retirees.
“This item,” he told the commissioners, “goes once again to the question of who runs the city.” How many times are staff members likely not to benefit from something that affects them directly, he added.
In response to questions from the commissioners about the stop-loss coverage, Mason explained, “We want to have some protection when claims [go] over a certain amount.”
Each year, she said, when staff is looking ahead to renewing the medical and pharmacy insurance, a broker researches the market on behalf of staff, looking for the best quotes. “We have had at least three very challenging years of stop-loss,” Mason added.
She showed the board members a chart listing the stop-loss premiums for the city from 2014 through 2018, with the number of claimants each year who exceeded the $250,000 deductible.
Through this year, she continued, the total reimbursement to the city is expected to be $3,910,040, compared to the total stop-loss premiums of $3,614,133. That represents a difference of $295,907, the chart showed.
The largest number of claimants exceeding the deductible over the period in a single year was five, in 2017, when the city paid a stop-loss premium of $609,137. That year, the city was reimbursed $878,263, the chart noted.
“We struggle with some of our demographics,” Mason told the commissioners, indicating the health history of city employees and retirees has been a major factor in the city’s expense for the coverage.
“Cigna was the lowest renewal we could possibly get,” Mason continued. Even then, she said, the city had to agree to changes in the policy.
A money-saving change
Nonetheless, in 2019, Mason told the commissioners, the city will stop paying for aggregate stop-loss. The expense for that coverage was close to $48,000 in the current policy, she noted.
The Health Care Administrators Association website explains that aggregate stop-loss “provides a ceiling on the dollar amount of eligible expenses that an employer would pay, in total, during a contract period. The [insurance] carrier reimburses the employer after the end of the contract period for aggregate claims.”
When Commissioner Shelli Freeland Eddie asked Mason about the staff recommendation for ceasing the aggregate stop-loss, Mason explained, “We’ve never hit it historically as a city.”
The quote for this year would have put the aggregate stop-loss at $16.4 million, Mason said. In researching city data over a number of years, she continued, she found “we have never even hit over $14 million in aggregate claims.”
Nonetheless, Mason added, staff talked with insurance experts in the community to determine whether the city would be putting itself at risk without aggregate stop-loss coverage. The responses indicated that “the percentage [of risk] was so low,” she said, that the city could leave that out of the new policy.
Still, she pointed out, the Cigna policy will be for one year, so the commissioners could ask staff to include that in the 2020 health insurance policy.
In response to another question from Freeland Eddie, Mason said the aggregate stop-loss had been in the city health insurance policies for at least the past 15 years. “This is the first year that I’ve challenged [the need for] that.”