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10/29/2003 - City Council Human Resources CommitteeAgenda Personnel Committee October 29, 2003 11:00 A. M. City Hall Conference Room 2A & 2B I. Salary Adjustments Per Salary Compensation Plan II. Health Insurance Committee Report/Recommendation III. Other IV. Adjournment H. N Agenda Information Memo October 22, 2002 Personnel Committee Meeting I. SALARY ADJUSTMENTS PER SALARY COMPENSATION PLAN ACTION TO BE CONSIDERED: To review additional information regarding employee benefits and provide direction to staff for consideration by the City Council at its regular meeting to be held on December 17, 2002. FACTS: • On September 17, 2002 the City Administrator and Director of Administrative Services met with the Personnel Committee and presented information regarding possible salary adjustments for certain positions per the Salary Compensation Plan. The proposed changes resulted from a study to determine whether or not certain non -collective bargaining positions were still in compliance with the City's overall pay plan as approved by the City Council in 1999 and implemented in early 2000. • The Personnel Committee requested additional information from the nine benchmark cities to determine whether or not there are differences in benefit levels that would offset salary differences and potentially change the outcome of the analysis. The additional information also provides for a more comprehensive study and a better comparison before any conclusions are reached. • The research of the benefits of the nine benchmark cities was completed by Assistant to the City Administrator Lord. ATTACHMENTS: • The memo from the Director of Administrative Services of September 17, 2002, outlining the background and status of the Salary Compensation Plan in included on pages 4 -,--through C1 • The memo from the Assistant to the City Administrator Lord outlinin the additional benefits research is included on pages through . ISSUES: • Once the Personnel Committee is comfortable with the information staff is suggesting that they make a recommendation to the full City Council for official action at the December 17, 2002 regular meeting when other salary adjustments effective January 1, 2003 are approved. II. HEALTH INSURANCE COMMITTEE REPORT/RECOMMENDATION ACTION TO BE CONSIDERED: • To review the recommendation of the City's Health Insurance Committee that the current dual choice option (Medica and HealthPartners) be continued for at least another year with the addition of a Mid Plan option to be available along with the High Plan option and provide direction to staff and/or formulate a recommendation for the City Council to consider at its regular meeting to be held on November 7, 2002. FACTS: • As part of the employee benefits package the City offers group health insurance to all employees. Current coverage includes the option of employee participation in either of two (2) Health Maintenance Organizations (HMO's), Medica and HealthPartners. Upon the advice of the City's Health Insurance Consultant, Jeff Azen of James Bissonett & Associates, Inc., the City has used a blended rate system in which employees and the City both pay comparable amounts for either of the providers. The system has allowed maximum flexibility for the employees in maintaining relationships with doctors and not forcing them to change providers simply because one plan is slightly more or less expensive. • For the year 2002 the City pays 100% of the single rate ($366.70) and $417.35 of the total family rate of $666.30. All labor contracts provide that the City and employees will split the family premium increase 50/50 with the City continuing to pay 100% of the single premium. • Preventive dental coverage is included in both plans at this time. • For a number of years the City has very successfully used a Health Insurance Committee composed of representatives of each department and each collective bargaining unit to work with the consultant. The group develops and shares with their groups an understanding of health care issues, insurance coverages, and options. • On the advice of the consultant the City went through an RFP process for health insurance this year which was one year earlier than the State law requirement. To complete this process the Insurance Committee has been meeting regularly since early June. The RFP document was designed among other things to determine whether a potential "Total Care Replacement" and/or the introduction of a Mid Plan option would significantly lower costs. �I • After going through the education and RFP process the Committee is recommending that the current dual choice option (Medica and HealthPartners) be continued for at least another year with the addition of a Mid Plan option to be available along with the High Plan option. The Committee has concluded that the one year savings generated by switching to a less expensive option is not large enough to guard against future increases. Further, State law probably will not allow the elimination of the preventive dental coverage as a reduction in benefits without negotiations with employee groups. Unfortunately, there is no revenue neutral mechanism to replace the preventive dental coverage, if it is not provided through the health insurance plans. • In the current agreements with the providers, Medica and HealthPartners, City Council members are considered employees and are eligible for coverage in the same manner as regular employees. Also, all eligible employees must be covered with at least single coverage per the agreements. ATTACHMENTS: • The Request For Proposal Response Analysis prepared by the City's consultant, Jeff Azen of James Bissonett & Associates, Inc., in enclosed on pages _ through. ISSUES: Formal action should be taken by the full City Council at the Regular meeting to be held on November 7, 2002 to provide the required lead time for an open enrollment period. A Personnel Committee recommendation will help facilitate that action. • Should current and future City Council members be removed from the list of covered employees? Since inclusion in the program is the exception rather than the rule, it may not be possible to add them back at a later time, if circumstances change as the final decision will be made by the company providing the coverage at that time. MEMO city of eagan TO: City Administrator Hedges FROM: Director of Administrative Services VanOverbeke DATE: September 17, 2002 SUBJECT: Salary Adjustments Per Salary Compensation Plan In late 2001 questions were raised by staff as to whether or not pay rates for certain non -collective bargaining positions were still in compliance with the City's overall pay plan as approved by the City Council. As a result of these questions, a great deal of work has been done to research the issue and to determine potential adjustments that may be required. To place today's issues into perspective it is helpful to review the rather lengthy history of the City's compensation plan which is outlined in the following paragraphs. Compensation Histo In the seventies and early eighties prior to the comparable worth legislation, a market comparison for non -bargaining unit positions was annually conducted to determine if the compensation paid to employees at the City of Eagan was competitive and comparable to that for employees at like cities in the Metropolitan area. The market study was for public, not private, comparisons. The results would be presented to the City Council when they were considering the annual across the board percentage increase for the following year. In addition to the annual percentage increase, the Council would make a dollar adjustment to the compensation for positions whose compensation levels were under the average in the study. • With the passage of the comparable worth legislation (pay equity), the City of Eagan developed its first actual compensation plan for the non -bargaining unit employees. Primarily, this plan addressed internal equity by assigning a point value to each position through the use of the Time Spent Profile system. A draft compensation plan was presented to the City Council at that time containing eighteen different pay ranges for the different values of the positions. Each range was eight percent above the previous range. Each range contained eight steps, each a five percent increase above the previous step. It was recommended at that time that employees would be placed on the first six steps according to service at the City of Eagan, experience, and education. Steps seven and eight were recommended to be reserved for a future adjustment for market and/or merit increases. • At that time, the Council determined that there should only be a three percent increase between the steps, including seven and eight, which had the effect of compressing the ranges so the beginning step was a higher dollar amount, but the top step was a lesser dollar amount. This had the effect of making the City of x 4 Eagan's compensation plan more compressed than other cities' plans, meaning that Eagan employees who reached the top step would be making less than employees at like cities in like positions when they reached the top step. Also at that time, steps seven and eight were reserved for future adjustments to the plan for market and/or merit adjustments, depending upon a future comparison to compensation plans at other jurisdictions after they had implemented their comparable worth plans. This policy was adopted in 1986. The City of Eagan was one of the first cities to implement a comparable worth pay plan. Therefore, it was necessary to wait a number of years before any accurate market comparisons could be made. Indeed, some cities were still implementing their plans until the early nineties. During this time, the City of Eagan continued to make adjustments to compensation for non -bargaining employees using only internal equity comparisons. However, during all this period of time, when collective bargaining negotiations for the City's five bargaining units were presented to the Council, external market comparisons were always shown and decisions included a market comparison. (The comparable worth legislation does allow external as well as internal comparisons, although compliance with the requirements of the legislation is judged on internal comparisons. The City of Eagan has maintained compliance with the legislation even though most union positions' compensation is comparable to the external market and above the compensation level they would be at if only internal equity was used to set those levels.) During 1996, another market study was performed by City staff comparing like public entities. At that time, the Council approved a revision to the non -bargaining compensation plan allowing all employees to reach step six. At that time, they did not recommend the use of either step seven or eight, but they did recommend that another review be performed in the future and that the Council continue to analyze the City of Eagan's compensation plan as compared to those of other jurisdictions. During 1998 after the resignations of employees from certain non -bargaining unit positions, the Council expressed concerns that the City might be losing employees because of better compensation elsewhere and asked that staff conduct a study of the compensation for non -bargaining unit positions to see if the City of Eagan's compensation plan was competitive with like cities in the metropolitan area. The market study was completed based on ten cities nearest Eagan in population with similar positions. Private sector comparisons were not made. The figures used in the market study came from the 1998 Twin Cities Metropolitan Area Salary Survey as published by the DCA Stanton Group. As a result of that study, compensation adjustments for certain positions that were at the top step and still significantly below the average top step of other like cities were approved by the City Council. These changes maintained the integrity of the compensation plan while addressing the specific problems. The compensation step for the Director of Public Works, Director of Parks & Recreation, Director of Finance, Chief of Police, two Building Inspectors, the City Administrator, and the y 5 Animal Control Officer was raised from step 6 to step 7 of the compensation plan. Step 8 was still to be reserved until the study by the external consultant is performed. • Also, to effectively compete with the high demand of the external market, the compensation for the IT Director and for the IT Assistant was increased to more accurately reflect the market rates. • Finally, the City Council approved a plan to retain an external compensation consultant in 1999 to conduct a public market comparison for all non -bargaining positions. • In June of 1999 the City Council approved the hiring of the firm of Riley, Dettmann & Kelsey to conduct a public market comparison study for the City's compensation plan and for compensation rates for non -bargaining positions. • This formal study was completed during the balance of 1999, a revised compensation plan was approved by the City Council in December of 1999, and the plan was implemented during 2000. Since that time, no formal, systematic work has been undertaken to determine continued compliance with the intent of the approved plan. • The basic components of the plan approved in December of 1999 are as follows: 1. The pay philosophy targets Eagan pay rates at the Q3 (seventy-fifth percentile) of pay within the eight benchmark cities, Bloomington, Brooklyn Park, Burnsville, Eden Prairie, Lakeville, Maple Grove, Minnetonka, and Plymouth, 2. The compensation study recognizes and reinforces the City's standard of excellence and provides that positions be paid in the marketplace of comparable public sector jurisdictions from which Eagan recruits, establishing all non -collective bargaining unit compensation at a base pay structure at a third quartile level, so that about twenty-five percent of the benchmark jurisdictions pay, on average, above the City of Eagan and about seventy-five percent of the benchmark jurisdictions pay, on average, below the City. 3. The City has continually responded to collective bargaining groups at a rate of compensation that in most cases provides a rate of pay above the seventy-fifth percentile of benchmark comparison cities in the metro area. The approved plan for non -collective bargaining unit positions implements a similar pay philosophy targeting compensation rates for non -collective bargaining positions at the Q3 (seventy-fifth percentile) of pay in those benchmark comparison cities. 4. Any actions taken on future pay administration would have to comply with Minnesota's Pay Equity Law. Y Current Review In response to staff concerns about possible movement away from compliance with the basic components of the City's compensation plan, Riley, Dettmann & Kelsey was asked to review in detail whether or not department head positions had slipped from the City's intended pay plan and to provide observations and recommendations on the internal equity relationships and placements of the City's department head classifications. At the City's request, this review included the eight original benchmark cities, Bloomington, Brooklyn Park, Burnsville, Eden Prairie, Lakeville, Maple Grove, Minnetonka, and Plymouth. In a summary letter Riley, Dettmann & Kelsey noted the long and consistent history of maintaining the same internal equity among the City's department heads, with all department heads other than the City Administrator being classified in the same pay range. In the 1999 study they recommended using the third quartile (Q3) average to balance the desire of the City to maintain its long-standing internal equity relationships among department heads with the reality of market pay maximum patterns that were not the same for all department head classifications. Due to market fluctuations for any particular benchmark classification, they made the additional recommendation that the Eagan maximums be set no lower than at least 95% of the third quartile (Q3) average for any given classification or grouping of classifications. They noted in the letter that their analysis of the 2001 Eagan Pay Schedule and the 2001 market pay maximum patterns from the benchmark cities revealed that Eagan has given up some market position on two of its four department head positions. They further expressed concern about the scope, breadth, and depth of responsibilities of these department head positions in Eagan compared to similarly titled positions in certain of the benchmark cities. Therefore, to maintain the long-standing practice of internal equity among City department heads and help insure management continuity into the future, they recommended that department heads be reclassified one range in the overall pay schedule. This action would still retain a reasonable and defensible relationship of department head classifications to the City Administrator classification that would remain classed one grade higher. This action would also maintain the 95% threshold market position recommendation made and approved in the 1999 study. Rather than recommend implementation of only this phase of what appears to appropriately be potentially a three phase project, the City management team asked that a second phase of applying this same analysis to other non -bargaining positions included in the 1999 study be undertaken. Riley, Dettmann & Kelsey completed a basic analysis of 43 non -collective bargaining positions -to determine consistency with the 1999 compensation plans. The analysis included the City Administrator, the four department heads and an additional 38 positions for a total of 43 positions and because of changes in the environment added a ninth city, Coon Rapids to the benchmark group of cities. That work determined that15 positions in addition to the four department heads should be reviewed in more detail because they now fall outside the 95% to 105% acceptable range as incorporated into the pay plan. The position of the City Administrator is on the list because of the relationship to the department heads. Due to the State limit on salaries, the City Administrator compensation is a broader issue and cannot be addressed through this review. Staff has taken the data as presented by Riley, Dettmann & Kelsey, updated it to use current 2002 Twin Cities Metropolitan Area Salary Survey information, and reviewed the material position by position and city by city. The following is a list of the 20 positions (including the City Administrator) along with staff conclusions. 1. City Administrator 2. Director of Administrative Services 3. Chief of Police 4. Director of Public Works 5. Director of Parks & Recreation 6. Human Resources Director 7. City Engineer 8. Street Superintendent 9. Assistant Finance Director 10. Senior Planner 11. Design Engineer 12. IS Coordinator 13. Maintenance Supervisor 14. Arena Manager 15. Building Inspectors 16. Planner 17. IT Assistant 18. Engineering Technicians 19. GIS Tech 20. Dispatch Supervisor No change due to State salary cap Increase range Increase range Increase range Increase range No change pending review of position responsibilities Increase range No change required No change required Increase range Increase range No change required Increase range Increase range Increase range No change required No change required Z7 Increase range No change required Position vacant & being advertised at adjusted range Eleven of the positions impacting 25 employees require range adjustments to maintain the integrity of the 1999 approved compensation plan. Based on the work that has been completed, the annual cost of the adjustments at 2002 rates is estimated to range between $125,000 and $150,000. While this is a significant dollar amount the total personal services budget for 2002 is $14,367,532; so the proposed adjustment is in the area of 1.0% of total personal services costs. The 2002 budget includes 230.25 Full Time Equivalent employees with 140 being union positions and 90.25 being non -collective bargaining positions. While I believe this list of proposed adjustments is comprehensive, there is the possibility that these changes would generate the need for a review of certain other positions and may result in the need for a few additional adjustments. W Issues For Consideration %-7 The following issues should be given consideration: 1. What is the appropriate next step pending review by the City Council Personnel Committee? 2. Should position adjustments be incorporated into the December City Council action adjusting the 2003 compensation plan or should they be processed independently , 3. Given the circumstances with Human Resources staff during 2002 and the length %lrll\\ of time this has been an open issue, is any retroactive pay appropriate? 4. At what point should a phase three study that would look comprehensively at a more generalized classification and work point audit to capture job content changes that have occurred over the past several years be undertaken? (This �CI G , may mean a significant upgrade to the current Time Spent Profile system or possibly a conversion to a new system that better fits today's environment.) Director of Administrative Services .coo 9 a 0,1 s, �_ TO: FROM: DATE: SUBJECT: MEMO City of Eagan DIRECTOR OF ADMINISTRATIVE SERVICES VANOVERBEKE ASSISTANT TO THE CITY ADMINISTRATOR LORD OCTOBER 9, 2002 BENEFITS SURVEY Per your request, nine comparable cities to Eagan were surveyed to determine benefits offered to the following employees: 1. Director of Administrative Services 2. Chief of Police 3. Director of Public Works 4. Director of Parks and Recreation 5. City Engineer 6. Senior Planner 7. Design Engineer 8. Maintenance Supervisor 9. Arena Manager 10. Building Inspectors 11. Engineering Technicians The benefit survey includes research on car allowances, cellular phones, leave time, insurance coverage, and miscellaneous expense reimbursements. The survey information provided was compiled through the use of the 2002 Twin Cities Metropolitan Area Stanton Survey, as well as direct contact with the nine cities' human resources departments. Attached for your review are two spreadsheets detailing the benefits provided to,,`� �l employees within the nine cities. Many of the municipalities surveyed differentiate `, benefits based upon the specific position within the organization, i.e. senior management versus regular, full-time employee; thus, the survey was broken down into two employee groups. Mr -S K# - 191 Upon reviewing the survey results, very few differences were found between benefits provided by the City of Eagan and those provided by the nine surveyed municipalities. A brief summary is as follows: ➢ Car allowances were found to be the norm at the senior management level, and reimbursing mileage costs to regular employees was consistent across the board. rk ➢ Cellular phones are consistently provided to department directors and senior staff at the nine cities, the majority of which require that the phones be used for City business only, with employees reimbursing the cities for personal usage. ➢ Leave time, which includes vacation, sick leave and personal time off, is fairly constant for all of the cities. Eagan's health, dental, and life insurance benefits are consistent with the cities surveyed, as are supplemental insurance coverage and flexible spending accounts. ➢ Unlike the City of Eagan, it was found that the majority of the cities surveyed offer employees the right to negotiate employment terms. ➢ All cities surveyed are consistent in paying job-related expenses such as travel, occasional conferences, meeting expenses, and professional dues. ➢ Many of the surveyed municipalities reported that employees receive discounted heath club benefits or reimbursement for a portion of health club/exercise-related expenses. The City of Eagan does not currently provide a benefit for health club users. I hope that the above information will be helpful to the personnel committee. If you have any further questions about the information obtained, or require further assistance, please let me know. 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U& CONTENTS I. EXECUTIVE SUMMARY II. EXHIBIT A: 2003 Blended Renewal Rate Calculation and History II. EXHIBIT B: RFP Response Summary (Comparison) M. EXHIBIT C: RFP Response Analysis (Total Carrier Replacement) IV. EXHIBIT D: RFP Response Analysis (Total Carrier Replacement -Dual Plan Design) V. EXHIBIT E: Renewal Analysis (Blended Rates - Dual Plan Design) VI. EXHIBIT F: RFP Response Analysis (Total Carrier Replacement - Dual Plan Design) VII. EXHIBIT G: Renewal Analysis (Blended Rates - Dual Plan Design) VIII. EXHIBIT H: Rate/Premium Cost Comparison IX. EXHIBIT I: Financial Verification Summary X. ADDENDUM A: Provider Network Comparison XI. ADDENDUM B: Medical Benefit Plan Design Deviations ak ttMe+ %AA PAGES�y 1 - 3 rj. • '��{ 45 5 (p 6 A 7-8 #;% 9 30 10 31 11 32 12 33 13 34 14-15 S -V, 16-17 31 -St EXECUTIVE SUMMARY The City, similar to most public and private employers, has received double digit medical rate increases over the last couple of years. The City's renewal rate increases of approximately 12% (on a blended rate basis) during the last two calendar plan years (2001 and 2002) were actually slightly lower than the community norms of 12% to 16%. Please refer to Exhibit A: 2003 Blended Renewal Rate Calculation and History. Based on our monitoring of the City's high claims experience for the period of July 1, 2001 through June 30, 2002, we anticipated that the 2003 renewal would be a particularly difficult one and subject to a significant rate increase. In anticipation of this situation it was determined that we should take the opportunity to develop a Request for Proposal (RFP) so the City could explore any viable options regarding its health insurance benefits. The City is required, at a minimum, to submit an RFP every five years but in this case the RFP was developed one year earlier than necessary. The City's Benefit Consultant, Jeffrey Azen of James Bissonett & Associates, Inc. and the City's Benefit Committee developed an RFP earlier this summer. PFP responses for health insurance benefits were received from three Health Plan organizations (Medica, HealthPartners, and PreferredOne) and two Joint Purchasing arrangements (Public Employees Insurance Plan and Blue Cross Blue Shield's Service Cooperative). All responses to the RFP were received within the required deadline of August 23, 2002. It is important to understand what factors make health insurance different from other types of insurance. Almost all consumers generally think of their insurances as a commodity. This is especially true as it relates to auto and homeowners insurance. As a result, if our auto or homeowner's insurance increase dramatically we generally are able to find another insurance carrier that will provide us with slightly lower rates and depending on the circumstances we may change carriers. Outside of changing the carrier there is little or no direct impact in our daily lives. While all insurances rely on the princivals of risk sharine, health insurance is unique in that to a_major extent it is basically a transfer_ of current dollars (premiums) to pay current claims and plan administration expenses. The only time that there is a true transfer of risk is when there are very large claims. Therefore to all practical purposes, based on three to five year averages, an Employer's health plan needs to cover its own plan costs. The Benefit Committee and the City's Benefit Consultant have met three times to review the RFP responses and after much discussion the Benefit Committee 'is recommending retaining the current carriers and the blended rate approach. . The Benefit Committee acknowledges the opportunity to save in the short term (please refer to Exhibit B: RFP Response Summary). For example, if the City changed to the lowest cost RFP response, the City and its employees would save a projected $7,241 per month ($149,929 minus $142,688), or $86,892 over twelve months, versus retaining the Blended Rate renewal from the current carriers Medica and HealthPartners. This projected savings of $86,892 represents savings of 4.8% of the projected twelve-month Renewal Blended Rates total plan costs of $1,799,148. Based on the City's claims history over the last couple of years, without a dramatic reduction in paid claims during the 2003 calendar year, the City would be at risk for an additional catch-up in subsequent renewals with a new carrier. One of the primary objectives of the RFP was to identify to what extent, if any, going to a single Health Plan or Insurance Carrier might have for reducing/saving premiums. Since the current plan uses two unrelated Health Plan organizations, Medica and HealthPartners, the Insurance industry labels (calls) changing to a single carrier as a "Total Carrier Replacement". Upon review of Exhibit B: RFP Response Summary, you will note that except for the proposal responses from PreferredOne and the Public Employees Insurance Plan (PEIP), there was not enough premium savings to justify a change. When you compare the projected monthly premiums under the Renewal Blended Rates and the total carrier replacement proposals from HealthPartners and Medica, you will find that the monthly premiums 9�ot Q 15 Q DL6 e 26 2 are almost identical. We believe it is important to recognize that these two Health Plan organizations, as the current carriers, should have the best idea of what the City's claims costs are likely to be in 2003. Exhibit C. RFP Response Analysis (Total Carrier Replacement) illustrates the rate and I monthly dt� premium details based on the current plan design under a Total Carrier Replacement. Exhibit D. RFP Response Analysis (Total Carrier Replacement — Dual Plan Design) illustrates rates y and premiums for RFP responses based on a Total Carrier Replacement with an option for employees to elect coverage under either a High Plan with the current level of benefits or a Mid Plan with increased office visit copays and in/outpatient hospital and physician coinsurance. For illustrative purposes we v assumed that 15% of the employees needing family coverage might choose the Mid Plan. Since the City pays 100% of single coverage there would be no incentive for single coverage employees to elect the Mid Plan. However, employees needing family coverage could lower their monthly contributions by enrolling in the Mid Pian. The City would also save premiums under a High/Mid Dual Plan Design options since the City is splitting 50%/50% with employees the increase in the family rates. It is important to note that the City Council would have to approve the addition of the High/Mid Dual Plan options in addition to either approving either the Blended Rate Renewal (i.e., the Medica and HealthPartners renewals) or one of the RFP responses based on a Total Carrier Replacement. � 30 Exhibit E: Renewal Analysis (Blended Rates — Dual Plan Design) identifies the projected monthly premium if the City Council were to approve the High/Mid Dual Plan option under the renewal Blended Rate approach. Exhibit F. RFP Response Analysis (Total Carrier Replacement — Dual Plan Design) illustrates the cost to employees to enroll in the Mid Plan if a High/Mid Dual Plan Design choice under a Total Carrier Replacement was available. Exhibit G. Renewal Analysis (Blended Rates — Dual Plan 4 3, Design) illustrates the cost to employees to enroll in the Mid Plan if the current Blended Rate approach was used. The RFP was designed to seek out any information that could be used to substantiate the ability of any Health Plan organization or Joint Purchasing arrangement to deliver quality health insurance benefits on a more cost effective basis than their competitors. Based on the proposal responses which take into 2 consideration provider network discounts, healthcare management cost control factors, the underlying 4 3 7 rate/premium making cost considerations of each of the respondents (see Exhibit H: Rate/Premium Cost Comparison), and the financial position of the entity (see Exhibit 1. Financial Verification Summary), 3� not one respondent was able to demonstrate enough differentiators to support their ability to deliver benefits on a more cost effective basis than the others. Therefore, even with renewal rate caps, we know that to the extent any respondents initial proposed rates fail to cover plan expenses, the City will have to catch up in the following years. Some Employers have tried to remarket their health plans on a frequent basis, i.e., every couple of years, with the expectation that they will be able to find a new carrier willing to offer lower rates than their renewal. These Employers are now finding that carriers are declining to quote on groups were there is not the likelihood of a long-term relationship.. Before we address any additional RFP issues, I believe it would be helpful to understand the dynamics of how a carrier calculates a renewal. Once the carrier has at least twelve months of claims experience, the underwriter basically takes the claims experience and adjusts it forward by the medical trend factor. As noted above, during the last couple of years, depending on the carrier and plan design issues, the annual medical trend factor has ranged between 12% and 16%. When this annual trend factor is adjusted to reflect the mid -point of the renewal accounting period (i.e., the mid -point of July 1, 2001 to June 30, 2002 renewal accounting period would be January 1, 2002) to the mid -point of the plan year (i.e., January 1, 2003 to December 31, 2003 would be July 1, 2003) you actually have an eighteen month period which results in an adjusted or compounded trend factor of one and one-half times the annual trend factor: Therefore in a simplified explanation, if the health plan organization or insurance carrier received exactly enough premium to cover plan costs, at best, the City would receive a renewal subject to an 18% to 24% increase in rates. 2s 1� All of the respondents to the RFP offer fairly large provider networks (see Addendum A: Provider Network Comparison). However, as is noted on Exhibit B, employees and covered dependents will only have access to HealthPartners' owned clinics either directly through HealthPartners or PEIP. Currently, a little more than 11% of the employees and their covered dependents enrolled in the HealthPartners plan access care through any of the HealthPartners' owned clinics (this represents about 3.6% of the total covered employee/dependent population). The only other potentially significant provider network issue is the fact that the PreferredOne network does not include the Apple Valley Clinic. There was only one major benefit design reduction and that was for preventive dental benefits (see' Addendum B: Medical Benefit Plan Design Deviations). In their renewal proposals both Medica and �y 1 HealthPartners maintained the preventive dental benefits. However, only Medica maintained the 1 T preventive dental benefits under the Total Carrier Replacement RFP responses. The cost for the preventive care benefit has an annual economic dollar value of between $30,000 and $35,000. Therefore, with the exception of Medica, all other respondents' rate/premium comparisons had to be increased to reflect this lost benefit issue. In spite of the requirement for preventive dental benefits in the medical specifications, HealthPartners and Blue Cross Blue Shield quoted separate broader dental benefits with increased costs above the $30,000 to $35,000 economic value. Unfortunately, a cost appropriate alternative preventive dental plan, except on a self-insured basis, is not readily available. Experts are projecting that the medical trend factor will remain at a double-digit level for the foreseeable future. As a result, unless the proposing carrier, has provided a renewal rate cap for the 2004 plan year that is significantly below the expected medial trend factors, the reduced premium cost for the upcoming plan year will likely result in a significant rate increase for 2004. As indicated above, health insurance is unique in that to a major extent it is basically a transfer of current dollars (premiums) to pay current claims and plan administration expenses. Therefore, in the near and long term, the solution to slowing the rapid increase for health care has to come from reducing the demand side by becoming better informed and healthier consumers. The Benefit Committee is committed to working with Jeff Azen, our Benefit Consultant and Erin Ratelis, the Health Cost Management Consultant at James Bissonett & Associates, Inc. to develop a comprehensive Health Cost Management (HCM) Program. The HCM program will manage the health of the population through a combination of HCM strategies including_ health promotion, self- care, consumerism, high-risk intervention and disease management. The HCM program will engage, support, and reward employees, for making healthy choices and for being wise health care consumers. It is through this process that the City will have the greatest opportunity to compress the projected increases in health care costs. 24 Exhibit A: 2003 Blended Renewal Rate Calculation and History 4 MEDICA-CHOICEENROLLMENT SINGLE August'02 87 September '02 86 Average 87 - HXALTIWARTNERSENROLLMENT ' NT August '02 46 September'02 45 Average 46 TOTAL PLANS Enrollment Average 133 -1003UNEW. RAT E$:. Medica Choice (26.9% increase) $434.64 HealthPartneTs (17.01% increase) $504.31 FAMILY 74 75 75 37 35 36 III $708.47 $994.07 ,P]k,OJECT.ED:�2003'MO.N-T.HL*'.Y-*PRE-MILTM*::...;:.,... Medica Choice $37,813.68 $53,135.25 HealthPartners $23,198-26 $35,786.52 Total $61,011.94 $88,921.77 T61TALS 161 161 162 80 82 244 N/A N/A $90,948-93 $58,584.78 $149,933.71 .. .... .......................... 1-10 Z ................ .. -7-40A .... .......... ..... .... . ....... .. . .. X" 0., i 0 i 1 9-1 d -O" �1" : ....................... ........... .. . I .... ............. Percentage Rate change vs. prior year. 25,09% 20.23% 21.74% Average August '02 and September'02 enrollment multiplied by 2003 Renewal Rates Blended rates equal pritjectcd tout] monthly premium divided by average Aug/Sept Medica Choice plus HealthPurtners enrollment A RFP was issued for the 1999 Plan Year in. late 1998. W Ave. % Change 2002 Blended Rates $366.70 5666.30 12.14% 2001 Blended Rates $327.00 $583.20 12.56% 2000 Blended Rates $290.50 $510.70 4.31% 1999 Blended Rates*** $278.50 $489-80 10-56% 1998 Blended Rates $251.90 $443.20 3,45% 1997 Blended Rates $243.50 $428.70 -0.04% 1996 Blended Rates $243-60 S427.I0 2.98% 1995 Blended Rates $236-56 $415.51 1.80% 1994 Blended Rates NA 5408.09 N/A Average August '02 and September'02 enrollment multiplied by 2003 Renewal Rates Blended rates equal pritjectcd tout] monthly premium divided by average Aug/Sept Medica Choice plus HealthPurtners enrollment A RFP was issued for the 1999 Plan Year in. late 1998. W •o r C 00 aCi � y � y C\y Irj o y y U VJ y .CJ -i 6s �6 I 69 6A b/i a cQ r w, w 5 w y y N C v, Cd G per„ 6? �A 3i orLz o N a 0000 C a N N pp CCj a y N `Mt t a M a v td � M rnOIn w Q N O r�i M M b� y h ° a. a v`Oi o 0 o ?� y 0 C Vl^ O^ Ln ila L t6 tole) b4 00 O ." 4= ° 4� 4 Jam- a CN r`- yOj o Zw wu C G .6 r+ � c~tl $ o..o D f�+ol w�i c � crCtl y � �J V\ _ O ON 4A V) (� V) {f3 ry go O0 4�. O J~ co C N 00 8P •ts %U d "� u a� v _d' F CIS C� '0 CD C� , •V F L s w sa a �N w cL17' °� IN U N •o r C 00 0 oell 0. C\y U cdV o O� v\ 6s �6 I 69 6A b/i 2(We w U cdV U c7 R a cQ r w, w 5 w y y N C y N C Q Cd G per„ 6? �A 2(We w U cdV U c7 R odU °' c cQ w, y y N C y N C Q Cd G per„ 6? �A o N � 0000 v p a N N pp CCj y N `Mt t Q^ r td � M rnOIn M Q b� 6R ° a. a v`Oi o 0 o ?� Ln Qt 00 O ." 4= ° 5 yOj o Zw wu rJ c � crCtl y � go O0 4�. O J~ co C N 00 8P •ts � F "� rl v Q F CIS C� •V ..— L s w w w cL17' °� U aCi a A+ p ►��+ R, .^� N M Exhibit C: RFP Response Analysis (Total Carrier Replacement) 2002 Plan Year Single Family Monthly % Increased Current Carriers Rates Rates Premium Chanee Cost HealthPartners $430.98 $849.53 $50,408.16 N/A N/A Medica $342.24 $557.85 571,613.63 N/A N/A Blended Rates $366.70 $666.30 S122,730.40 NIA N/A ($508.70) vs Renewal 2003 Plan Year (Renewal) Single Fancily Monthly % Increased Current Carriers Rates Rates Premium Change Cost HealthPartners $504.31 $994.07 $58,984.78 17.01% $8,576.62 Medics $434.64 $708.47 S90,948.93 27.00% $19,335.30 Blended Rates $458.70 5801.10 5149,929.20 22.16% $27,198.80 Request for Proposal Responses (Total Carrier Replacement) Single Family Monthly % Increased Respondine Carriers Rates Rates Premium Chanee Cost HealtbPartners Open Access $426.79 $844.01 $100,431.48 Primary Clinic Choice $406.47 $803.82 547,635.14 HP's proposals did not include preventive care Dental benefim* $2,750.00 Assumes current Medica enrollees elect coverage underly Open Access $150,816.62 22.88% $28,086.22 vs Current and EP enrollees elect coverage under the current Primary Clinic Choice network. $887.42 vs Renewal 6 2004 Renewal Rate Can Medical Trend +10% Medica $319.86 $959.58 $149,054.76 21.45% $26,325.07 vs Current None w/ rate adjustment $425.09 $833.50 $149,055.47 ($873.73) vs Renewal Ile above rate adjustment was necessary since Medica deviated from erre specifications regarding the pricing relationship between singlerates and famiiy rates. Medica did include preventive care Dental Benefits in its RFP response. Medical Trend BCBS (Service Coop.) $413.00 $826.50 $146,670.50 +10% BSBS proposals did not include preventive care Dental benefits. $2,750.00 $149,420.50 21.75% $26,690.10 vs Current ($508.70) vs Renewal PreferredOne $419.37 $763.26 PrefctsedOne proposals did not include preventive care Dental benefits.* Public Employees Insurance Plan (PEIP) Preferred One $423.54 $769.57 HealthPartners $407.25 $739.97 Total PEIP proposals did notinclude preventive careDental benefits.* PEEP proposal rates are based on the $10/100% PreferredOne POS plan $140,498.07 20% $2,750.00 $143,248.07 16.72% $20,517.67 vs Current ($6,681.13) vs Renewal None $94,565.73 ,45.372.42 $139,938.15 $2,750.00 S142,688.15 16.26% $19,957.75 vs Current ($7,241.05) vs Renewal * The loss of preventive care dental benefits has a projected lost benefit cost of $30.000 to $35,000 per year. For comparitive purposes, an adjustment of $2,750 per month was made to those responses that did not include preventive care Dental benefits. Health - September 2002 Medica Partners Total Single Coverage 87 46 133 Family Coverage 75 36 111 162 82 244 ;1 1a z 0 00 wo a a 'f •9 Q " U o •r. � � N 09 00 '0 rq W N 7 A 1 z z u N %D h [- (r, V] A Q � N �O u F � � 44 49 U i F d a N l=+ O E_ M �. CL. v1 00 00 Qs 4�4 ti Y � N 0 h tT d t' � vs CID 00 O s4 e4 F G. dO' S cVi u � 2 O Q � � CV U U r 6R n _U L a d p" Cr x p i Y C y 7 + u 5- 0 u F � � 3 i F a O v1 1011, N � 00 O dO' S O Q � � CV r 6R Z a .� Q z r.I V Fjc p Iz r- eq 69 tf N N L" U. 13 o� 4 � Z v � 7 � z o 0 M U 6 .a w N i �0 fl bog d Ld p O\ 64 S •o ion O ;t OO C7 Ln M C1 4 64 f4 O 2 o y v U ew w 'M 8 O LF1 C 000 �o = o 1 'O G6s. 64 �3 u y N J y +! C u G1 C� r •1r). 69 64 0. y q Fsi 4,4 FC -1 I i ,cu a w V R+ U y Ci !dr aj C O a 5 C 7 v S � d O 2 o y v U ew w 'M 8 j cn mm � 4 Ra 9 U Q F u y y y 3 rp� a a � _ '8 EC d s�I N a d e V) Q Q Q n n o R zzz HLa �� .a �+ a a �+ ¢ oho_ a 0h O m ri r c _ + Q �� z z -: z M i a a 4S 49 iR .V. y a� y Cv m o n n 0 g • oo kn m hK% 0 O rnLn Q ON �I .� Do A oCl O O a VN c`t* vri LU v v. 9 7 co7 VC] a M C. it j cn mm � 4 Ra 9 C N N d m CL i d E t3 L L L ca V c� O C a Q N a CL U. OC x W 9 M � .000 V" . d5 v � N 000 M a &9 fft r � ss 44 rn 44 � �r- U WI rNii O cIVo u 0. 3 •�g, O 09 Q w LT. a1 fps tp:� fA W � O Imo. cs � .5 0 N U 3 V'1 L to 0i O cC w C C � 0000 U � U x f� rn c n Q. U wl 00 W It t9 Cl s fol in fo% C inh h O y u -- o a�00 M co � L 6 � N sh9 9 M � .000 V" . d5 v � N 000 M a &9 fft r � ss 44 rn 44 � �r- U WI rNii O cIVo x 3 •�g, O 09 Q w LT. a1 fps tp:� fA C 0o ul d Imo. cs N r� .5 0 V; U 3 L to 0i O cC w iL "a 0000 N U x f� rn 9 M � .000 V" . d5 v � N 000 M a &9 fft r � ss 44 rn 44 � �r- Is, rNii O cIVo x o w � 0o ul d 6A 6�9 cs N r� .5 0 V; 9 M � .000 V" . d5 � N 000 M a &9 fft r � ss 44 rn 44 � �r- Is, rNii Q.. ay cIVo x o w � 0o ul d 6A 6�9 9 M � .000 V" . d5 -4\0 000 M a &9 fft r � ss 44 rn 44 .- cA �r- Is, Q.. ay cIVo x o w � 0o ul d t+1 cs N r� 9 M � .000 V" . d5 -4\0 000 M a &9 fft r � ss 44 rn 44 .- cA �r- Is, W cIVo x 9 M � .000 V" . d5 31 10 -4\0 000 M a r � ss 44 rn 44 .- cA yNq 64 .� 0o ul d t+1 cs e .5 0 V; .4 c 3 O w 00 0000 a \C!oOD Thr, rn Q. Vh" CT 00 %V It t9 Cl s fol in fo% N Kai � �. M co � b � 6lit '4 ou it) in VOj p O VMl rte-+ C4 00 00 fV en V 1 00 0 r-� \ b? s9 6s 109- .n w vi 000 000 rt or M •k �,� G � C'• �Y G� 00 00 Q Q� 'D M N Chi D�0 HJ dN9 00 it 9 W4 6,14t 00 rn FL ON Ch as va y a004 6h9 a n. cc f.. O V Ul b u o 31 10 W w� w w 32 11 j n O; a o N /1 C a E kn � cc n r o •� K QZ o0 r- cc CA 4? t0 W .N c 4 00 rq rq c� tn C U WI n as Q4 OC Q4 • . vi M U1 V oo M rn CSC G� r �C wam -,t Ar, �o 00kn�oo .c 6s so� 401J. x w V � I., d gn Cd � OC C L U 2�CA env w� w w 32 11 12 EXHIBIT H: RATE/PREMIUM COST COMPARISON 1. What percentage of your prerniurn rates is attributable to the following plan cost factors? PEEP PreferredOne Medica HealthPartners BCBS Claims Cost N/A 80.3% 80.2% 75.58% 87.9% Pooling Charges N/A 5.0% 5.0% 4.82% 0.0%* MCHA Assessment N/A 2.1% 2.21% 2.4% 5.7% Medicaid Assessment N/A 1 .60% .60% .60% 0.0% Premium Tax N/A 0.0% .10% .20% 0.0%* Plan Reserves N/A 2.0% 2.0% 3.0% 0.0%* Risk Margins N/A 0.0% 0.0% 0.0% 0.0% Plan Administration N/A 7.0% 6.5% 10.4% 4.4% Commissions 2.0% 1 2.0% 2.0% 2.0% 2.0% Miscellaneous Charges NIA 1.0% 1.4% 1.0% 0.0% 2. Explain the impact, if any, the ability of employees to waive medical coverage would have on your proposed rates? PEIP We reserve the right to recalculate rates if the actual enrollment varies from the RFP by 10%. PreferredOne A 6% load would be placed on the rates. Medica This would not impact the above proposed rates, but may impact future renewal rates. HealthPartners The number of waivers would be needed in order to determine the im act. BCBS We reserve the right to recalculate rates if the actual enrollment varies from the RFP by 10%. 3. What is the renewal rate history over the past three years under your Joint Powerstjoint Purchasing Arrangement? PEIP 2000 4%-19% 2001 8%-25% 2002 10%-29% 2003_ Not available at this time BCBS - Service Coop _ 2000 16%-49.25% 2001 0%-20% 2002 7.4%-22.2% 2003 7.5%-39% * Even though the BCBS Service Cooperative did not identify a cost for Pooling Charges (or Stop -loss insurance for self-insured plans such as the Service Cooperative), Premium Taxes, and Reserves these are necessary components of the Premium Breakdown and a percentage of the premium should have been allocated to these components. 3 13 Qf r-0ON r O�O CL CLQ� � Q l� or: Ory Qv N cO 0 coGon � pO.C) QQl< � pT a C14 ZZZ~ l�r O CO) CO m Cn N ANL t r CA r ' ' 63 w d# w to 4f} 07 t9 ' n co O O N O fn m O C7 O O 4 OM~\ CT) C7o OCO� \ pOo N o c'! 00 7 p Q� O �dl<Q Orn CT) lf�M NZZZ 0 oCOto� O Nco N NC7�f O�CL7O r N O Q co � Cl) fF} co O NM CIZ ` O `0 Cj co ChM QOpCo r N_cQ rnc� cr) tiMNO O `op �QQd co r N N S S p p Z Z Z Caj �N m ��N G0a - 05 C6 LO r r IW9 61_:� w GO. N U) N n co 46 cd as Si $ O � �Q�n C co O000 0 d �~C]o NScow a r, P': Q$o0 W NQ m pC7) r � +-L„)r�N OppQO a O �Cp dC)rtoW) L �ltiO r co Cd ?. CTSIg4 T r T- T r r 6969,44, U M 4) U LU N C O N C U W N a) ut () m a) m a) c) a) m E a) � `�° N v m m y U a0) a`) m U � CL a: it CL a: � Q � a) n � � � Z cr. D. 0Q 0a EQ o mi" 00 CL € � �0 �a � ED �a a0 � ��E EE S �, J=o E �� E E _ p E W 'E E E •2 (n : E .2 a)ca E mw E EE _LU 'E Z mvaE a 4 a 3 4 � Q(D .e N a D 4 w N a 3 d� CL � rn — a Q d rl a CL W a CL W Q a ov? 4- W OC o m i° LU too Joco �c Z13) Z O m a CD d m Q N m 0 N W Q f = s Q it z v ¢ v ir V F' LU o LU W oil W m m id a m CL 34 14 ADDENDUM A: PROVIDER NETWORK COMPARISON PreferredOne Total Networks Total Networks 7 County Metro Henne in County Ramse County Largest Network Largest Primary Network Care Network Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network a. Hospitals 159 N/A 27 N/A 10 N/A 8 N/A b. Pharmacies 972 N/A N/A N/A c. PCPs (Family Practice, Internal Medicine, Pediatrics) 8094 4828 948 2358 455 982 187 d. OB/GYNs 1619 1167 c. PCPs (Family Practice, Internal Medicine, Pediatrics) 617 4641 253 2419 e. All other s cialists 11,988 6592 d. OB/GYNs 3417 1303 1420 697 f. Psychiatrists 3166 1541 e. All other specialists 779 6867 358 3944 ..Psvcholo fists 157.7 f. Psychiatrists 565 336 h. MSWs 82 31 11 ..Psvcholo fists 13 , 468 i. Psych RNs 59 30 17 3 Medica Total Networks 7 County Metro Hennepin County Ramsey County Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network MIC and Medica Choice N/A MIC and Medica Choice I N/A MIC and Medica Choice N/A MIC and Medica Choice N/A a. Hospitals 159 24 8 8 b. Pharmacies 948 455 187 94 c. PCPs (Family Practice, Internal Medicine, Pediatrics) 7865 4641 2419 908 d. OB/GYNs 1799 1303 697 307 e. All other specialists 10556 6867 3944 157.7 f. Psychiatrists 565 336 190 74 ..Psvcholo fists 723 468 264 104 h. MSWs 1164 690363 170 i. Psych RNs 38 18 7 6 35 15 ADDENDUM A: PROVIDER NETWORK COMPARISON HealthPartners Total Networks 7 County Metro Henne . in Count - Ramse r County Count Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network a. Hospitals 161 161 24 24 9 9 6 6 R b. Pharmacies b. Pharmacies N/A 53,000 Nationally and 900+ locally N/A N/A c. PCPs (Family Practice, Internal Medicine, Pediatrics) 3009 3009 1584 1584 773 773 395 395 d. OB/GYNs 422 422 284 284 192 192 79 79 e. All other specialists 4205 4205 2559 2559 1885 1885 709 709 f. Psychiatrists 238 238 139 139 105 105 24 24 .Psvcholo ists 508 508 247 247 131 131 64 64 h. MSWs 152 152 94 94 57 57 21 21 i. Psvch RNs 35 35 1 15 15 8 8 1 1 Blue Cross Blue Shield Total Networks 7 County Metro Hennepin County Ramsey Count Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network Largest Network Primary Care Network a. Hospitals 144 144 25 25 9 9 7 7 b. Pharmacies N/A N/A N/A N/A N/A N/A N/A N/A c. PCPs (Family Practice, Internal Medicine, Pediatrics) 9000 5410 4116 2330 2224 1104 1084 d. OB/GYNs 1147 621 881 608 165 247 4 39 e. All other specialists 19641 10794 14234 9035 1403 2908 153 1157 E Psychiatrists 962 174 N/A N/A N/A N/A N/A N/A ..Psycholo ists 1066 99 N/A N/A NIA N/A N/A N/A h. MSWs N/A N/A N/A N/A N/A N/A N/A N/A i. Psych RNs NIA N/A N/A N/A N/A N/A NIA N/A 31r 5 ai 31 16 y o' E �>>p yr zzzZD L y, fli+ aT q Y .l3 >• G g O$ 7 7_7 U`�N i z WO �• fV N ijt C ra O D 7. 7• o r0" w u Q C C 00 00 5 � b rd r u s. S, l lu Z� � g w P. $0 u 8 E a. 8 tg ui �. p• m z u a -i Pq 411 w �w xu cd U C1 r � w a w 5�aa rnw'rnwTE„ Fe atp p[ a u ;UQ �I ate, i9 :m z0.`jFvvu, a . A.......u�oR.•. —v. O V. • • . • .fin,.. 31 16 rA O 7A F-1 A z Aw ri E bppwW W z a V ►tet A OQ 139 17 • � � a �d � n V 4y L N p C O L+ u oaf z Z° M4� i a n ki b rO .0 ry k: `ea 0.0 T tL E Lw u � tl f0^Ip C W N T G •z x � a G 1 T G _ T _ (p 04 � q vl Cc oa w ao 7 p b C H d� hN Q u inn � $ b c n• T I o z I Z � v e O GK �jaV'v WdDJgo w v,. • k �♦ • tn• • OG�Tp.• �7 • •CJC�+G:� C• 139 17