Memorandum

City of Lawrence

Human Resources Division/City Manager’s Office

 

TO:

David L. Corliss, City Manager

Diane Stoddard, Assistant City Manager

 

FROM:

Lori Carnahan, Human Resources Manager

 

CC:

Healthcare Committee

 

Date:

September 13, 2010

 

RE:

Response to Commission Healthcare Questions

September 12, 2010

 

I agree the illustration developed by Commissioner Chestnut is accurate and a possible outcome for the 2010 healthcare plan.  Based on 2009 RFP analysis, Hays companies estimated approximately $1.2M in savings with identical utilization in moving to CIGNA.  Because this was based on identical utilization and using 2008 data, it was determined that the calculation used in projecting 2010 cost estimates would use a more conservative number of $600,000.  Early analysis of 2010 claims has also shown the discounts applied have not been as great as indicated by the RFP test group of claims or as large as CIGNA indicated they would be in their RFP submittal.  The Healthcare Committee has asked for follow up information from CIGNA and Hays to help project which is likely to come to fruition by the end of 2010 with regard to network discounts.  At the time of budget development in May 2010, neither Hays nor the Healthcare Committee were comfortable using any greater savings level than the $600,000 in 2010 for 2011 funding scenarios.

 

I agree with the statement the “…knowledge that the City was changing networks on 1/1/2010 could have created excess usage in late 2009”.  It might also explain the higher than projected 2009 claims utilization, particularly in the 2nd half of 2009 as well as the lower than projected 2010 claims utilization.  This possible shift between 2009 and 2010 is a onetime phenomena and not likely to affect the projected costs for 2011.

 

I must correct a statement in my memo of 9/9/10.  The average city contribution level for “employee only” coverage for the market cities that require an employee contribution is 92% and 93% for all the seven market cities.  The average employee contribution for all plans offered is $26.46 per month and the average contribution for the comparable PPO plan for all cities is $32.93/month (average employer contribution $498.38).   For the PPO comparable plan, the average employee contribution for the cities that have an employee contribution is $38.33/month; city contribution is $428.21/month.  City of Lawrence employee contribution for employee only is $0 per month with a city contribution of $449.

 

The Healthcare Committee seriously discusses implementing the employee contribution for “employee only” coverage every year.  Even among committee members there are two main positions on the topic:

·       One of which aligns with Commissioner Chestnut indicating that by charging some amount for the benefit, those who do not need it would opt out of the plan therefore reducing plan liabilities;

·       And one which points out the considerably richer benefit the city continues to offer those who carry dependents on the plan and the inequity in benefits already provided to those who carry dependents on the plan compared to their “employee only” coworkers. 

The additional factor for maintaining the 2011 “employee only” contribution level is to maintain the “Grandfather” status of the City’s plan under Health Care Reform for one year.  It was determined by the committee that maintaining the status was important while the Health Care Reform parameters are being formalized at the federal level.  It may not be important to maintain in 2012, but it will be discussed before abandoning the status.

 

As with Commissioner Chestnut, it is the desire of the healthcare committee to offer wellness initiatives, encourage early participation and avoid long-term health issues.  The Healthcare Committee is strongly committed to shift employee behavior using a reward system.  It is the desire of the committee to first implement a wellness incentive program which begins to reward employees who work to improve their overall health.  The incentive currently in place is low by industry and peer standards, it is planned to increase in both expectations and reward each year in the future.  This will allow an “employee only” contribution to be added to the plan in subsequent years (and like amounts applied to the employees with dependent coverage), those that are willing to work for a higher health performance standard to meet our expectations will be able to maintain a rich healthcare benefit similar to that currently offered by the city.  Those who do not wish to participate will still have a market competitive healthcare plan.

 

As you know, the Healthcare Committee will be spending fall 2010 discussing and revising Health Care Committee Goals and Objectives to ensure continued alignment with City Manager and City Commission expectations.  The concepts brought forth by Commissioner Chestnut are already on the agenda for discussion.  Thank you for giving me the opportunity to address concerns regarding the City of Lawrence Employee Healthcare Plan.