Memorandum

City of Lawrence

Human Resources Division/City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Lori S. Carnahan, Human Resources Manager
CC:	Diane Stoddard, Assistant City Manager Michelle Spreer, Benefits Specialist
DATE:	November 9, 2010
RE:	City of Lawrence Employee Healthcare Plan Stop Loss Insurance 2011

Please place the following item on the consent agenda for the November 16, 2010 City Commission meeting:

Authorize the City Manager to execute the necessary agreements with Cigna to provide stop loss coverage for the City’s Employee Healthcare Plan for 2011 in the amount of $696,183, as recommended, if appropriate.

In September, the City Commission approved the release of a Request For Proposals (RFP) by Hays Companies for Stop Loss Coverage for the City of Lawrence Employee Healthcare Plan. 

Each year the City purchases stop loss coverage for the Employee Healthcare Plan.  With our current providers we are able to request quotes for coverage each year. 

Stop-loss coverage is insurance that protects employers who self-fund their health plans against catastrophic or unpredictable losses.  Typically this is purchased by employers who do not want to assume 100% of the risk associated with self-funded plans. The stop-loss carrier becomes liable for losses in excess of specified limits.

The RFP was distributed for Specific and Aggregate Coverage.  Specific coverage insures the City for claims over a certain threshold relating to any one individual.  Aggregate coverage insures the City over a certain threshold related to all claims incurred.  Respondents were asked to provide quotes for a variety of combinations of coverage.

The RFP was sent to fifteen carriers and posted on Demand Star.  The current incumbent, CIGNA, and two other carriers responded.  Hays Companies presented the results to the Human Resources Division and Healthcare Committee on October 12, 2010.  After discussion on Specific Coverage level and whether to purchase coverage for the prescription drug program with the committee, Hays companies recommended the following:

• CIGNA Specific Coverage at $125,000, with a “paid in 12” contract for medical and prescriptions drugs;
• CIGNA Aggregate Coverage at 120% of expected claims, with a “paid in 12” contract for medical and prescription drugs;
• $696,193 annual premium, an increase of 13.21% over 2010 (this increase is lower than the level used in the estimated 2011 budget prepared in April).

Comparison of Current Stop Loss to Recommended	2010 CIGNA (Current)	2011 CIGNA (Recommended)
Specific Level	$100,000	$125,000
Contract Type	12/12	Paid in 12
Lifetime Maximum	Unlimited	Unlimited
Annual Maximum	Unlimited	Unlimited
Specific Stop Loss Includes	Medical Only	Medical/RX
Specific Premium   807	$58.72/month	$67.07/month
Aggregate Level	116%	120%
Contract Type	12/15	Paid in 12
Aggregate Premium  807	$4.78/month	$4.82/month
Annual Fixed Cost	$614,934	$696,183
% Change		13.21%
Aggregate Annual Attachment Point	$5,577,016	$7,947,659
Annual Expected Claims	$4,807,772	$6,623,049

The other two carriers placed conditions and contingencies and maximum reimbursement limits on the quotes.

The Healthcare Committee is comfortable moving to the $125,000 specific coverage for the following reasons:

• The plan moved from $75,000 to $100,000 in 2006.
• In order to maintain the same level of risk from year to year, the specific coverage limit needs to be adjusted to leverage trend.
• Hays recommends that specific coverage level be $75,000-$175,000 for a group our size; actual level is based on risk tolerance.
• The savings in premium is $119,597.  The 6 year average and median number of claims that exceed $100,000 are 3 which equates to additional risk of $75,000.

Additional premium paid for prescription drug coverage is $34,766.  It is recommended that prescription drugs be added to stop loss coverage due to the increased utilization of specialty drugs.  For this reason the risk to the plan has increased significantly since dropping stop loss coverage for prescription drugs with the move to Medtrak in 2005.

The Healthcare Committee budgeted for a 25% increase to stop loss coverage in 2011 ($795,000); the recommended renewal is significantly below budgeted parameters.

We recommend approval to purchase Stop Loss Coverage for the City of Lawrence Healthcare Plan for 2011 from CIGNA as recommended for a cost of $696,183.

Requested Action:

Authorize the City Manager to execute the necessary agreements with Cigna to provide stop loss coverage for the City’s Employee Healthcare Plan for 2011 in the amount of $696,183, as recommended, if appropriate.

Attachment: Hays Companies “City of Lawrence Stop Loss Renewal”