Memorandum                                    

City of Lawrence

Human Resources

TO:	Thomas Markus, City Manager
FROM:	Michelle Spreer, Human Resources Specialist Lori Carnahan, Human Resources Manager
CC:	Casey Toomay, Assistance City Manager Diane Stoddard, Assistant City Manager
Date:	June 29, 2017
RE:	2018 Healthcare Vendors

Executive Summary

In February 2017, Hays Companies (Hays) issued a formal RFP on behalf of the City for healthcare plan service providers, including medical, dental, prescription and vision.  

Based on analysis from Hays and feedback from the Healthcare Committee (HCC), Human Resources staff (staff) recommends the following companies provide services for the healthcare plan in 2018:

· Aetna – medical and vision plan administration and provider network (change from Cigna);

· MedTrak Rx – pharmacy benefit manager (incumbent);

· Delta Dental – dental plan administration and provider network (incumbent).

Detailed Discussion of Recommendations

1. Service Providers

Medical:

Hays received eight responses to the city’s medical RFP. They evaluated each response and provided staff and the HCC with an executive summary of their analysis. Based on this information, staff and the HCC narrowed the finalists to Cigna (incumbent) and Aetna. Both companies were invited for an on-site interview.

While the administrative fees with Aetna are more than Cigna’s, the potential for greater claim savings with Aetna, based on the breadth and strength of network pricing arrangements is expected to deliver a net savings. Cigna’s proposed fixed costs are $337,000, while Aetna’s are $475,000.  Aetna proposed waiving the first two months of fees, which helps offset the cost of Cigna administering run-out claims in 2018 (savings of $79,000).  Our main criteria when analyzing providers were network discounts as well as breadth of network and disruption to employees.

Based on repricing of our 2016 claims, the savings to claims could have been approximately $300,000, net of higher administrative fees, using Aetna’s network as compared to Cigna’s network.  Therefore, staff and Hays believe that Aetna gives us the greatest potential for future claims savings.

The projected savings for 2018 is highly dependent on the 2018 provider mix and type of services accessed. We still project an increase in overall claims in 2018. Over the last 5 years, while our claims costs have come in under projected they have increased an average 7.2% with national trend being around 10%.

Aetna will offer a network discount guarantee and if not met, they will refund a portion of administration fees (up to 40%) to the city.  

Of the top 100 providers that the city’s employees utilize, only 3 were not in Aetna’s current network, according to the Aetna sales team. Staff feels that provider disruption to employees is at an acceptable level.

Other qualifying factors for Aetna include:

• Fixed pricing for 3 years;
• Concierge Service – team of 20 that are trained specifically on the city’s healthcare plan;
• Local service team dedicated to public entities;
• Direct contracting relationships for chiropractic care and durable medical equipment benefits (these benefits are not administered by a third party company as they are now with Cigna).

Pharmacy:

Hays, staff and the HCC unanimously agreed that MedTrak Rx would be the best vendor for the 2018 plan year due to their competitive administrative fees and exceptional customer service for employees and the city. They offer higher rebates than their competitors and have strong generic discounts, which encourages our employees to utilize generics when available. Generic utilization has steadily increased over the years, going from 63.3% in 2009 and ending 2016 at 83.4%.  Since MedTrak Rx is our current provider, there should be no disruption to employees.   

Dental:

Hays, staff and the HCC unanimously agreed that Delta Dental would be the best vendor for the 2018 plan year due to their competitive administrative fees and exceptional customer service for employees and the city. Delta Dental offers the largest network of providers as well as the greatest network savings. Delta Dental has over 98% of the providers in Kansas participating in their network. Since Delta Dental is our current provider, there should be no disruption to employees.  

Action Requested

Staff requests approval to initiate termination of the current plan provider agreement with Cigna and establishment of a new provider agreement with Aetna.  Upon receiving approval, staff will provide notice of termination to Cigna, commence contract negotiations with Aetna and initiate conversion activities for a January 1, 2018 effective date. MedTrak Rx and Delta Dental contracts automatically renew each year.