CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Approve the recommendation by Alera Group to award Medical Claim Administration Services to Blue Cross and Blue Shield of Illinois (BCBSIL) for an amount not to exceed $2,897,891.05 in fixed costs, based on HMO and PPO enrollment, for a one-year term (Item 1 of 5)
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DEPARTMENT: Human Resources
SUBMITTED BY: Helga Oles, Director
BOARD/COMMISSION REVIEW:
N/A
BACKGROUND:
Additional recommendations related to this item are detailed in this memorandum and presented on this agenda for City Council approval:
• 25-1268: Specific Stop-Loss Insurance Policy with BlueCross and BlueShield of Illinois (Item 2 of 5)
• 25-1269: Pharmaceutical Management Services renewal with CVS-Caremark (Item 3 of 5)
• 25-1270: Group Life/Accidental Death and Dismemberment and FMLA with VOYA (Item 4 of 5)
• 25-1290: Weight Management Program-CVS-Caremark (Item 5 of 5)
On September 21, 2021, the City Council approved Alera Group to serve as the City’s health benefits broker for a three-year term, with two one-year extensions. One of the duties of Alera Group is to price, negotiate, and recommend the renewal of medical insurance, pharmaceutical management, vision, and dental insurance contracts for the City.
The City is a self-insured organization and is responsible for all medical, dental, and pharmaceutical expenses for each plan. As a self-insured organization, the City contracts for administration of the medical insurance program, while internally funding actual claim expenses. The City offers three medical plans, including:
1. HMO: Health Maintenance Organization
2. PPO: Traditional Preferred Provider Organization
3. PPO-HDHP: High-Deductible Health Plan with Health Savings Account (HSA)
To limit liabilities, the City maintains individual stop-loss reinsurance for individuals with catastrophic claims of more than $200,000 for the HMO plan and $300,000 for the PPO plans. These limits are evaluated each year.
The chart below reflects how the City has performed against the national trend year over year:
Medical Expenses vs Trend: 2017 - 2025
The City implemented significant changes to the healthcare program in recent years. Changes include plan design revisions, rebalancing participating premium contributions, and a variety of voluntary cost-savings benefits. Specific examples of the changes include:
• Implemented Medicare supplement plan providing enhanced benefits at a lower cost, saving approximately $600,000 annually.
• Implemented plan design changes to balance health care costs between the City and employees/retirees.
• Awarded the dental contract to Delta Dental, increasing customer satisfaction with the network and reducing costs to both the City and employees.
• Expanded wellness offerings and other voluntary wellness and health programs.
• Contracted with a pharmacy benefit manager (CVS-Caremark).
• Negotiated stop-loss reinsurance contracts each year, outsourcing with a third party when competitive.
• Implemented prescription drug management programs with CVS-Caremark after review by a third-party pharmacy team.
• Removed an underperforming plan.
• Implemented CRX International pharmacy, saving participants and the City approximately $259,159 through June 30, 2025.
• Implemented a high-performance network with BCBS and tiered plan design.
• Added enhanced well-being management programs.
• Implemented Zero for savings to participants and the City for x-ray and labs.
DISCUSSION:
For 2026, staff, in consultation with Alera Group, recommends several key relationships to help mitigate cost increases, while still offering access to comprehensive benefits. The recommendations are detailed below.
Recommendation #1
Medical Claim Administration - Blue Cross Blue Shield of Illinois (BCBSIL)
The City’s medical insurance contract with BCBSIL expires on December 31, 2025. The recommended renewal reflects a 3.0% increase for HMO claim administrative fees and a 3.0% increase for the PPO claim administrative fees.
It is recommended to continue using BCBSIL for the Medical Plan administration in 2026 due to the strong network provided to employees and the competitive administration costs.
Recommendation #2
Stop Loss Reinsurance - Blue Cross Blue Shield of Illinois (BCBSIL)
As discussed above, the City maintains individual stop-loss reinsurance for individuals with catastrophic claims of more than $200,000 on the HMO plan (through BCBSIL) and $300,000 on the PPO plans (currently through Optum). BCBSIL requires that the HMO policy be contracted through BCBSIL. The current policy for the PPO plans is renewable and marketed annually.
Alera Group conducted a stop-loss marketing for the PPO with 14 re-insurance providers, in addition to requesting a quote from BCBSIL.
• Six vendors responded pending large claim review.
• Two of the vendors provided quotes over 40% higher.
• The remaining carriers were either not competitive with their initial quote or declined to quote.
• The BCBSIL quote was $120.19 per employee/month and was firm, so it does not require additional large claim review.
• Optum’s renewal was $133.45 per employee/month, which reflects a 49.99% increase. This was negotiated down to $128.63 per employee/month.
Once the Alera team received the negotiated rate from Optum, they worked with BCBSIL to further negotiate, obtaining a $20,000 Communication Credit in addition to the $120.19 per employee/month. A move to BCBSIL would negate the additional Gene Therapy cost, as that is included in the rate, and eliminate the $2 per employee/month stop loss outsourcing fee. These parameters are all firm with claims data through July. Alera Group recommends that the City move the Stop Loss Reinsurance to BCBSIL for the 2026 plan year.
Recommendation #3
Pharmacy Benefit Manager - CVS-Caremark
The City has contracted with CVS-Caremark as the City’s Pharmacy Benefit Manager (PBM) for the PPO plans. CVS Caremark continues to be proactive in its approach to the changes in the marketplace, providing cost-saving solutions to the City.
It is the Alera Group's recommendation to continue using CVS-Caremark as PBM in 2026.
Recommendation #4
Weight Management Program- CVS Caremark
In an effort to mitigate the increasing utilization and cost of GLP-1 medications for weight loss, CVS has introduced CVS Weight Management. This is a program that promotes behavior change and maximizes the clinical efficacy of the weight loss medication. PPO and HDHP members taking GLP-1 medications for weight loss will be enrolled in the program in order to continue taking the GLP-1 medication. This program offers virtual care management support, nutrition plans, and progress monitoring.
Alera Group is recommending this program through CVS, and, based on current utilization, there is an estimated annual fee for the program that will be $103,112. Projected savings from the program are estimated to be $292,288.
Recommendation #5
Group Life/Accidental Death and Dismemberment and FMLA - Voya
The City’s Group Life and AD&D insurance contract with VOYA expires on December 31, 2025.
Alera Group received a premium quote from the current vendor, VOYA, that included a premium increase. Alera Group conducted and completed a marketing process with the vendors. Upon the marketing review, it was determined that VOYA continues to provide the most competitive pricing for Group Life and AD&D insurance.
Therefore, it is the recommendation by Alera Group to award Group Life and AD&D insurance to VOYA for an amount not to exceed $866,343 for three years guaranteed (final amounts to be determined based on annual enrollment).
FISCAL IMPACT:
Overall, total medical care costs for 2026 are projected at $24.9 million, which is a 19.1% increase over 2025 projections. As a self-insured organization, medical claims represent the majority of the projected expenses of total costs for the three plans. The medical and prescription drug claims and capitation fees for the HMO plan represent 90.1% of the total projected HMO cost. The medical and prescription drug claims for the PPO and HDHP plans represent 93.1% of their total projected cost.
Medical insurance costs are expensed based on the nature of charges. Administrative fees are billed at the end of every month, while claims are billed weekly. Administrative costs are the only fixed costs associated with the medical plan and are determined by the number of enrollees, while claims are billed based on utilization. The City maintains a dedicated account for each plan for both claims and administrative fees. Alera Group estimates total medical fixed costs for 2026 at $2.84 million.
Included in these fixed costs is stop-loss coverage, which is billed monthly. Based upon
current enrollment, the total cost projection for PPO and HDHP stop loss coverage is $1,294,966.56, which is approximately 38% higher than in 2025, and accounts for a 13th month of premium due to billing cycles. The total cost projection for HMO stop loss coverage is $430,231.51, which is 8.5% higher than the 2025 annual amount.
PPO and HDHP prescription drug costs are expensed to a pharmaceutical claims account. Expenses are incurred weekly and based only on claims. Alera Group projects the total 2026 cost for PPO and HDHP associated prescriptions to be $5.7 million, which is a 25% increase in claims from the 2025 projected Rx claims. HMO prescription drugs are billed monthly through BCBSIL. Alera Group anticipates $2.36 million in HMO-associated prescriptions, which is a 27% increase in claims from the 2025 projected HMO Rx claims.
The 2026 Budget will be built based on the recommendations provided by Alera Group and the projected total costs for 2026. These reflect an 18.5% increase in medical plan premiums and 0% increase to dental plan premiums. Several of the City’s collective bargaining agreements include a cap on annual medical plan premium increases at 15%; therefore, the City will absorb the 3.5% difference. To maintain equity among employee groups, staff recommends that the 15% capped premium increases be applied to all employees. Retirees on the plan pay the full premium cost.