CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Approve the recommendation by Alera Group to award Medical Claim Administration renewal to Blue Cross Blue Shield of Illinois (BCBSIL) for an amount not to exceed $2,390,921.73 in fixed costs, based on HMO and PPO enrollment, and for a one-year term (Item 1 of 4)
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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:
• 26-1144: Specific Stop-Loss Insurance Policy with Blue Cross Blue Shield of Illinois (Item 2 of 4)
• 26-1145: Pharmaceutical Management Services renewal with CVS-Caremark-Employers Health-VPS (Item 3 of 4)
• 26-1146: Dental Claim Administration with Delta Dental of Illinois (Item 4 of 4)
Alera Group serves as the City’s current health benefits broker. 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 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 national trends year over year:
Medical Expenses vs Trend: 2017 - 2025
The City implemented significant changes to the healthcare program in recent years. Changes have included plan design revisions, rebalancing participating premium contributions, and a greater variety of voluntary cost-saving benefits. Specific examples of the changes include:
• Implemented a 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 employee/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 $297,124 through June 30, 2026.
• Implemented a high-performance network with BCBS and tiered plan design.
• Added enhanced well-being management programs.
• Implemented Zero to enhance savings for participants utilizing X-rays and lab services.
• Added the CVS Weight Management program to address the increased cost of GLP-1 medications for weight loss. The current program has resulted in a 20% reduction in utilization.
DISCUSSION:
For 2027, staff, in consultation with Alera Group, recommend 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, 2026. The initial renewal reflected a 3.5% increase for HMO claim administrative fees and a 3.5% increase for the PPO claim administrative fees. Alera negotiated a reduction to a 2.0% increase for both HMO and PPO administrative fees.
Alera Group recommends the City continue using BCBSIL for the Medical Plan administration in 2027 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 BCBSIL). BCBSIL requires the HMO policy to be contracted through BCBSIL. The current policy for the PPO plans is renewable and marketed annually and was moved to BCBSIL in 2026.
The move to BCBSIL last year has been beneficial, as stop loss claims are reimbursed in the same month the claim is incurred. When stop loss was carved out to an independent carrier, claim reports and confirmation of eligibility had to be submitted, and turnaround time for claims was one to three months following the initial payment of the claim. It should also be noted that BCBSIL includes the cost for Gene Therapy coverage in their rate, and the City no longer needs to pay the $2 PEPM stop loss outsourcing fee charged by BCBSIL.
It is recommended that groups stay with a stop loss carrier for one to two years before considering a move to another carrier to not be seen as a “carrier jumper”, which could impact future carrier quotes. However, Alera Group still conducted stop loss marketing with 20 reinsurance providers to obtain competitive quotes to use in negotiations. In that effort, only four vendors provided illustrative quotes pending large claim review upon receipt of August claims. The remaining carriers were either not competitive with their initial quote or declined to quote.
The BCBSIL renewal was $174.28 PEPM, which reflects a 45% increase over current. It should be noted that the policy has a 45% renewal rate cap. Due to increased claim activity by high-cost claimants between June and August, the quote from BCBSIL is expected to remain at 45%, the maximum renewal increase allowed under the policy.
Alera Group recommends the City continue Stop Loss Reinsurance with BCBSIL for the 2027 plan year.
Recommendation #3
Pharmacy Benefit Manager - CVS-Caremark
The City has contracted with CVS-Caremark as the City’s Pharmacy Benefit Manager for the PPO plans since 2017. CVS-Caremark continues to be proactive in its approach to the changes in the marketplace, providing cost-saving solutions to the City.
Alera Group recommends the City continue using CVS-Caremark as its Pharmacy Benefit Manager in 2027.
Recommendation #4
Dental Claim Administration through Delta Dental of Illinois
The City’s Dental Claim Administration contract with Delta Dental expires on December 31, 2026. The initial renewal reflected a 7% increase for administrative fees with a tiered administrative rate structure for the three-year period of 2027-2029. Alera negotiated the increase down to 6%.
Alera Group conducted dental insurance marketing with four dental providers. The incumbent and two other providers responded with quotes, while one carrier declined to quote due to the self-funded status of the plan. While Guardian came in with a lower administrative fee, a review of the network utilization shows that a move away from Delta Dental would result in lower utilization of in-network providers. (73.3% in-network with Guardian vs. 80% in-network with Delta). The savings obtained through the lower administration fee would only be $4,194 annually but would impact the network savings, as fewer claims would have a provider discount.
|
Admin Fee (PEPM) 2026 - $3.19 |
Delta (Initial) |
Delta (Revised) |
Principal |
BCBS |
Guardian |
|
2027 |
$3.41 |
$3.38 |
DNT-Need |
$3.83 |
$3.04 |
|
2028 |
$3.55 |
$3.51 |
Fully Insured |
$3.83 |
$3.04 |
|
2029 |
$3.65 |
$3.62 |
Product |
No Guarantee |
No Guarantee |
|
|
|
|
|
|
|
|
2027 Annual |
$42,065.76 |
$41,695.68 |
|
$47,246.88 |
$37,501.44 |
|
Provider Disruption |
Delta |
BCBS |
Guardian |
|
In-network |
80% |
76.8% |
73.3% |
|
Out-of-network |
20% |
23.2% |
26.7% |
Alera Group recommends the City continue using Delta Dental as the dental provider in 2027.
FISCAL IMPACT:
Overall, total medical care costs for 2027 are projected at $26.5 million, which is a 6.5% increase over 2026 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 89.7% of the total projected HMO cost. The medical and prescription drug claims for the PPO and HDHP plans represent 85.9% 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 cost 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 2027 at $2.4 million.
Included in these fixed costs is stop-loss coverage, which is billed monthly. Based on current enrollment, the total cost projection for PPO and HDHP stop-loss coverage is $1,900,871.96, which is approximately 45% higher than 2026 and accounts for a thirteenth month of premium due to billing cycles. The total cost projection for HMO stop loss coverage is $469,487, which is approximately 20.8% higher than the 2026 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 total 2027 cost for PPO and HDHP associated prescriptions to be $5.4 million, which is a 15% increase in claims from 2026 projected Rx claims. HMO prescription drugs are billed monthly through BCBSIL. Alera Group anticipates $2.3 million in HMO-associated prescriptions, 2.3% lower than the 2026 annual amount, but also reflects the reduction in enrollment in the HMO plan from 289 in 2025 to 261 in 2026.
The 2027 Budget is based on the recommendations provided by Alera Group and the projected total costs for 2027. These reflect a 6.5% increase in medical plan premiums and a 4.8% increase in dental plan premiums.