CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
title
Approve the recommendation by GCG Financial/Alera Group to award Medical Claim Administration renewal to Blue Cross Blue Shield of Illinois (BCBSIL) for an amount not to exceed $2,591,229.28 in fixed costs, based on HMO and PPO enrollment, for a one-year term (Item 1 of 4)
body
DEPARTMENT: Human Resources
SUBMITTED BY: James Sheehan, Director
BOARD/COMMISSION REVIEW:
N/A
BACKGROUND:
Three additional recommendations related to this item are detailed in this memorandum and presented on this agenda for City Council approval:
• 22-1208: Stop Loss Reinsurance to Sun Life Assurance Company of Canada (Sun Life)
• 22-1209: Pharmaceutical Services Administration and Services to CVS/Caremark - Employers Health - VPS (CVS/Caremark)
• 22-1210: Group Life/Accidental Death and Dismemberment to VOYA
On April 15, 2014, City Council approved GCG Financial/Alera Group (GCG) as the City’s benefits broker and on September 21, 2021, City Council again approved GCG to continue as broker for the next three years. One of the duties of GCG is to price, negotiate, and recommend the renewal of medical insurance, pharmaceutical management, and life insurance contracts for the City. GCG also makes recommendations on dental coverage and negotiated a multi-year contract with Delta Dental last year and approved by City Council. The Delta Dental contract will continue for 2023, as approved.
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 excess 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 two PPO plans.
Since 2014, the City’s medical and pharmaceutical plans outperformed national averages as set forth in the charts below (data supplied by national actuarial firm):
The City implemented significant changes in recent years to the healthcare program.
Changes include plan design revisions, rebalancing participating premium contributions, and offering a greater variety of voluntary cost-savings benefits. 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 employee/retirees
• Awarded the dental contract to Delta Dental, increasing customer satisfaction with the network while 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) for the PPO plans
• Outsourced stop-loss reinsurance for improved competitive pricing; negotiated stop-loss reinsurance contracts each year
• Implemented prescription drug management programs with CVS-Caremark after review by a third-party pharmacy team
• Removed an underperforming plan
• Introduced CRX International, an alternative pharmacy platform, saving participants and the City
• Fully implemented high performance network with BCBSIL and introduced alternative tiered plan design
• Introduced Zero for savings to participants and the City for certain designated procedures (e.g., x-rays, MRIs and labs)
DISCUSSION:
For 2023, staff in consultation with GCG recommends four key relationships to offer access to comprehensive benefits while mitigating cost increases. The first recommendation is to continue our relationship with BCBSIL to provide the HMO plan and administer the PPO plans. The second recommendation is to renew with CVS-Caremark for prescription drug administration for the PPO plans. The third recommendation is to contract stop-loss reinsurance with Sun Life Assurance Company of Canada for the PPO plans. The fourth recommendation is to renew the Group Life and AD&D insurance with VOYA.
Medical Claim Administration - Blue Cross Blue Shield of Illinois (BCBSIL)
The City’s medical insurance contract with BCBSIL expires on December 31, 2022. The recommended renewal reflects 1.5% increase for HMO claim administrative fees and 2.0% increase for the PPO claim administrative fees. The combination of the strong network for participants with competitive costs (administrative and medical costs overall), separates BCBSIL from its competitors in Illinois.
Therefore, GCG recommends continuing to use BCBSIL for the medical plan administration in 2023. Through the continuing relationship with BCBSIL, the City will be able to maintain a comprehensive and competitive medical benefits program while limiting the premium increase in 2023 to 3.3%.
Stop Loss Reinsurance - Sun Life Assurance Company of Canada (Sun Life)
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 through Sun Life. BCBSIL requires the HMO policy is contracted through BCBSIL. The current policies for both PPO plans are renewed/marketed annually.
GCG conducted a stop-loss reinsurance marketing for the PPO plans with 13 re-insurance providers.
• 2 declined to bid as they would not be able to abide by the terms and conditions of releasing the renewal with data through July,
• 6 carriers would quote with data through July; however, they were not competitive with their initial quote.
• 5 carriers would quote with data through July, and they offered competitive quotes (as detailed in the chart below).
SunLife quoted 17.34% below the 2022 premiums and included some additional concessions and offerings. GCG recommends the contract with SunLife for the 2023 plan year.
Pharmacy Benefit Manager - CVS-Caremark-Employers Health-VPS (CVS-Caremark)
The City contracted with CVS-Caremark beginning in 2017 to act as the City’s Pharmacy Benefits Manager for the PPO plans. Since that time the City has realized savings in prescription drug costs for the PPO plans. The City has engaged Employers Health and VPS (independent organizations) to assist with and guide the decision making for its relationship with CVS-Caremark.
CVS-Caremark is proactive in their approach to changes in the marketplace offering education about new products and clinical strategies, promoting use of lower cost drugs, managing our specialty drug spend and promoting health and wellness to provide the best prescription drug options. CVS-Caremark is also working with our employees and retirees on tools to lower pharmaceutical expenses, including through increased use of mail-order and generics. Details of the City’s pharmaceutical cost experience since 2016 for the PPO plans are contained in the chart below.
GCG recommends continuing to use CVS-Caremark as Pharmacy Benefits Manager in 2023.
Group Life and Accidental Death & Dismemberment - VOYA
The City’s Group Life and AD&D insurance contract with VOYA expires on December 31, 2022.
GCG received a premium quote from the current vendor, VOYA, that included a premium increase. GCG conducted and completed a marketing process with the vendors detailed in the chart below. Upon the marketing review, it was determined VOYA continues to provide the most competitive pricing for the Group Life and AD&D insurance.
Therefore, it is the recommendation by GCG to award Group Life and AD&D insurance to VOYA for an amount not to exceed $195,697 per year and a total of $587,091 for three years guaranteed (final amounts to be determined based on annual enrollment) and the potential for two one-year extensions.
FISCAL IMPACT:
Healthcare costs are expensed to the Self-Insurance Fund based on the nature of each expense. GCG is projecting the total cost of the healthcare plans in 2023 to be $19.8 million, a 3.3% increase from 2022. Included in the projections are administrative fees and claims related to the PPO and HMO plans; stop-loss coverage for PPO participants, and prescription drug coverage.
Fixed costs for each plan are charged to the administrative fee accounts based on the number of enrollees, while claims are expensed based on usage on a weekly basis.
The projected numbers provided by GCG were used in the development of the 2023 Budget which is currently under review.