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 $3,339,152.22 in fixed costs, based on HMO and PPO enrollment, for a one-year term (Item 1 of 3)
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DEPARTMENT: Human Resources
SUBMITTED BY: Blaine Wing, 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:
• 24-1086: Specific Stop-Loss Insurance Policy with Optum, Inc. (Item 2 of 3)
• 24-1087: Pharmaceutical Management Services renewal with CVS-Caremark (Item 3 of 3)
On April 15, 2014, the City Council approved GCG Financial (now Alera Group) as the City’s benefits broker and on September 21, 2021, the City Council again approved Alera Group to continue as broker for the next three years, 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 the 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.
Since 2014, the City’s medical and pharmaceutical plans outperformed national averages as set forth in the charts below:
Medical Expenses vs Trend: 2014 - 2024
Over the past 10 years, the City has implemented significant changes to the City’s healthcare program.
Changes include plan design revisions, rebalancing participating premium contributions, and a greater 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 employee/retirees.
• Awarded the dental contract to Delta Dental, increasing customer satisfaction with 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).
• Outsourced stop-loss reinsurance for 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.
• Implemented CRX International pharmacy saving participants and the City approximately $170,392 through March 31, 2024.
• Implemented 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 2025, staff in consultation with Alera Group, recommends the following to help mitigate cost increases, while still offering access to comprehensive benefits.
Medical Claim Administration - Blue Cross Blue Shield of Illinois (BCBSIL)
The City’s medical insurance contract with BCBSIL expires on December 31, 2024. The recommended renewal reflects 3.0% increase for HMO claim administrative fees and 3.1% increase for the PPO claim administrative fees.
Recommendation: continue using BCBSIL for the Medical Plan administration in 2025 due to the strong network provided to employees and the competitive administration costs.
Stop-Loss Reinsurance - Optum, Inc.
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). Blue Cross requires the HMO policy is contracted through Blue Cross. The current policy for the PPO plans is renewable/marketed annually.
Alera Group conducted a stop-loss marketing for the PPO with 16 re-insurance providers.
• Five vendors provided responses pending large claim review.
• The remaining carriers were either not competitive with their initial quote or declined to quote.
• Two carriers were able to provide competitive quotes, in addition to the incumbent carrier.
Optum, Inc. shared a firm offer of $88.97 PEPM, which is only 2.92% over current. This rate does account for the concession for Vital Incite at $2.69 PEPM, $2.00 PEPM to Blue Cross due to outsourcing of stop-loss and Gene Therapy Rider at $4.75 PEPM. They also agreed to lock in the rate with claims data through July with the signed acceptance before September 18, 2024.
Recommendation: The City renews the contract with Optum, Inc. for the 2025 plan year.
Pharmacy Benefit Manager - CVS-Caremark
The City contracted with CVS-Caremark beginning in 2017 to act as the City’s Pharmacy Benefit Manager (PBM) for the PPO plans. Since that time the City has realized savings in prescription drug costs for the PPO plans. CVS-Caremark is proactive in its approach to changes in the marketplace offering education about new products and clinical strategies, promoting the use of lower-cost drugs, managing our specialty drug spend and promoting health and wellness to provide the best prescription drug options.
Recommendation: Continue using CVS-Caremark as PBM in 2025. CVS-Caremark will continue working with employees and retirees on tools to lower pharmaceutical expenses, including through increased use of mail-order and generic pharmaceuticals.
FISCAL IMPACT:
The total projected cost for the City’s medical care plans for 2025 is $20.9 million, representing a 6.9% increase from 2024. Medical and prescription claims account for the majority of the projected costs. Included in the recommendation from GCG/Alera Group, are all administrative fees related to the plans, as well as associated claims, prescription drug expenses and stop-loss coverages for participants.
Fixed costs, which include administrative fees and stop-loss insurance are billed monthly and are based on the number of enrolled participants. Claims, including medical and prescription drug claims, are billed based on actual utilization. The estimates include $1.3 million for stop-loss insurance coverages; while prescription drug costs are estimated at $6.4 million.
The 2025 amounts require a 6.9% increase in premiums for the medical plans and a 3.3% increase in the dental plan.
The projections from Alera Group have been used to develop the 2025 Budget, which will be reviewed by the City Council in October and November.