SR-602-004 (6)f:\person:misc/council/staffrpt/council62 Santa Monica, California
Council Meeting: August 12, 2003
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Resolution of the City Council of the City of Santa Monica Electing
to Terminate Participation With CaIPERS for Health Benefits and
Authorization to Contract with Aetna and Kaiser for Health Benefits
INTRODUCTION
This report recommends that the City Council adopt the attached resolutions
electing to terminate participation in CaIPERS medical insurance plans for the
Local Miscellaneous, Fire and Elected Official Member categories. The attached
resolutions comply with the procedure required by CaIPERS. The report also
asks Council to authorize the City Manager to negotiate and execute contracts
with Aetna and Kaiser for health benefits.
BACKGROUND
The City currently participates in CaIPERS medical insurance plans under the
Public Employees' Medical and Hospital Care Act (the "Act") with respect to the
Local Miscellaneous, Fire and Elected Official Member categories. There is a
cap on the City's contribution towards the cost of inedical insurance coverage for
the respective members. As of January 1, 2003, the cost of inedical insurance
coverage exceeded the cap, requiring individuals to pay the excess premium
through payroll deductions. Experts believe that CaIPERS medical costs will
continue to rise at a rate beyond other carriers because of its demographic
composition and geographic factors.
Due to the significant medical insurance premium increases projected for the
2004 medical plan year and beyond, a Coalition, comprised of representatives
from all of the City's non-safety bargaining units, started meeting in early 2003 for
the purpose of exploring other medical insurance plan options in an effort to
control escalating medical insurance premiums and to eliminate or at least
reduce the out-of-pocket premium costs incurred by employees. At the request
of the Coalition, the City asked its employee benefits consultant (AON Consulting
and Insurance Services) to initiate a Request for Proposals (RFP) process to
obtain quotes from medical insurance providers for the purpose of providing
medical insurance coverage for the City's non-safety employees and retirees.
DISCUSSION
Based on the proposals that the City received for medical insurance coverage,
the City and the Coalition determined that premiums would be lower if the City
were to terminate its participation under the Public Employees' Medical and
Hospital Care Act and obtain medical insurance coverage from Aetna for
preferred provider and HMO plans and continue with Kaiser for their HMO plan.
The Coalition voted to make this change effective as of January 1, 2004, which is
the beginning of the next medical plan year. The local Fire members have also
requested that the City do the same for its members.
In order to terminate participation under the Public Employees' Medical and
Hospital Care Act, the City must notify CaIPERS of its intent to withdraw from
participation in the "Act" no later than sixty (60) days from the date the premium
rates for the following calendar year are declared. Calendar year 2004 premium
rates were declared at the CaIPERS Health Benefits Committee board meeting
on June 16, 2003; therefore, the City must adopt the attached resolutions
specifically electing to terminate participation under the "Act" for its Local
Miscellaneous, Fire and Elected Officials Member Categories no later than
August 16, 2003. It is intended that participation under the "Act" be terminated
effective December 31, 2003.
BUDGET/FINANCIAL IMPACT
There may be some savings to the City as a result of opting out of the CaIPERS
medical plan and Council will be appraised of recommendations in that regard
later in the fiscal year. The immediate effect of the change will eliminate medical
insurance premium contributions currently paid by individual employees in the
groups mentioned above.
RECOMMENDATION
It is recommended that the City Council adopt the attached resolutions
terminating the City's participation under the Public Employees' Medical and
Hospital Care Act with regard to City employees in the Local Miscellaneous, Fire
and Elected Officials Member categories effective December 31, 2003 and
authorize the City Manager to negotiate and execute contracts with Aetna and
Kaiser for health benefits.
Prepared By: Karen Bancroft, Human Resources Director
(See adopted Resolution No. 9880 (CCS), 9881 (CCS), and 9882 (CCS).