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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).