sr-110910-3eCity Council Meeting: November 9, 2010
Agenda Item: 3E
To: Mayor and City Council
From: Donna C. Peter, Director of Human Resources
Subject: Annual Premiums to Cigna Healthcare for Employee Health Benefits
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a contract with Cigna Healthcare (Cigna) and to authorize payment in the
amount of $20,643,212 for annual premiums for medical insurance plans.
Executive Summary
As part of the renewal process for the various lines of employee group health and
welfare insurance benefits, the City's insurance broker, Gallagher Insurance Services,
Inc. (Gallagher), solicited proposals for the City's medical insurance plan. The existing
carrier, Aetna, had proposed a significant rate increase for the January 1, 2011 renewal,
which necessitated the need to request alternate proposals/bids.
Cigna offered a competitive rate structure and the best match with regard to the City's
current benefits structure. Cigna will provide City employees with medical health
insurance in accordance with negotiated contracts and memorandums of
understanding. The 2011 calendar year cost of the annual premium for CIGNA
insurance is $20,643,212.
Background
The City currently offers Aetna medical insurance plans to its miscellaneous employee
(non-safety) bargaining units, the participants of the Executive Pay Plan and the Santa
Monica Firefighters, Local 1109 (IAFF). The City uses Gallagher, afee-based insurance
brokerage; to act as the City's agent in negotiating the best rates for the City. Each
year, Gallagher conducts an analysis of the premium renewals and goes out to bid as
appropriate. Due to the significant medical insurance premium increases projected
(approximately 15.6%) for the 2011 medical plan year by Aetna, the City asked
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Gallagher to initiate a .Request for Proposals (RFP) process to obtain quotes from
medical insurance providers.
Discussion
Bid specifications were prepared for the 2011 insurance renewals by Gallagher Benefit
Services and a Request for Proposal was sent to the following insurance carriers: Aetna
(incumbent), CIGNA, Anthem Blue Cross, Blue Shield, Health Net, and United
Healthcare. All carriers except for Health Net presented proposals for consideration.
Based on Gallagher's evaluation and analysis, CIGNA emerged as the preferred vendor
based on the comparison of other competing insurance companies' benefits structure;
disruption of current primary care physicians, and network access. Equally important
was Cigna's competitive rate structure. Aetna requested rate adjustments on the PPO
and HMO that produced a percentage rate increase of approximately 15.6%. Cigna's
overall proposed rate increase was approximately 5.3%.
Financial Impacts & Budget Actions
Based on 2010 enrollments, the estimated annual premium for CIGNA for 2011 is
$20,643,212: Effective January 1, 2011, the City's miscellaneous employee (non-safety)
bargaining units, the participants of .the Executive Pay Plan and the Santa Monica
Firefighters, Local 1109 (IAFF) will begin contributing a flat dollar amount
(approximately 5% of the actual premium) towards the cost of their medical insurance.
CIGNA requires an initial binder check in the amount of $1,314,000, which will be
credited towards the first month's premium. Subsequent payments are billed and paid
monthly. Funds in the amount of $10,321,606 are included in Departments' FY10-11
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Adopted Budget at object codes #511742 (Fire) and object code #511743 (Misc.
employees). Budget authority for subsequent years will be requested in the Proposed
City Budget that is submitted to City Council for approval.
Prepared by: Grace Quitzon, Senior Human Resources Analyst
Approved:
Donna C. Peter
Director of Human Resources
Forwarded to Council:
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Rod Gould
City Manager
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Reference Contract No.
9293 (CCS).