SR 10-11-2011 3Efir
ity of City Council Report
Santa Monica'
City Council Meeting: October 11, 2011
Agenda Item: 3E
To: Mayor and City Council
From: Donna C. Peter, Director of Human Resources
Subject: Annual Premiums to Aetna for Employee Health Benefits
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a contract with Aetna a Connecticut -based company, and authorize payment in
the amount of $17,314,712 for annual premiums for medical insurance plans for
calendar year 2012.
Executive Summary
The City's insurance broker, Gallagher Insurance Services, Inc. (Gallagher), solicited
proposals for the City's medical insurance plan as part of the renewal process for the
various lines of employee group health and welfare insurance benefits. Gallagher
received a proposal from incumbent vendor, CIGNA, and a proposal from Aetna.
CIGNA proposed a significant rate increase for the January 1, 2012 renewal. Aetna
offered a more competitive rate structure while matching the City's current benefits
structure. Aetna would provide City employees with medical health insurance. in
accordance with negotiated contracts and memorandums of understanding. The 2012
calendar year cost of the annual premium for Aetna insurance is $17,314,712.
Background
The City currently offers CIGNA 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, a fee -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 19.6 %) for the 2012 medical plan year by CIGNA, the City asked
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Gallagher to evaluate and initiate a Request for Proposals (RFP) process to obtain an
additional quote from Aetna, the City's previous carrier.
Discussion
Bid specifications were prepared for the 2012 insurance renewals by Gallagher Benefit
Services. Gallagher received a proposal from incumbent vendor, CIGNA, and solicited a
proposal from Aetna. Based on Gallagher's evaluation and analysis, Aetna emerged as
the preferred vendor based on their list of current primary care physicians and network
access. Equally important was their competitive rate structure. Aetna rate adjustments
on the PPO and HMO will result in a percentage rate increase of approximately 11 %.
CIGNA's overall proposed rate increase was approximately 19.6 %. The City will save
approximately $1,331,829 in medical insurance premiums by contracting with Aetna. In
addition, Aetna issued a guaranteed second year rate increase cap of 12% for 2013.
Financial Impacts & Budget Actions
Based on 2011 enrollments, the estimated annual 2012 premium to Aetna is
$17,314,712. Premium payments to Aetna would be billed and paid monthly. Funds in
the amount of $17,314,712 for calendar year 2012 are included in the FY2011 -2013
adopted budget. No additional appropriation or budget action is necessary. Budget
authority for subsequent years will be requested in each budget cycle for City Council
approval. Future funding is contingent on City Council approval.
Prepared by: Grace Quitzon, Senior Human Resources Analyst
Approved: Forwarded to Council:
Donna C. Peter Rod Gould
Director of Human Resources City Manager
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Reference Contract No.
9491 (CCS)