Report Prepared by: Maggie Lemos, Risk Analyst
Title
SUBJECT: Approval of the 2025 Cafeteria Plan Renewal Regarding Employees’ and Retirees’ Health and Welfare Benefits Including Medical, Dental, Vision, Disability, Life and Flexible Spending
REPORT IN BRIEF
Considers approving the renewal of the 2025 Cafeteria Plan regarding employees’ and retirees’ health and welfare benefits.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving the employees’ health and welfare benefits cafeteria plan renewal for calendar year 2025; and,
B. Authorizing the City Manager to execute the necessary documents.
Body
ALTERNATIVES
1. Approve, as recommended by staff and Employee Benefits Committee; or,
2. Direct staff to develop other options; or,
3. Deny; or,
4. Take no action.
AUTHORITY
Charter of the City of Merced, Article XI, Fiscal Administration. Memoranda of Understanding (MOU) with recognized labor bargaining units and Management Compensation Plan. “The plans shall be selected solely by the City following review of proposals by the Employee Benefits Committee, whose role is advisory to the City Council.”
CITY COUNCIL PRIORITIES
As provided for in the 2024-25 Adopted Budget.
DISCUSSION
The City of Merced provides five (5) forms of core insurance coverage as benefits to City employees: medical, dental, vision, disability, and life insurance. These are provided through an implemented IRS Section 125 Cafeteria Plan where employees can select from two (2) options in each coverage category. The insurance plans are selected solely by the City (City Council) upon review and recommendation of the proposal by the Employee Benefits Committee. The MOUs state that the role of the Employee Benefits Committee is advisory to the City Council.
History and Past Actions
The Employee Benefits Committee (Committee) met with Alliant Insurance Services (broker of record) on August 26, 2024, to review group benefits. The informational meeting was held to bring the Committee up to date with benefit plan offerings and to review premium renewal for medical coverage as well as review annual premium summary for all lines of benefit coverage for plan year 2025.
The Committee was encouraged to speak with their respective units and respond with a recommendation. Both staff and the Employee Benefits Committee are not recommending any plan design changes for 2025.
Description
Major Medical Plan
The major medical plan with Anthem has been provided through a self-funded pool with PRISM (formerly CSAC EIA Health) effective October 1, 2005. The program provides members an alternative to group health insurance plans using the concept of pooling to reduce insurance premiums through consolidating the fixed costs over a larger population of members. In 2006, the PRISM Health program began a new partnership with Self Insured Schools of California (SISC). This relationship and collaborative effort gives the PRISM Health program more stability and has provided an opportunity for lower rates and premium savings.
The City’s major medical plan is offered to active employees and eligible early retirees. The major medical plan received an 1.1% rate decrease for plan year 2025 compared to year 2024. The annual premium for health insurance is estimated to be $10,410,048 based on the number active employees (463 active employee) and (73) eligible early retirees currently enrolled in the medical plan. The estimated premium may change depending on the number of enrollees and their level of enrollments (Core or Buy-up Plan).
Retiree Group Medicare Advantage Plan
Effective January 1, 2016, the City moved Medicare eligible retirees to a group Medicare Advantage Plan sponsored by United HealthCare (UHC). Working closely with our broker of record (Alliant Insurance Service), the City found an alternative Medicare retiree medical and prescription benefit platform that delivers premium cost savings to both the City and the retiree while providing essentially the same benefits as provided to full-time employees. United HealthCare® has a group Medicare Advantage PPO plan underwritten by United Healthcare Insurance Company that delivers all the benefits of Original Medicare Parts A, B and D as well as additional benefits and features.
The Retirees’ medical plan received a 36.5% rate increase for plan year 2025 compared to year 2024. The rate increase is due to Congress and CMS (Center for Medicare & Medicaid Services) making some significant changes impacting funding of Medicare Advantage and Part D plans over the next several years. The annual premium for Medicare retiree health insurance estimated to be $1,734,802. This amount of premium is based on 246 eligible retirees over the age of 65 enrollees. The rate increase does not impact the City fiscally due to the fact that we currently have a maximum contribution to retiree benefits which does not change with premium increases or decreases. The premium may change depending on the number of eligible enrollees.
Flexible Spending Account (FSA)
The City’s Flexible Spending Account (FSA) has been offered to employees as of January 1, 2009. The third-party administrator for the benefit is Benefit Coordinators Corporation (BCC). The FSA is a benefit that allows individuals to contribute pre-tax dollars from their paycheck to a spending account that can be used for eligible expenses as outlined in Section 125 of the Internal Revenue Service (IRS) regulations. The IRS maximum contribution is $3,200 for out-of-pocket medical expenses and $5,000 for dependent care expenses, the Employee’s maximum contribution is $3,200 for out-of-pocket medical expenses and $5,000 for dependent care expenses.
An enhancement to the benefit was added at the start of plan year 2015 with debit cards issued by the FSA administrator. The debit cards allow participating individuals to pay for eligible FSA expenses at the point of service; therefore, avoiding the submission of claim form(s) or waiting for reimbursement. FSA debit cards may be used at any eligible location wherever MasterCard is accepted.
The FSA debit cards are good for a three (3)-year period. Participants are encouraged to retain their card after exhausting all available funds for reuse next program year after re-enrolling during the open enrollment period. FSA debit cards are valid for future plan years until the expiration date printed on the front of the card is reached. There is no additional cost to the City, or employees, for the benefit enhancement.
Dental Plan
The dental plan with Delta Dental of California is provided through a self-funded dental program with PRISM (formerly CSAC EIA) effective January 1, 2011. The current core dental plan provides for benefits at 100% up to a maximum per patient amount of $1,500 per plan year. The dental plan received a 3.4% rate decrease for plan year 2025. The rate increase is based on a review of the City of Merced’s group dental experience and projected changes in dental trend. The annual premium for dental insurance estimated to be $791,837. The premium may change depending on the number of enrollees and their level of enrollments.
Vision Plan
The vision benefit is provided through Vision Service Plan (VSP) effective July 1, 1998 and is a fully insured plan. The vision plan has a rate guarantee through 2025. The annual premium for vision insurance is estimated to be $86,326. The premium may change depending on the number of enrollees and their level of enrollments.
Disability Plan
The group disability plan is provided by VOYA through PRISM effective March 1, 2011. The disability plan has a rate guarantee through December 31, 2027. The annual premium for group disability insurance is estimated to be $83,511. The premium rate is based on the number of active employees and their annual salary rate.
Life Insurance
The group life insurance plan is provided by VOYA through PRISM effective March 1, 2011. The life insurance plan renewal has a three-year rate guarantee through December 31, 2027. The life insurance plan rate is based on the overall annual salary rate for employees. There is not an expected plan design change for plan year 2025. The annual premium for group life insurance is estimated to be $29,613. The premium rate is based on the number of active employees and their annual salary rate.
IMPACT ON CITY RESOURCES
There is funding available within the FY24-25 adopted budget to cover the insurance premiums.
ATTACHMENTS
None.