Report Prepared by: Maggie Lemos, Risk Analyst
Title
SUBJECT: Approval of the 2024 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 2024 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 2024; and,
B. Authorizing the City Manager or Deputy 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 2023-24 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 10, 2023, 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 2024.
The Committee was encouraged to speak with their respective units and respond with a recommendation. Both staff and the Employee Benefits Committee are recommending one plan design change regarding vision for over age dependents. The plan design change would no longer require full-time student status and would match all other coverages with an eligibility age 26 for qualified dependents. There is no increase in premium for the plan design change.
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 12.5% rate increase for plan year 2024 compared to year 2023. The annual premium for health insurance is estimated to be $10,858,536 based on the number active employees (462 active employee) and (84) 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).
There are several factors that are driving up the cost of medical benefits this year. Inflation is at the highest level since the 1970’s. Hospital price inflation is the largest component of the 2023 medical trend increase. In addition, labor shortages have given cause for concern. In the last two years, contract labor for hospital costs increased 300% per American Hospital Association. Finally, the impact of COVID and the deferment of care is now being realized. During COVID there was a 60% drop in annual preventative visits.
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 3.9% rate increase for plan year 2024 compared to year 2023. The annual premium for Medicare retiree health insurance estimated to be $1,209,293. This amount of premium is based on 234 eligible retirees over the age of 65 enrollees. 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 0.4% rate increase for plan year 2024. 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 $783,478. 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 received a 6.7% rate decrease for plan year 2024. There is a plan design change for plan year 2024. The age of eligibility for qualified dependents has been raised to age 26 and the requirement of full-time student status has been removed. The annual premium for vision insurance is estimated to be $81,103. 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 $79,479. The premium rate is based 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 2024. The annual premium for group life insurance is estimated to be $28,211. The premium rate is based the number of active employees and their annual salary rate.
IMPACT ON CITY RESOURCES
During the budget process an estimated 6% increase was used for health insurance for Fiscal Year 2023-24. The actual increase is double at 12.5%. Historically, the budget estimated increases have been more than needed. This year that is not the case. Since we tend to have several vacancies each year even though we estimate as though all positions are filled it is expected that Fund 7004 will have sufficient appropriation within the adopted FY 2023/24 Budget. It is possible that department core allowance appropriations could run short and they will need to make a determination as to if they can use savings within their department budget to cover the deficiency or if they will need to come back to City Council to request additional appropriation. No appropriation of funds is being requested at this time.