August 20, 2014 Page 1 Attached please find a summary and supporting analysis reflecting the recommendations for selection of a Dental Plan provider and selection of a provider of Life/Accidental Death and Dismemberment (“AD&D”) and Disability Insurance.
Earlier this summer Mercer Health and Benefits (“Mercer”), the City’s benefits consultant conducted a comprehensive marketing program for these insurance programs. As has been our past practice, the request for proposals (“RFP”) contemplated that the selected provider(s) would be engaged for the 2015 plan year, with the intent to extend the contract(s) for two additional one year terms.
Following is a summary of the RFP process, analysis of the proposals, and recommendations for selection of providers. For each insurance program, recommendations for plan design and 2015 premiums are also included.
Life/AD&D and Disability Insurance Current Programs and Providers
The City provides group term basic life and AD&D coverage for all active employees. In addition, the City provides long-term disability coverage for public safety employees hired prior to January 1, 2011. City employees are also eligible to purchase group supplemental life insurance, dependent life coverage, and supplemental short-term disability insurance. The current plans have been in place since 2012, following a competitive marketing process conducted during 2011. Lincoln Financial Group (“Lincoln”) provides coverage as outlined below. Additional detail regarding each plan is attached in Exhibit A.
NON PUBLIC SAFETY PERSONNEL PUBLIC SAFETY PERSONNEL
City Provided City Provided
Basic Life and AD&D Basic Life and AD&D n/a (provided through KPERS) Long Term Disability
Voluntary Voluntary
Dependent Life Dependent Life
Supplemental Life Supplemental Life Short-term Disability Short-term Disability
Five providers responded with proposals for Life, AD&D and/or Disability coverage including Lincoln, Cigna, Aetna, Guardian, and Minnesota Life. The results are summarized below.
SUMMARY OF LIFE AND AD&D PROPOSALS
Lincoln (current)
Lincoln
(renewal) Cigna Aetna Guardian
Minnesota Life City Paid
RATES (~ annual volume $170.8M)
Basic Life/AD&D (per $1,000) $0.115 $0.110 $0.169 $0.167 $0.156 $0.175 Long Term Disability (Police/Fire) (per $100) $0.320 $0.300 $0.327 $0.422 no quote no quote
ESTIMATED ANNUAL PREMIUM
Basic Life/AD&D $ 235,660 $ 225,414 $ 346,318 $ 342,219 $ 319,678 $ 358,613 Long Term Disability (Police/Fire) 54,984 51,548 56,187 72,510 no quote no quote
Estimated Total Annual Premium 290,644 276,961 402,504 414,729 319,678 358,613 Change over Current ($) -- -13,683 111,860 124,085 n/a n/a Change over Current (%) -- -4.8% 38.5% 42.7% n/a n/a
The Employee paid rates for voluntary life coverage and short-term disability, quoted by Lincoln, remain unchanged for the next 3-year period.
Life/AD&D and Disability Insurance Recommendation
Lincoln offered the most competitive proposal. In addition, the company has also offered several enhancements including; 1) a true open enrollment for voluntary life coverage to employees that have not been denied coverage in the past; 2) a three-year rate guarantee for all coverages; 3) the opportunity for current participating employees to increase coverage by either $10,000 or $20,000 without evidence of insurability for the plan year that begins on January 1, 2016; and 4) performance guarantees tied to client satisfaction and reporting. Therefore, it is recommended that Lincoln be selected to remain the provider of Life/AD&D and Disability coverage.
2015 Estimated City Expenditure for Life/AD&D and Disability Insurance compared to 2015 Budget
August 20, 2014 Page 3
DENTAL PLAN
Current Program and Provider
The City’s current dental plan is fully insured with MetLife. The current dental plan design is a Passive PPO. Under this plan design, members pay based on the same benefit percentage levels for various service categories. However, the overall costs will be lower when network providers are utilized. The following table summarizes current enrollment and premiums.
2014 Monthly Premium Rates
Participants City Employee Total
Employee (EE) Only 320 $ 27.64 $ 6.48 $ 34.12
EE + 1 187 27.64 45.26 72.90
Family 323 27.64 82.04 109.68
Request for Proposal (RFP) Process
Mercer worked with the City staff to create an RFP for the Dental Plan Services on a fully insured basis as well as for a self-funded program. The RFP also requested that three-year pricing be provided.
The RFP was issued on May 20, 2014, posted on the City’s website and a notice was published in the official city newspaper. The RFP was also directly mailed to eight dental insurance vendors that Mercer and the City believed were likely to submit a response. Eight proposals were received from the following vendors: Aetna, Ameritas, Delta Dental of Kansas, Guardian, Cigna, Lincoln Financial, MetLife, and United Healthcare.
Mercer analyzed the proposals and determined that none of the self-funded proposals (based on an analysis of administrative fees proposed and an estimate of dental claims) was as competitive as the fully insured proposals submitted; therefore no further consideration was given to this option. The following table summarizes the annual premium cost submitted by each vendor for a fully insured program.
SUMMARY OF DENTAL PROPOSALS
2015 ∆ Current1 ∆ Incumbent Proposal Delta Dental of Kansas(includes a Rate Cap of 5% in 2016 and 2017) $ 690,938 $ -28,790 $ -97,087 Lincoln Financial(includes a Rate Cap of 6% in 2016) 703,456 -16,272 -84,569 Cigna (includes a Rate Cap of 4% in 2016 and 2017) 719,728 0 -68,297
MetLife (included a Rate Cap of 8% in 2016) 788,025 68,297 0
Aetna (includes a Rate Cap of 4.5% in 2016 and 2017) 788,546 68,818 521
Guardian 833,448 113,720 45,423
United Healthcare (included a Rate Cap of 9% in 2016) 836,142 116,414 48,117
Ameritas 841,321 189,890
( ) 53,296 1
Based on these results, Mercer asked MetLife and Delta Dental to provide their best and final pricing. In the final pricing update below, MetLife lowered its rate cap to 7% for 2016 and Delta Dental lowered its rate cap to 4% for 2016 and 2017.
SUMMARY "BEST AND FINAL PRICING" SUBMITTED BY FINALISTS
2015 ∆ Current1 ∆ Incumbent Proposal MetLife (Rate Cap of 7% in 2016) $ 719,728 $ 0 $ 0 Delta Dental of Kansas (Rate Cap of 4% in 2016 and 2017) 690,938 (28,790) (28,790) 1
2014 Cost with MetLife $719,728 Disruption Analysis
Mercer obtained a listing of the top 100 providers utilized by the City’s members for the twenty four month period immediately preceding issuance of the RFP (05/01/2012 through 04/30/2014). As part of the RFP response each vendor was asked to indicate whether these top 100 providers were in its network. MetLife had 68% in its network (as the incumbent provider). Delta Dental’s Premier Network had 100% in its network and 77% in its PPO Network.
Dental Plan Provider Recommendation
Based on the competitive pricing and results of the disruption analysis, it is recommended that Delta Dental be selected as the City’s dental plan provider. Changing carriers from the incumbent, MetLife, to Delta Dental will result in a reduction of almost $29,000 over the current 2014 cost. In addition, when the rate and annual rate caps (and assuming that the City’s increase would not be less than the rate caps) are applied for 2015, 2016, and 2017, the savings over maintaining coverage with MetLife is over $150,000 during this three year period. Delta Dental was the City's dental provider from 2003 through 2011.
2015 Dental Premium Recommendation
Based on the pricing provided by Delta Dental, the premium for both the employee and the City would be reduced. The recommended premium structure for 2015 compared to current 2014 rates is reflected in the table below:
MONTHLY DENTAL PREMIUM RATES 2014 Current compared to 2015 Recommended
PLAN 2014 2015 2014/2015 change
City EE Total City EE Total City EE Total
August 20, 2014 Page 5 2015 Estimated City Expenditure compared to 2015 Budget
Life/AD&D Insurance
Non-Public Safety employees and Public Safety employee hired after 1/1/11
The City pays the premium for Life/AD&D insurance for each full-time employee. The term life benefit provided is two and one-half (2 ½) times the base annual salary with a maximum benefit of $200,000. Also provided is accidental death and dismemberment insurance with the same level of benefit for accidental death and a schedule of benefits for dismemberment. Additional coverage for spouses and dependents is available, if elected and paid for by the individual employee. Group term life insurance paid by the City is taxable to the employee as "other compensation" and is calculated in accordance with IRS regulations. Portability and conversion of coverage is available at the time group coverage ceases.
Public Safety Personnel hired before 12/31/10
The City pays the premium for Life/AD&D insurance for each full-time employee. The term life benefit provided is five (5) times the annual base salary, plus $25,000, with a maximum benefit of $350,000. Also provided is accidental death and dismemberment insurance with the same level of benefit for accidental death and a schedule of benefits for dismemberment. Limited coverage for spouse and dependents is available, if elected, and is paid for by the individual employee. Group term life insurance paid by the City is taxable to the employee as "other compensation" and is calculated in accordance with IRS regulations. Portability and conversion of coverage is available at the time group coverage ceases.
Optional Life Insurance
Optional Life insurance is available to employees at varying levels of coverage up to $300,000. Coverage for dependents is also available to employees enrolled in the Optional Life Insurance program. The premium cost is calculated based on age of the employee and paid 100% by the employee electing coverage. This optional policy is fully portable at termination.
Long-term Disability Insurance - Public Safety Personnel hired on or before 12/31/10
The City provides long-term disability coverage for Firefighters, Paramedics, and Commissioned Police Officers. Insured disability benefits are subject to reduction based on benefits received from Social Security and Workers' Compensation. Accrued vacation and sick leave may be used to maintain the income level at 100 percent.
Optional Short- term Disability Insurance
