HomeMy WebLinkAboutAgenda Statement 1988/06/21 Item 20•
COUNCIL AGENDA STATEMENT
Item 2~
Meeting Date June 21, 1988
ITEM TITLE:
SUBMITTED BY:
REVIEWED BY:
RESOLUTION~3~~~Approving the transfer of funds from the
Insurance Budget to the Minimum Premium Health Plan Fund.
DIRECTOR OF PERSONNEL ~®
CITY MANAGER
~1
(4/5ths Vote: Yes X No )
On June 7, 1988, staff informed the City Council of surplus funds in the
Insurance Budget for FY 1987-88 in the amount of $127,700. The Council
approved a request to transfer a portion of these funds, $9,886, to
purchase capital equipment for the Risk Management Division of Personnel.
This report recommends that $90,000 of those surplus funds be placed in
the Minimum Premium Health Plan Fund to cover an anticipated shortfall in
premiums collected to pay health claims.
RECOMMENDATION: Adopt resolution approving transfer of funds.
BACKGROUND: The City renewed its health insurance contract with Mutual
~ew York (M.O.N.Y.) on October 1, 1987 for a nine month period to end
30, 1988. The renewal rates recommended by M.O.N.Y. were 56% higher
than the previous year. The City, with agreement from the four Bargaining
Units, decided, to fund the health plan at a lower rate because our
expectation of claims experience was less than M.O.N.Y.'s projected claim
level. The Council was informed at this point that the risk of
underfunding the health plan was that if claims experience ran higher than
M.O.N.Y. projected, the City would still be liable for the expected claims
figure stated by M.O.N.Y. The City agreed to monitor claims experience
until the end of 1987 and retain the services of a consultant to determine
if a mid-year premium increase was necessary, to evaluate the M.O.N.Y.
health plan and explore alternative plans for the next plan year. The
Wyatt Co. was hired as benefits consultant on January 12, 1988.
The Wyatt Co. used an actuarial projection for claims through June 30,
1988 and their projection resulted in a mid-year premium increase of 17%.
They estimated that the revised premium rates would generate sufficient
funds to prevent a shortfall if claims continued at the same level as in
October, November and December of 1987. The members of the Police Officers
Association, International Association of Firefighters and Western Council
of Engineers bore the cost of the mid-year premium increase. In the case
of members of the Chula Vista Employees Association, the increase was
shared half by the employees and half by the City.
Unfortunately, claims experience became much worse between January and
April, 1988. Accordingly, staff asked the Wyatt Co. to re-evaluate their
p~ctions and determine if there would be a shortfall.
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• Item 20
Meeting Date June 21, 1988
Revised claims projections indicate that there will be a shortfall of
approximately $90,000. This figure is derived by taking the latest claims
projection of $554,000 and subtracting the amount that will be generated in
premiums, $464,000. The latest claim projection is still less than
M.O.N.Y.'s expected figure of $587,617.
DISCUSSION: Since the City is not in a position to raise premiums again
and funds are available in the insurance budget, it is in the City's and
employees' best interest to transfer $90,000 into the Minimum Premium
Health Plan Fund to cover the anticipated shortfall. It is not recommended
that the City charge employees for the shortfall by raising premiums again.
Such action would simply exacerbate the situation by driving employees out
of the indemm~ity plan into the Kaiser Plan thereby increasing costs for
the indemnity plan participants even more.
The City has been meeting with the Health Insurance Committee to review the
M.O.N.Y. renewal rates and proposals from other health insurance carriers.
This process has taken longer than expected which will probably require the
City to extend its contract with M.O.N.Y. for one month while a decision is
being made as to what health plan will be offered. Once a decision is
made, an open enrollment period will be held.
AL IMPACT: Funds are available in Insurance Budget Account #100-0700-
5233.
_.__ b ~ Ciiy CozmrRl of
Chula Vista, California
Dated ~ ~
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