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HomeMy WebLinkAboutCS 20/00 Cit.q ,,~ - REPORT TO COUNCIL FROM: Gillis A. Paterson Director, Corporate Services & Treasurer DATE: September 30,2000 REPORT NUMBER: CS 20-00 SUBJECT: Employee Group Benefit Insurance - 2000 Renewals RECOMMENDATION: That Report CS20-00 of the Director, Corporate Services & Treasurer be received by Council and that: 1. Council confirm the renewal by the firm Mosey & Mosey, Benefit Consultants, of the Group Health & Dental Plans for the City of Pickering with the present carrier, Liberty Health, at a renewal premium of $812,052.00 plus 8 percent Provincial Retail Sales Tax of approximately $64,964.00, for the period January 1, 2000 to December 31, 2000. Other terms and conditions to remain unchanged; 2. Council confirm the renewal by the firm Mosey & Mosey, Benefit Consultants, of the coverages with Maritime Life for Group Life/Long Term Disability at a renewal premium of $424,080.00 plus 8 percent Provincial Retail Sales Tax of approximately $33,926.00 for the period April 1, 2000 to March 31, 2001 and UNUM Canada for Group Accidental Death and Disability at a renewal premium of $8,748.00, plus 8 percent Provincial Retail Sales Tax of approximately $700.00; ,."..... 3. the Chief Administrative Officer in conjunction with the Director, Corporate Services & Treasurer and the Division Head, Human Resources, be authorized to renew the above mentioned coverages each year, hereafter at the same or similar terms and conditions; and, 4. the appropriate staff of the City of Pickering be given authority to give effect thereto. ORIGIN: Reference Resolution # 144/99 Report No. FIN 13-99. AUTHORITY: Municipal Act, R.S.O., 1990, as amended. Council Approved Benefit Plans FINANCIAL IMPUCATIONS: A total renewal premium of $1,244,880.00 represents an increase of 20.5 percent, or $211,912.00 over the 1999 renewal premium. - Of this increase approximately $87,000.00 occurred during 1999/2000 due to a slight growth in the employee base and as a result the full effect on the cost of the benefits of the salary adjustments and union negotiated increases in 1999 and 2000 was felt this year. The across the board increases coupled with poor experience ratings in 1999 have lead to the increase of $124,912.00 which is discussed below. Report to Council CS 20-00 Date: September 30, 2000 Subject: Employee Group Benefit Insurance - 2000 Renewals Page 2 - The costs for this coverage are included in the 2000 Current Budgets of each of the departments. The increase may also be absorbed within the respective Department's budgets or through a provision made in the General Government appropriations. EXECUTIVE SUMMARY: Each year benefit plans approved by Council must be renewed through the carriers. The Recommendations provide for the continuation of the existing plans. The circumstance described below delayed the findings of this report until now. Recommendation #3 provides for the delegation to the c.A.O. and other appropriate staff of the authority to renew the current plans under the same or similar terms and conditions. Any significant or material changes to either the terms and conditions or to the premiums would be the subject of a report to Council. BACKGROUND: Following a Request for Proposal for Benefit Consultants late in the summer of 1999, Mosey & Mosey Benefits Plan Consultants, was appointed effective January 1, 2000. Mosey & Mosey reviewed the existing benefit programs, particularly with regard to the underwriting bases pertinent to each benefit and the applicable rate structures in force, providing the report of their findings in February, 2000 as follows; - 1. Maritime Life (Basic Life & Long Term Disability Insurance): Presently, Maritime Life underwrites the Basic Life and Long Term Disability (LID) coverage's on a credibility pooling basis. Under this approach the annual claims charge reflects a blend of actual claims incurred and those incurred under the insurer's overall LID pool. The percentage of credibility given to the City's actual claims' experience increases the longer the group remains in force with the carrier. The validity of utilizing this approach was demonstrated by a review of the April, 1999 renewal with Maritime Life. Had Basic Life and LID coverages been underwritten on a fully experience-rated basis - i.e. 100% credibility given to the City's own experience - the relevant increases would have been 21.3% and 11.6% respectively rather than the 5.5% and 0.4% proposed. While pointing out the advantages to the City of the credibility pooling basis applied on the Basic Life and LID coverages, Mosey & Mosey did note that the levels of credibility applied to these benefits for the April, 1999 renewal adjustments by Maritime Life appeared higher than expected. They indicated, therefore, that these levels would be closely scrutinized at the April, 2000 renewal date. 2. UNUM Life (Accidental Death & Dismemberment Coverage): The underwriting approach applied to the Accidental Death & Dismemberment (AD&D) coverage - insured by UNUM Life - is full pooling due to the unlikelihood of specific claim patterns developing on a group of the City's size. Consequently, in-going rates are likely to continue unchanged unless the occupational breakdown of the group is significantly revised. This had not occurred for several years and our new consultant considered the existing AD&D rate structure competitive. - Report to Council CS 20-00 Date: September 30, 2000 Subject: Employee Group Benefit Insurance - 2000 Renewals Page 3 - 3. Liberty Health (Extended Health, Dental and Vision Coverage): At the time of our consulting change, Liberty Health underwrote the Health and Dental coverages on a fully experience-rated surplus/deficit accounting basis and had proposed an 8.98% combined Health/Dental increase for January 1, 2000. Under this approach, for every dollar paid in premium the insurer pays claims, establishes reserves, deducts expenses, and then credits the balance of the premium (if any) to the City as surplus. If the year's experience results in a deficit, however, such deficit is carried forward into the next experience year - and renewal premiums reflect the inclusion of a deficit recovery factor. Use of this basis also incorporates the following: Establishment of a Claims Fluctuation Reserve (CPR) to a maximum level of 20% of the annual premium. (This would be in the region of $136,000, and until the CPR maximum is achieved, only 50% of any surplus developed is returned to the City. Since the actual level of the CPR as of the last renewal date was $10,294, it will probably be many years before the maximum is reached.) A charge of 1.25% of premium for a Stop Loss Provision (SLP) which would restrict the excess of claims on an individual over $15,000 per annum from being charged to the City. (For the January 1, 2000 renewal date, Liberty Health had announced that the SLP charge would be increased from 1.25% to 1.95% of annual premium, with the probability of a further increase to 2.28% at the 2001 renewal date) - In addition, a Deposit account is also being maintained with Liberty Health for the City funded from surplus produced in prior years. This account held almost $57,000 last February and was earmarked for possible use in offsetting future deficits that may arise and/or application against future premium increases if necessary. It was Mosey & Mosey's contention that consideration should be given to changing from a surplus/deficit accounting approach to a non-surplus/deficit accounting approach for the 200012001 experience year if not earlier. Under this latter method surplus developed (which over the prior three year period had averaged only 0.6% of premium) would not be returned to the City, but - on the other hand - deficits produced would be absorbed by the carrier and not be factored into the renewal rate structures for the following year. The revision to the underwriting basis would, therefore, result in the following: Reduced annual premium cost due to the elimination of the additional factors and lesser record keeping on the part of the carrier than that associated with surplus/deficit accounting. For the January 1, 2000 renewal date the combined Health/Dental increase on this basis could have been reduced from 8.98% to 2.92%, an annual savings of approximately $45,000. Elimination of the need to maintain the Funds on Deposit account for possible deficit recovery. As of August 31, 1999, the account balance was $56,915. This amount could be utilized by the City for other purposes, or maintained for use as full or partial offsets to future rate increases should they occur. The establishment of a CPR would no longer be a requirement. - The escalating cost of the SLP would be eliminated, i.e. 1.95% or over $10,000 for the 1999/2000 experience year based on Liberty Health's January 1, 2000 renewal cost. Report to Council CS 20-00 Date: September 30, 2000 Subject: Employee Group Benefit Insurance - 2000 Renewals Page 4 ~ In early March of this year, Mosey & Mosey provided a report on the adjustments proposed by Maritime life for the Basic Life and LID benefits effective April 1, 2000. The carrier proposed increases in rates of 10.0% and 30.0% on the Basic Life and LTD respectively, for a combined LifelLID increase of 24.1 %. Our consultants' analysis determined that the credibility levels being applied were higher than the norm, and through negotiations initially reduced the increases proposed to 5.0% on the life and 25.0% on the LID. While these reduced levels reflected an annual savings of $17,483 over those first proposed, Mosey & Mosey remained dissatisfied with Maritime life's position, and- with the City's approval-,- surveyed the market regarding the Basic life and LTD coverages to further assess the competitiveness of the incumbent insurer's costs. The market survey produced no significant savings sufficient to warrant a transfer in carriers, but Mosey & Mosey utilized the results to further negotiate costs with Maritime life. In consequence, the carrier allowed a further reduction in the LID adjustment to 20.0% rather than the original 30.0%, reducing the combined LifelLID increase to 15.8%, an annual savings over the proposed rate levels of $34,344. - As indicated earlier, Mosey & Mosey had recommended consideration of changing the HealthlDental underwriting basis to non-surplus/deficit accounting. In mid-April this year, however, updated experience was obtained from liberty Health which showed that the claims to premium loss ratio for the 1999/2000 experience period had deteriorated significantly. Upon investigation by our consultants the cause was found to be an employee's out-of-Canada claim for $88,871. Since the City does not have a fully pooled travel plan, the full amount of this claim would be chargeable to the experience except for the existence of the SLP which limits the maximum chargeable on an individual to $15,000. (Note that a fully pooled travel plan provision would have covered the full claim with no portion charged to the City's experience.) In providing the experience, Liberty Health had not applied the SLP; hence the high loss ratio. Yet even so, claims in general had escalated in comparison to the prior experience period on which the carrier's January 1,2000 renewal adjustment had been based, and it is likely that there will be a deficit produced sufficient to eliminate the current CFR. In light of the out-of-Canada claim, Mosey & Mosey have now recommended that the Liberty Health coverages remain on the surplus/deficit accounting basis until the end of the 1999/2000 experience year, and that the carrier's January 1,2000 increase of 8.98% remain applicable until the next renewal date. This will avoid the balance of the $88,871 claim being charged to the 1999/2000 experience since there is a proviso in the contract negating the application of the SLP to any claims incurred if the coverage basis is terminated prior to the end of the year. It is also their recommendation, however, that the change to the non-surplus/deficit accounting basis take place with the 2001 renewal date - especially as the claims levels are increasing. Effectively the same arguments for the change to non-surplus/deficit accounting apply as in their February, 2000 report, and, in fact, are strengthened by the escalating claims levels. At the same time a fully pooled travel plan should be implemented to eliminate the major area where high claims on an individual may be expected. ..-. Liberty Health's 2001 renewal information is expected within the next month or so at which point Mosey & Mosey will both evaluate the costs proposed under the existing underwriting basis, and obtain revised adjustments from the carrier with respect to the non-surplus/deficit accounting basis. Mosey & Mosey have advised that liberty Health may be reluctant to change the underwriting basis should they be in a deficit position at that time. If so, our consultants will market the HealthlDental coverages in order to obtain the desired costings for a transfer of carrier, or to utilize as a negotiating tool with the incumbent. Either way, the Funds on Deposit - in excess of $58,500 as of April this year - remains available to the City. It is anticipated that these funds will be used to assist in offsetting future cost increases. Report to Council CS 20-00 Date: September 30, 2000 Subject: Employee Group Benefit Insurance - 2000 Renewals Page 5 -- ATIACHMENTS: Not applicable. Prepared By/ApprovedJEndorsed By: Endorsed By: ~~ --Gillis A. Paterson, Director, Corporate Services & Treasurer ~ 'JL~- Baba ~ arsingh, Division Head, Human Resources GAP:vw Copy: Division Head, Human Resources Recommended for the consideration of Pickering City Council - " -