From
Lisa Norris, Human Resources Director
Title
One-year renewal agreement for Specific Stoploss Insurance from Stoploss Insurance Services, Inc., administered through Fidelity Security Life Insurance Company, at an estimated annual cost of $329,421 effective January 1, 2013 through December 31, 2013, with annual renewal options approved by the City Manager if such renewal is less than twenty-five percent of the original contract fees and appropriated in the budget.
Presenter
Lisa Norris, Human Resources Director
Recommend Action
Approve
Analysis
Specific Stop Loss Insurance protects the City's self-funded medical plan from the risk of unexpected large claims on an individual basis. Stoploss insurance reimburses the City once an individual's claims paid during the calendar year exceed the specific deductible, currently $225,000. The current contract with Stoploss Insurance Services expires on December 31, 2012, but has a renewal option. Stoploss Insurance Services, Inc. subcontracts with Fidelity Security Life Insurance Company who then processes the claims for review and issues reimbursement to the City. Any claims paid in the plan year which are over the deductible are reimbursed to the City at 100% up to an annual maximum of $2,000,000 and an unlimited lifetime maximum. The specific deductible must be met again in each plan year. This coverage protects the city's insurance fund by transferring a great deal of the risk to the stop loss carrier annually.
Since 2011, the city has experienced a dramatic rise in claims exceeding $100,000, so our potential for reimbursement of claims exceeding the stoploss deductible has increased over prior years. For fiscal year (FY) 2011/2012, three claims have exceeded the stoploss deductible of $225,000, with two of those claims occurring since January 2012. We have two more that are over $200,000 currently and continuing to incur costs. Based on the two claims over the deductible and claims paid through August, we are expecting reimbursements in the amount of $446,143 for one claim and $62,253 for the other. Since our insurance claims have been extremely volatile over the past 24 months, we decided to review the renewals sooner than later in the event our experience worsens. We had originally considered self-insuring claims until our claims experience resulted in several months exceeding $1 million in claims, with August reaching $1.7 million in active claims. We decided to focus on reviewing deductible options instead. Attachment 1 shows our history of stoploss premiums versus claims paid and reimbursements received through August 2012. Attachment 2 shows renewal options by our existing carrier for several stoploss deductibles. Upon review with the City Manager's Office, staff recommends moving to a $400,000 deductible since that rate is reasonable and is closest to the amount budgeted in the FY 2012/2013 Employee Insurance Fund budget. The cost for the Stoploss premium beginning January 2013 at that option, will decrease from $33.35 to $21.39 per member per month. This equates to approximately $24,085 monthly beginning in January. As a reminder, the City also pays United Health Care a stoploss reporting fee of $1.00 per employee per month (PEPM) to provide all necessary reports to the reinsurance carriers to process reimbursements which is approximately $13,512 per month and billed to our UHC admin fee. This fee is already included in budget but reflected in Attachment 2 to properly demonstrate all related fees to stoploss administration.
Financial Consideration
Stoploss premiums for FY 2012/2013 are budgeted at $300,000 in the Employee Insurance Fund (213010-64050). The projected FY premiums through Stoploss Insurance Services/Fidelity Security based on the renewal are projected at $37,552 monthly for 3 months (October - December) and $24,085 monthly for nine months (January - September), totaling $329,421 for the FY. This is $29,421 over the $300,000 currently appropriated in the Approved FY 2012/2013 Employee Insurance Fund budget and will be absorbed through Ending Resources Balance. Budget, City Manager's Office and Human Resources staff continue to monitor this fund monthly and have implemented plan changes effective January 1, 2013. We are unsure at this point how such changes will impact the overall fund, dependent on how our high claim trend continues. The current $1.00 reporting fee PEPM (Per Employee Per Month) for stoploss, estimated at $13,512 annually, is paid as part of administrative fees to United Health Care and is also currently appropriated.