To: Honorable Mayor and Members of Town Council
From: Fritz Sprague, Deputy Town Manager
Sue Morgan, Human Resources Manager
Title
Resolution: Award of Contract for 2016 Healthcare Plan Stop Loss Carrier
Body
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Executive Summary
As part of the Town’s total compensation package, Castle Rock provides a self-insured health care benefit to eligible Town staff. Earlier this year, the Town took its health plan and stop loss coverage to market, and Aetna Life Insurance Company (Aetna) was selected as both our health insurance and stop loss provider for 2016 through a competitive process.
The Town of Castle Rock has successfully utilized a self-insured business model to provide healthcare coverage for Town staff and is continuing this practice for 2016. Being self-insured has many benefits, two of which are having greater flexibility and control over our health plan, as well as the ability to manage plan dollars when we are having both good claims years and challenging claims experience.
Staff has been executing agreements with Aetna in order to begin coverage for eligible employees and their dependents on January 1, 2016. Our contract for stop loss coverage with Aetna will exceed $250,000 and, therefore, requires Town Council approval. This is the only agreement being executed as part of this transition that requires Council approval.
As part of any self-insured plan, ‘stop loss’ coverage, also referred to as reinsurance, is purchased to protect the Town from large-dollar claims. This provides the Town a guarantee, or ‘safety net’, from bad years, which we know do happen from time to time. The health of any organization is cyclical, as are corresponding medical claims.
Discussion
In in the past three years, due to good claims experience, both the Town and employees have realized a total premium increase of 3%. (In 2013: 3% decrease; 2014: 0% increase; and 2015: 3% increase.) Several years of moderate claims experience and a tolerable level of large-dollar claims led to good premium renewals during these years. We have, however, in the past year had a number of large-dollar claims. This, together with a high volume of claims, was leading the Town to an expected higher renewal rate than we have realized in the past several years.
The 2015 contract rate for stop loss coverage was $1,286,320. The contract amount for stop loss coverage with Aetna for 2016 is expected to be $1,202,156. After an evaluation of this premium rate, our broker/consultant advises us the rate for 2016 is within market parameters.
Conclusion
The Town continues to be well-positioned with regard to health insurance due to strong overall plan performance, acknowledging some high claims (which is the cyclical nature of health insurance), and an appropriate fund balance in the Employee Benefit Trust Fund. Moving forward with stop loss coverage with Aetna for 2016 allows us to continue to manage the plan in a manner where both the Town and employees are able to realize the best overall stop loss renewal rate for the 2016 plan year, which protects the Town and its employees from large catastrophic claims costs.
Budget Impact
Funds will be disbursed from the Employee Benefits Fund in an amount not to exceed $1,202,156 for stop loss (reinsurance) coverage for the 2016 benefits plan year.
Staff Recommendation
It is recommended that Council authorize staff to enter into an agreement with Aetna Life Insurance Company for its stop loss coverage for the Town’s 2016 self-insured healthcare plan.
Proposed Motion
“I move to approve a Resolution approving a contract between the Town of Castle Rock and Aetna Life Insurance Company for stop loss insurance services.”
Attachments
Attachment A: Resolution Adopting Stop Loss Contract
Attachment B: Agreement and Policy for Stop Loss Coverage with Aetna Life Insurance Company