To: Honorable Mayor and Members of Town Council
From: Fritz Sprague, Deputy Town Manager
Sue Morgan, Human Resources Manager
Title
Resolution Approving a Contract between the Town of Castle Rock and Aetna Life Insurance Company
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 Town staff. Last year, the Town moved its health plan and stop loss coverage to Aetna Life Insurance Company (Aetna) for the 2016 plan year.
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 2017. Being self-insured has many benefits; two of which are having greater flexibility and control over our health plan, and the ability to manage plan dollars when we are having both good claims years and challenging claims experience with the plan.
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.
Our contract for stop loss coverage with Aetna will exceed $250,000 and, therefore, requires Town Council approval.
Discussion
In in the past three years, due to good claims experience, both the Town and employees have realized a total premium increase of 8.4%. (In 2014: 0% increase; 2015: 3% increase; and 2016: 5.4% increase.) In 2016, when we introduced Aetna, employees were offered one of two plan options. The PPO option increased by 5.4%, and the Whole Health Plan (a narrow network provider option) offered a premium decrease of 15%. This, plus several prior years of moderate claims experience and a tolerable level of large-dollar claims, has led to good premium renewals during these years. We have, however, in the past year experienced a reduction in the number of large-dollar claims. This, along with our reasonable level of claims, has led us to what we believe is a very positive renewal for our health plan for 2017 and for our stop loss contract for 2017.
Based upon comparable rates of renewal and the number of claims we experienced this past year, we expected a reasonable increase to the stop loss portion of our plan’s fixed costs. The 2016 contract rate for stop loss coverage was $1,202,156. Due to the aforementioned dynamics driving our experience, the contract amount for stop loss coverage with Aetna for 2017 will be $1,351,596. After an evaluation of this premium rate, our broker/consultant advises us the rate for 2017 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 Fund. Moving forward with stop loss coverage with Aetna for 2017 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 2017 plan year, which protects the Town and its employees from large catastrophic claims costs.
Budget Impact
The expenditure will come from the Employee Benefit Fund in an amount not to exceed $1,351,596 for stop loss (reinsurance) coverage for the 2017 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 2017 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
Exhibit 1: Renewal and policy