To: Honorable Mayor and Members of Town Council
From: Fritz Sprague, Deputy Town Manager
Title
Resolution Approving a Contract Between the Town of Castle Rock and Aetna Life Insurance Company for 2018 Stop Loss Insurance Coverage
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. After going to market with an RFP process, the Town moved its health plan and stop loss coverage to Aetna Life Insurance Company (Aetna) in 2016 and will continue using Aetna in 2018.
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 2018. 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 either good claims years and challenging claims experience with the plan.
Our contract for stop loss coverage with Aetna will exceed $250,000 and, therefore, requires Town 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 happen from time to time. The health of any organization is cyclical, as are corresponding medical claims.
Discussion
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 an increase in the number of large-dollar claims. Some of this is to be expected as the size of our insured employee group continues to grow.
The Town’s current Stop Loss plan deductible is $60,000 and protects the Town from individual large claims exceeding that high dollar amount. Based upon comparable rates of renewal and the number of claims we experienced this past year, we expected an increase to the stop loss portion of our plan’s fixed costs. The 2017 contract rate for stop loss coverage was $1,351,596. Due to the aforementioned dynamics driving our experience, the contract renewal amount for stop loss coverage with Aetna for 2018 with a $60,000 deductible level was $1,624,840 (29% increase).
For purposes of evaluating the renewal of the Stop Loss contract with Aetna for 2018, our large dollar claims and deductible level are evaluated. Moving the deductible from $60,000 to $100,000 reduces the contract renewal amount for 2018 by $443,081. The potential additional claims exposure is an increase of $343,791. Net savings is a decrease of $99,320. The contract amount for stop loss coverage with Aetna for 2018 with a $100,000 deductible level is $1,181,759 (6.2% decrease). After careful evaluation of this premium rate, our recommendation is the rate and deductible level for 2018 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 2018 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 2018 plan year which protects the Town and its employees from large catastrophic claims costs.
Budget Impact
The expenditure will come from the Employee Benefit Trust Fund in an amount not to exceed $1,181,759 for stop loss (reinsurance) coverage for the 2018 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 2018 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 2018 Stop Loss Insurance Coverage”
Attachments
Attachment A: Resolution
Exhibit 1: Agreement and Policy for Stop Loss Coverage with Aetna Life Insurance Company