HomeMy WebLinkAbout01/05/1993, C-9 - PUBLIC EMPLOYEES RETIREMENT SYSTEM HEALTH BENEFITS PROGRAMIIIp�INII�IIIIInlln�llt,lll MEETING /ATE:
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COUNCIL AGENDA REPORT ITEM NUMBER:
FROM: Ann Slate, Personnel Director (J
SUBJECT: Public Employees Retirement System Health Benefits Program
CAO RECOMMENDATION:
Adopt a Resolution electing to be subject to Public Employees'
Medical and Hospital Care Act and eligible for PERS Health Benefit
Plans.
BACKGROUND:
The Public Employees' Medical and Hospital Care Act (Act) was enacted in 1962 for
active and retired_ employees of the State of California. The Act was amended in
1967 to permit a public agency who was participating in the PERS retirement system
to elect participation in the health benefits program.
PERS Health Benefits Program offers a wide variety of approved health plans that
represent many different philosophies of health care delivery. The types of health
plans currently being offered include a statewide self- insured fee - for - service health
plan (PERS- CARE), numerous health maintenance organizations (HMO) including
Health Net, Lifeguard and CIGNA, and two association plans (PORAC and CPFA)
which are available to only police and fire employees who are members of those
associations.
The City of San Luis Obispo has offered to its employees for many years a fee -for-
service health plan, Blue Shield, and an HMO, Health Net. The Medical Review
Committee, made up of representatives from all employee associations and
management, annually reviews the City's health insurance program, analyzes
proposed increases and makes recommendations for health plan modifications that are
designed to cut costs. The City has experienced significant increases in health
insurance premiums over the past several years typically in the 20% range. This year
the committee reviewed the current plans, a new plan, CIGNA, a combination HMO
and point of service plan, and the PERS program.
After consulting with the various City employees, the Medical Review Committee
unanimously recommends PERS. The Personnel and Finance Department staff
involved in benefits administration thoroughly analyzed the impacts to the City of the
Medical Review Committee's recommendation and are in support. The pros and cons
are outlined below.
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COUNCIL AGENDA REPORT Page 2
PROS:
(1) GREATER CHOICE AT A LOWER COST
PERS offers essentially the same health plans as offered by the City at a lower cost.
For example, the City's Blue Shield family rate is $736 per month. The comparable
plan offered by PERS, PERS -CARE, is $664 per month. It also offers six other health
plans that City employees could select, allowing them greater choice of health
insurance options.
Unlike the City's current plans, PERS does not require all City employees to participate
in PERS health plans. The City could therefore allow its employees who have proof.
of insurance elsewhere to opt out. This would save some employees from having to
pay for unnecessary insurance coverage and take what remains from their health
contribution in cash as part of the City's Cafeteria Plan.
(2) ECONOMIES OF SCALE
Over 800,000 public employees in California participate in the PERS Health Benefit
Program. With a membership of such proportions, PERS has considerable leverage to
negotiate very favorable rates and plan designs. Last year, the average premium
increase for the PERS HMOs was 3.1 %. The PERS -CARE increase for next year is
projected to be in the 6% range, significantly lower than the 12 -20% increases the
City has experienced over the few years.
(3) NO COST TO THE CITY
PERS requires the City to offer all eligible employees and retirees an opportunity to
enroll in a PERS plan of their choice. The City must contribute toward the cost of the
employee's and the retiree's premium. Funding strategies have been developed that
are in compliance with PERS rules and enable the City to make these required
contributions at no additional cost to the City. Employees have agreed that the City's
obligation to PERS can be made through the existing contribution toward premiums
the City currently provides its employees. Additionally, employees have agreed to
bear the attendant administrative and contingency reserve fund costs.
(4) A PERS HEALTH BENEFITS PROGRAM COMMUNITY
Other major public employers in the area participate in the PERS Health Benefit
Program - -Cal Poly, the County of San Luis Obispo, CIVIC, Cal Trans, the cities of
Morro Bay and Santa Maria. With such a large number of local residents involved,
local health care providers are encouraged to maintain their participation in the various
programs by accepting PERS insurance plans.
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COUNCIL AGENDA REPORT Page 3
CONS:
(1) LOSS OF FLEXIBILITY
Membership in the PERS Health Program eliminates the City's ability to design its own
plans to meet the individual needs of its employees. Plan design issues, such as
deductible amounts, copayments, benefit levels, what's covered and what's not, will
be. decided by PERS. We currently have the discretion to modify our plans in
accordance with our duty to meet and confer with employee groups over conditions
of employment, health benefits being such a condition. In the last five years, the City
has made few changes to its plans and not without considerable effort in meeting our
obligations to negotiate these changes. Therefore, this flexibility and "discretion"
have not proven particularly advantageous.
(2) ADEQUACY OF FUNDING
PERS is frequently questioned about the adequacy of the funding of its fee - for - service
plan, PERS -CARE. Benefit analysts are in disagreement as to the viability of a fee -for-
service plan that includes significant numbers of retirees who are presumably higher
users and greater risks. Yet the rates have not skyrocketed. There is concern as to
whether the rates are appropriate for the plan. If under funded, the conclusion is that
in the future the plan will go bankrupt without large infusions of cash in the form of
exorbitant rate increases. PERS shares this concern and assures its members that
adequate funds are in place and in reserve to maintain the fee - for - service plan.
In reality, this risk exists for the City with Blue Shield, its fee- for - service plan. If we
maintain our current levels of high usage with the present plan design that is rich in
benefits and has uncommonly low deductible amounts, we can anticipate our Blue
Shield rates climbing unaffordably. It was precisely this phenomenon that caused the
County of San Luis Obispo to join PERS Health Program when they were faced with
63% increases to their Blue Shield rates in 1989.
(3) RETIREE HEALTH INSURANCE COSTS
As stated above, PERS requires agencies to cover active as well as retired employees
in their plans. Although we can structure it so that it is essentially a no cost item to
the City at this time, it is a deviation from the City's general past practice of not
providing health benefits to its retirees because of the tremendous cost potential. We
can anticipate future negotiations with our employee groups to include requests for
increases in contributions for both active and retired employees.
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Regardless of membership in PERS Health we can expect the issue of retiree health
to increase in importance to our employees . Retiree Health Insurance has already
been discussed at length in a number of past negotiations. As our population ages,
as priorities shift for our employees, it is realistic to expect employees to seek
financial assistance with their retirement plans.
SUMMARY:
The recommendation of the Medical Review Committee, supported by a thorough
staff analysis of the pros and cons, will provide our employees with a benefit at
virtually no cost to the City. The employees will realize less out -of- pocket expenses
for health insurance premiums which may result in a little more take -home pay for
some. This is particularly meaningful to the City and its employees in an economic.
environment when future benefit enhancements are likely to be minimal.
FISCAL IMPACT:
Although there will be considerable staff time devoted to the implementation and
administration of a new benefit program, this can be accomplished with existing
resources. The premium requirements that PERS places on the City will be structured
so that the necessary costs will be covered by the existing levels of contributions the
City provides its various employees as part of their negotiated agreements.
Employees have agreed to bear the costs of administration, contingency reserving and
the minimal amount required for retiree health premium contribution.
AS:slt
ATTACHMENT:
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Resolution electing to be subject to Section 22821 of the Public Employees'
Medical and Hospital Care Act.
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RESOLUTION NO. (1993 Series)
A RESOLUTION ELECTING TO BE SUBJECT TO SECTION 22821
OF THE PUBLIC EMPLOYEES' MEDICAL AND HOSPITAL CARE ACT
WHEREAS, Government Code Section 22850 and /or 22850.3 provides the
benefits of the Public Employees' Medical and Hospital Care Act to employees of local
agencies contracting with the Public Employees Retirement System; and
WHEREAS, the City of San Luis Obispo, hereinafter referred to as Contracting
Agency, is a local agency contracting with the Public Employees' Retirement System
under the Act; and
WHEREAS, Government Code Section 22821 provides certain additional
benefits to employees of local agencies contracting under the Act upon proper
application; and
WHEREAS, the Contracting Agency desires to obtain for its employees the
benefit of Section 22821 and to accept the liabilities and obligations of a contracting
agency under the Section.
NOW, THEREFORE, BE IT RESOLVED that the Contracting Agency elect, and
it does hereby elect, to be subject to the provisions of Section 22821 of the
Government Code.
On motion of , seconded by
and on the following roll call vote:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this
day of January, 1993.
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Resolution No. 0 993 Series)
ATTEST:
Diane Gladwell, City Clerk
APPROVED:
City dministrative Officer
Finance Director
Personnel Director
r • • r a . s .. .
Mayor Peg Pinard
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