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Corporate Services
Report
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Report To: General Government Committee
Date of Meeting: November 6, 2017
Report Number: COD -019-17 Resolution:
File Number: RFP2016-3 By-law Number:
Report Subject: ASO Review for Provision of Employee Group Benefits
Recommendations:
That Report COD -19-17 be received;
2. That the Health and Dental Benefits Program for the first renewal term, February 1, 2018
to February 1, 2019, be approved to remain as is with Sun Life Financial to take
advantage of the 15% renewal cap;
3. That the ASO option for provision of Health and Dental benefits be reviewed in advance
of the next renewal period of February 1, 2019 to February 1, 2020, with consulting
assistance as needed at an estimated cost of $20,000 to be funded from the ASO
Reserve fund; and
4. That registered interested parties be advised of Council's decision regarding the award
by the Corporate Services Department in consultation with Finance.
Municipality of Clarington
Report COD -019-17
Report Overview
Page 2
To update Council on the review of the ASO program for the first renewal of the Health &
Dental component of the 5 year contract with Sun Life, from February 1, 2018 to February 1,
2019. The extended health and dental benefits program is recommended to continue as is,
under the current Fully Insured arrangement, with continued monitoring of the option to
move to an Administrative Services Only ASO program in future.
1. Decision History
On July 4, 2016 Council adopted the recommendations within Report COD -015-16
"Provision of Employee Group Benefits" and approved an award of contract to Sun Life
Financial (Attachment # 1 - approval resolution) for the provision of Employee and
Dependent Life, Long Term Disability, Extended Health and Dental coverage for a 5 year
term (October 2016 to October 2021) with a review at the conclusion for possible renewal
of further terms pending satisfactory service and acceptable conditions.
The Health & Dental portion of the contract was guaranteed not to increase for 16 months
from October 1, 2016 to February 1, 2018. In addition the initial bid, contained a cap of
15% on the first "renewal" of the Health & Dental portion, running from February 1, 2018
to February 1, 2019.
At the meeting Council directed staff to report back to the General Government
Committee at a reasonable time prior to the expiry of the 16 month term (February 1,
2018) to consider a recommendation on continuing within the Sun Life contract for the
extended health and dental benefits portion under a Fully Insured Funding arrangement
or change to an Administrative Services Only (ASO) arrangement with Sun Life at
February 1, 2018.
The review is conducted at this time to allow sufficient time to assess the potential impact
prior to the expiry of the February 1, 2018 term. The 15% cap protection will run out
after this first renewal ends on February 1, 2019, therefore it is intended that the next
ASO review in advance of the February 1, 2019 renewal, would take place in the fall of
2018.
2. Background
In 2016 with the market review, as part of the RFP evaluation Buffett Taylor Employee
Consulting was contracted to provide professional advice on various aspects of the RFP
process including but not limited to assisting in the development of the terms of reference
for the provision of Employee Group Benefits as required by the Municipality of
Clarington. The benefits coverage included all employee benefits, employee and
dependent Life Insurance, Optional Life, Long Term Disability (LTD), Extended Health
and Dental benefits and Accidental Death and Dismemberment (AD&D). The benefits
cover approximately 374 employees and retirees (including Museum and Library). The
Municipality of Clarington
Report COD -019-17
Page 3
RFP allowed bidders to create and submit proposals for any of the following: AD&D, Life
and LTD, Health and Dental or any combination of the above-mentioned.
Five (5) submissions were received by the closing date and time.
Buffett Taylor Employee Consulting assisted in the evaluation of the proposals and Sun
Life Financial was deemed the most qualified proponent meeting the Municipality's
requirements.
The benefits with Sun Life started on October 1, 2016. AD&D remained with the existing
carrier CHUBB.
3. Financial and Budget Considerations
The 1St renewal of the Extended Health and Dental Premiums under the Fully Insured
arrangement in the existing contract with Sun Life is capped at 15%. The claims history
data provided by Sun Life indicates that the renewal rates for these programs would
increase by 37 to 40%, before application of a "rate adjustment". This impact is avoided
by staying under the Fully Insured arrangement for this first renewal into 2018 (February
1, 2018 — January 31, 2019). The ASO cost for this same arrangement would be
approximately $7,775 per month higher because it is based on the actual claims, and
does not receive the benefit of the 15% rate cap, guaranteed by Sun Life for the 1 st year
renewal.
The monthly premium cost for the Extended Health and Dental Benefits Plans are as
follows under the continued Fully Insured versus the proposed ASO arrangement:
Extended Health Benefits
Current
Renewal of
Proposed
Fully
Fully -
ASO Cost
Insured
Insured
Premium
$104,325
$126,232
$131,449
Dental Benefits
Current
Renewal of
Proposed
Fully
Fully -
ASO
Insured
Insured
Premium
$51,145
$61,375
$63,933
Remaining with the fully -insured funding arrangement with Sun Life's commitment of an
overall increase capped at 15% for the annual Health and Dental benefits premiums
provides the most cost effective option at this point. This renewal includes the Incurred -But -
Not -Reported (IBNR) reserve being added.
Municipality of Clarington
Report COD -019-17
Page 4
Given the recent claims history showing a weighted loss ratio up to 40%, moving to an ASO
funding arrangement at this point would likely result in an increased cost in the upcoming
renewal year. Under the ASO arrangement the full claims costs plus the administrative
costs (claims handling charges, profit charge, pooling stop -loss charges, printing charges,
consulting fees and taxes) transfers to the Municipality. Under ASO, at the end of the year
any shortfall between the amounts paid by the Municipality, and the claims actual costs and
related fees, are the dollar -for -dollar responsibility of the Municipality. Under the existing
fully -insured arrangement, Sun Life absorbs all claim costs.
For many reasons (aging population, specialized drug formularies, expanded disease base,
etc.), employers generally expect an escalation in future costs regardless of the funding
arrangement. The Municipality reviews opportunities for cost containment, such as within
the existing program there is a built in control requiring that drugs are issued as mandatory
generic substitution. If an employee is listed for a substitute drug but chooses to still ask for
the brand name drug they are required to pay the difference. The Municipality is also
exploring managed drug programs with certain drug regimens that allow the Plan Provider
to manage the individual drug program. The cost containment efforts are somewhat
eroded by the current environment that systemically contributes to Healthcare expenses
rising, for example the arbitration awards that ensure "parity" and grant "unlimited"
Physiotherapy for both the employees and their family rather than ensuring the employee -
only is granted the benefit that aids in ability to perform their job.
In the January 2017 Benefits Canada publication, an article by Mercer `Benefits costs to
trend even higher in 2017' states the following:
"employers can expect increases in drug -pooling costs to exceed 50 percent this year
and predicts speciality medications, which represented roughly 30 percent of drug
spending in 2015, will rise by about 10 to 15 percent in 2017. You've got a growing
proportion of costs there, accelerating at a much higher level than your traditional drugs,
which we're expecting to be flat line".
Going Forward:
The ASO option continues to be a worthwhile opportunity to explore for overall cost
effectiveness, particularly as the Municipality grows to a large client classification. It is
recommended that in the fall of 2018 with the next renewal term from February 1, 2019 to
February 1, 2010, should the renewal rates under the existing programs be unacceptable,
the ASO option be evaluated further. The Municipality would engage consultants to assist
in evaluating the complex process to determine if it would be the best financial choice at
that time and to ensure appropriate Reserve Funds are established to provide for benefit
claim costs and ASO administrative fees. It is recommended that the appropriate
consultant cost be funded from the ASO Reserve Fund in the fall 2018 for the February 1,
2019 renewal timeframe. It is anticipated that the consultant cost would be approximately
$20,000.
Municipality of Clarington
Report COD -019-17
4. Concurrence
Page 5
This report has been reviewed by the Director of Finance/Treasurer who concurs with the
recommendation.
5. Conclusion
It is respectfully recommended that the continuation of Health and Dental under a Fully
Insured arrangement for the 1 st renewal with Sun Life Financial be approved, with future
reviews of the ASO option at the appropriate renewal periods.
6. Strategic Plan Application
The recommendations contained in this report conform to the Strategic Plan.
Submitted bYdKo"IX,H.
Mari Sc., C.M.O.
Director of Corporate Services
Reviewed by:
Andrew Allison, B. Comm., LLB.
Chief Administrative Officer
Staff Contact: David Ferguson, Purchasing Manager, Ext 2209 or dferguson@clarington.net
List of interested parties to be notified of Council's decision is on file in the Corporate Services
Department.
Attachments: Attachment 1: Resolution File Number H02.GE
MM/DF/KM
Municipality of Clarington
Gea�lifrg the Way
To: David Ferguson, Purchasing Manager
From: Anne Greentree, Municipal Clerk
Date: July 13, 2016
Re: Provision of Employee Group Benefits
File Number: H02.GE
Attachment 1 to
Report COD -019-17
Ll'll�.11 U
Please be advised that, at the July 4, 2016 Council meeting, the following Resolution
was passed:
That Report COD -015-16 be received;
That Sun Life Financial be awarded the contract for the provision of Employee
and Dependent Life, Long Term Disability, Extended Health and Dental coverage
for a five (5) year term with a review at the conclusion for possible renewal of
further terms pending satisfactory service and acceptable conditions, provided
that the Health and Dental coverage can be limited to the end of the 16 month
guarantee period;
That staff report back to General Government Committee on the renewal of the
extended health and dental benefits coverage with a recommendation on
proceeding under a Fully Insured Funding Arrangement or ASO, at a reasonable
time prior to the expiry of the 16 month term;
That the Purchasing Manager be authorized to negotiate with Chubb Insurance
Company of Canada, being the Municipality's current provider of Accidental
Death and Dismemberment a renewal of the existing agreement. This
agreement to be reviewed at the conclusion for possible renewal of further terms
pending satisfactory service and acceptable conditions;
Municipality of Clarington
Leading rile VYay
Attachment 1 to
Report COD -019-17
I JT-
That
�iTi7
the Purchasing Manager be, authorized to execute administrative
agreements as required for the current and future renewals, subject to
satisfactory service and acceptable terms;
That the savings of approximately $550,000 be put into a reserve dedicated for
future ASO benefit administration; and
That all interested parties listed in Report COD -015-16 and any delegations be
advised of Council's decision by the Purchasing Division.
4 lie d ntree
AG/jeg
C. M. Marano, Director of Corporate Services
K. McMullen, Compensation and Benefits Supervisor
N. Taylor, Director of Finance/Treasurer