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HomeMy WebLinkAboutCOD-001-19Clarftwn Corporate Services Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: -RL HHUDORHUPHD30DLDHHORSPH&RPPLHH Date of Meeting: January 7, 2019 Report Number: COD -001-19 Resolution: JC -069-19 File Number: By-law Number: Report Subject: Health Benefit Program Renewal & ASO Consideration Recommendations: That Report COD -001-19 be received; 2. That the presentation by DJ Nascimento from Mosey & Mosey Benefit Plan Consultants outlining the Health Benefit Program renewal and ASO consideration, be received with thanks; 3. That the recommendation by Mosey & Mosey to remain under the Insured Funded Arrangement (also referred to as non -refunded accounted arrangement) with Sun Life be approved as outlined in the presentation and executive summary; 4. That the Director of Corporate Services be authorized to sign the appointment letter with Mosey & Mosey to renew the Benefit Program with Sun Life through the Local Authority Services (LAS) under either option of Insured Funded or ASO, as decided by Council; and 5. That DJ Nascimento of Mosey & Mosey be advised of Council decision. Municipality of Clarington Report COD -01-1 9 Report Overview Council approval is requested for the February 1, 2019 renewal of the Health Benefit Program, remaining with Sun Life on an Insured Funded Arrangement, with placement through Local Authorities Service (LAS). 1. Background Page 2 1.1 In renewing the Health Benefit Program in place for February 1, 2019 the General Government Committee approved report COD -019-17 ASO Review for Provision of Employee Group Benefits, and at the November 20, 2017 Council meeting Resolution #GG -458-17 was approved as follows: That Report COD -19-17 be received; 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; 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 That registered interested parties be advised of Council's decision regarding the award by the Corporate Services Department in consultation with Finance. 2. Process Undertaken to Assess the 2019 Renewal Options 2.1 In February 2017 the program manager at the Local Authority Services (LAS), an arm of the Association of Municipalities of Ontario (AMO), sent a letter (Attachment #1) to the CAO to advise that LAS has partnered with Mosey & Mosey Benefit Consultants to provide municipalities access to an aggregated group of benefits plan. Mosey & Mosey contracted with Sun Life to underwrite the program for their consortium of approximately 30 municipalities with over $7 million premium dollars, which provides bargaining power to the participating municipalities. 2.2 The Municipality met with Mosey & Mosey to explore whether they could obtain a reduction in the current rates in place for 2018. Mosey & Mosey approached Sun Life, but were advised that there was no immediate advantage available on the existing plan due to the rate guarantees in place. 2.3 Morneau Shepell was engaged by the Municipality to provide an analysis of the funding arrangements comparing the existing Fully Funded program to the Administrative Services Only ASO option. Their review assessed the ability of the Municipality to enter into an ASO arrangement based on claims experience over the recent two (2) years, in Municipality of Clarington Resort COD -01-1 9 Page 3 accordance with the resolution and funds provided. The Director of Finance/Treasurer has provided an overview of that undertaking in the financial section of this report. 2.4 The Municipality also independently requested a quote directly from Sun Life to see if there would be an advantage by utilizing the services of Mosey & Mosey. The independent quote resulted in an overall increase in premiums of approximately 14.3%, (from 2018 rates) which is referred to as the stand-alone option in the Mosey & Mosey Executive Summary (Attachment #2). The LAS program through Mosey & Mosey provides a definite savings for the Municipality. 2.5 Mosey & Mosey was engaged to conduct a review of claims experience for the recent two years and to obtain a quote. Their written presentation outlined the result of their review and provided the recommendation to continue with the Fully Funded program, which they refer to as non -refund accounted arrangement to maximize the containment of premium cost at 9.8%. 2.6 The intention is to continue assessing the ASO option with the recommended new renewal date of November 1, 2019, under LAS, which also lends better to appropriate budgeting. 3. Financial Assessment 3.1 The Director of Finance provides the following overview of the Morneau Shepell assessment: x The Municipality of Clarington engaged Morneau Shepell to provide information regarding: o the advantages and disadvantages of Refund Accounting and Administrative Services Only (ASO); o a study of claims fluctuation from month-to-month to understand the risk exposure with ASO; o a mock financial accounting of two (2) benefit years to determine the "claims fluctuation reserve" required if the Municipality were to switch; and o a lag study to recommend a level for "incurred by not reported reserve". x The Morneau Shepell report supported the independent assessment of Mosey & Mosey that over the past two years an ASO funding program would have resulted in a deficit to the Municipality. It should be noted that both reports concluded that the difference is within $15,000 over the two year period; however in one year the deficit is approximately $144,000 while the following year is a $132,000 surplus. x From a financial planning and budgetary perspective the difference between the two funding models is the amount of fluctuation in any given period. With ASO, the fluctuations from period to period are borne by the Municipality. The current funding model requires known amounts to be paid for the year which may be adjusted annually at renewal. Municiprington Report C 9 ion study showed that over the two year period: Page 4 Dental $40,000 $60,000 $50,000 Health $58,000 $115,000 $90,000 Total $100,000 $170,000 $141,000 x The Municipality has established a reserve fund for ASO which currently has a balance over $500,000. Based on the past two years, this reserve fund would provide sufficient funding to mitigate the fluctuation in claims. x Based on an estimate of 5% of non -pooled paid claims for the "incurred by not reported reserve" of $86,000 the existing reserve fund would be sufficient to meet those needs as well. x The Morneau Sheppell report did not recommend either an ASO or fully funded model. It is recognized that over time the costs will even out in a fully funded model because the benefit provider will increase premiums or reduce premiums based on actual claims however the timeline for recognition of decreases could be longer. The main difference between the funding models is the risk of volatility in the claims and the level of risk the Municipality is willing to absorb. 4. Summary 4.1 If Council were to decide to change to ASO option the Municipality is in a position to mitigate periodic fluctuations and can smooth funding levels over time. However it should be noted that the ASO method does present a more volatile expense model than the fully funded model with the risk ultimately transferred to the Municipality under the ASO option. 4.2 Remaining with a fully funded option with the unexpected low increase at 9.8% for an additional ten month period to November 2019 allows further assessment of the impact of the OHIP download to the employer for dependents under 25 years of age, will allow additional claims experience review, and mitigates risk for the Municipality. 4.3 It is anticipated that a move to ASO may be in the best interest in the near future, when the combined review periods result in a comfortable surplus and all rate guarantees have been exhausted. Municipality of Clarington Resort COD -01-1 9 5. Concurrence Page 5 This report has been co-authored by the Director of Finance/Treasurer who concurs with the recommendations. 6. Conclusion It is respectfully recommended that Council authorize the renewal for February 1, 2019 on the existing fully funded program through LAS with a November 1, 2019 renewal going forward and that the ASO funding option continue to be reviewed and considered in future. 7. Strategic Plan Application Not applicable. Submitted by: Made Marano, H.B. Sc., C.M.O., Director of Corporate Services :57 7Z�� Trevor Pinn, B.Com, CPA, CA Director of Finance / Treasurer Reviewed by: Andrew C. Allison, B. Comm, LL.B CAO Staff Contact: Kerri McMullen, Compensation & Benefits Supervisor, ext. 2206 or kmcmullen@clarington.net There are no interested parties to be notified of Council's decision. Attachment 1 — LAS Letter to Chief Administrative Officer Attachment 1 — Municipality of Clarington — Executive Summary — December 2018 Andrew Allison CAO Municipality of Clarington 40 Temperance Street Bowmariville, ON L1C 3A6 Dear Mr. Allison, As you may be aware, the cost of providing a group benefits plan to your staff continues to grow. Fortunately, there is a Municipal Group Benefits Program to offer relief from rising premiums. since 2009 LAS has partnered with Mosey & Mosey Benefits Consultants to provide more than 30 Ontario municipalities access to an aggregated group benefits plan. As one of the most recognizable names in benefits consulting, Mosey & Mosey brings over 40 years of group benefits consulting experience to the municipal` or r.IVor mg withyour municipa i ye can develop a enefits philosopher a con rots - "- costs and minimizes the internal resources required to. manage your benefits program. Because each municipality is diverse in its needs and capacities, we allow you to design your own benefits plan. We offer tangible and measurable savings through aggregated purchasing that includes lower rates, lower administrative costs, and preferred expense levels: Historicallynew'enrolments have seen an average savings of 12.45% over, pre-existing benefit costs at the'time of quotation. In addition to saving money, you can also expect prompt assistance, professional advice, and ongoing communications to meet your municipality's unique needs. LAS is committed to offering a program that provides support to Ontario municipalities through a proven delivery model. For more information on this program, or to begin the quotation process, please contact DJ Nascimento at dnascimento@mosev.on.ca or 1.800.268.8383 ext. 276. Sincerely, Eleonore Schneider LAS Program Manager AM• 200 University Ave. Suite 801 www.las.on.ca Tel 416. 971.9856 Toll Free in Ontario Toronto, ON, M5H 3C6 las@las.on.ca Fax 416. 971.6191 877.426.6527 Attachment # to Report COD -001 EXECUTIVE SUMMARY TO: MUNICIPALITY OF CLARINGTON FROM: MOSEY & MOSEY SUBJECT: EMPLOYEE GROUP BENEFIT PLAN REVIEW DATE: DECEMBER 12, 2018 The Municipality of Clarington recently granted Mosey & Mosey authority to: • 5 HT HV1/W--I RLP D\NZ-IIU; P 46 --1 LLH-UiD HARW ir-O ❑E FLSDWRI ACU -J VRE VLFP SULW- J U9 -S benefits program, to undertake a review and act on your behalf to negotiate the February 2019 renewal; • Obtain a Local Authority Services (LAS) quote from Sun Life; and • Review an Administrative Services Only (ASO) option for the Health and Dental benefits. Renewal Negotiations for February 1, 2019 We note that the current group benefits arrangement with Sun Life is: • All benefits are currently insured non -refund accounted, and were transferred to Sun Life effective October 1, 2016. • As a result of that marketing and subsequent transfer, the rate guarantees provided by Sun Life are: 0 40 months on Life (i.e., Employee, Dependent & Optional) L guaranteed to February 1, 2020; 0 28 months on Long Term Disability (LTD) guaranteed to February 1, 2019; and 0 16 months on Health and Dental, with a global rating cap. At the February 1, 2018 renewal for the Health and Dental benefits, the implemented increases were +21% and +20% respectively, resulting in an overall premium increase (for all benefits combined) RI LII❑❑❑ [DI ❑❑Ft LLHVDSS(FD\b'R LR W-11DWJ fDS❑ $ INJLFMH❑LQJ C6 ❑❑C/1 LLHV_SURSR\/HGAA0G-alone renewal for February 1, 2019, we negotiated with the insurer on the basis that the Municipality of Clarington will be included within the (LAS) Group Benefits Program. We felt this arrangement would provide the lowest possible costs at this renewal, as well as future renewals. Rating Within the Local Authority Services (LAS) Group Benefits Program Summarized on the next page are the proposed renewal adjustments from Sun Life, in comparison to the renewal adjustments negotiated by Mosey & Mosey, as part of LAS. We note that these rates are only guaranteed until the next LAS renewal, which is November 1, 2019. Being a participant within the LAS plan under the current arrangement (fully insured), these rates continue to maximize overall savings now and will almost certainly soften subsequent renewal rate adjustments. Attachment #1 to Report COD -001-19 Benefit Current Cost Sun Life Proposed Stand Alone Renewal Effective February Cost 1, 2019 Mosey& Mosey Revised Cost Within the LAS Effective February Negotiated Consortium 1, 2019 Monthly Monthly Monthly Volume Premium Premium Adjustment Premium Adjustment Life Insurance 79,168,000 $ 17,143.75 $ 17,143.75 0.0% $ 17,143.75 0.0% Dependent Life Insurance 325 2,389.12 2,389.12 0.0% 2,389.12 0.0% Long Term Disability 1,566,925 41,734.64 59,262.28 42.0% 55,136.15 32.1% Extended Health Care Single 46 6,775.19 7,588.18 12.0% 7,287.44 7.6% Couple 122 37,002.20 41,442.21 12.0% 39,799.91 7.6% Family 218 85,483.27 95,741.43 12.0% 91,947.05 7.6% Dental Single 44 2,845.71 2,988.10 5.0% 2,920.56 2.6% Couple 122 15,861.14 16,654.03 5.0% 16,279.52 2.6% Family 218 44,024.62 46,226.32 5.0% 45,185.44 2.6% TOTAL MONTHLY PREMIUM $ 253,259.64 $ 289,435.42 $ 278,088.94 TOTAL ANNUAL COST -ALL BENEFITS $ 3,039,115.68 $ 3,473,225.04 $ 3,337,067.28 Variance To Current Cost $ 434,109.36 14.3% $ 297,951.60 9.8% Note: Impact of Stand Alone vs. LAS Consortium: $434,109.36 - $297,951.60 = $136,157.76 premium savings Mosey & Mosey Recommendations Since the lowest available renewal cost can only be obtained through the LAS Program, we recommend appointing Mosey & Mosey as your agent of record (a signed letter of appointment would be required to appoint Mosey & Mosey as your Benefit Consultant), so that we can proceed with placing the Municipality of Clarington within this consortium. In addition, there will be no additional cost to the Municipality of Clarington and we will confirm the negotiated renewal rates (as part of the LAS consortium) to Sun Life, effective February 1, 2019. We recommend retaining the insured non -refund accounted arrangement at this time; but will revisit the ASO funding arrangement in the future. Mosey & Mosey was established in 1971 and has a solid understanding of the public sector, representing over 200 municipalities across Ontario. The Local Authority Services (LAS) Group Benefits Program is underwritten through a multi- employer consortium plan; with more than 30 participants and over $7 million in annual premiums, the Consortium Program was developed by LAS and Mosey & Mosey to allow individual municipalities to achieve benefit costs through the increased purchasing power of the overall group. • The Account would be managed as follows: o DJ Nascimento ❑Account Executive o Patricia Lane ❑ Service Advisor o Jesse Schafheitlin []Technical Analyst Attachment #1 to Report COD -001-19 • Since the Municipality of Clarington is currently insured with Sun Life, joining the LAS Program with the current funding arrangement would not require any change in carrier and would be seamless to the employees. Moving to an ASO arrangement would require a new policy number and new drugs cards for employees. • The only deviation is with regards to the pooling, which differs slightly from the current arrangement. Extended Health Care Pooling 7EHT ❑dFLSD C&®lQ❑JVUI\/LF❑lJlH MR;M-J-DJDIL,JF-PHEVWIRJall out -of -country claims to be pooled from the first dollar as well as all in -Canada EHC claims in excess of $15,000 per insured i n d i v i d u a l S _ -+DJI_I.7--NHCSF4R@G1FG P VAM-L H RUHDIIHIHEFOGIG1l9;P �H S®I_ L\VCHCSHLU _FH 7 EHI/ $ 6 ❑S®❑VCSFTZQ:LJ EDUangement is almost identical, except that the in -Canada claims in HEFHWR EEI❑❑TI❑❑1DLHEHLFQCHG_IIU;P ANH_S0LIVLHLSHIJJlHLFH17 EHERE Abf-country claims are also pooled from the first dollar. With a higher pooling limit would result in lower stop loss charges as the Municipality would be taking on an additional $5,000 of risk for those individuals who has Extended Health Care claims in excess of $15,000. Administrative Services Only (ASO) Quote for Health and Dental Underwriting the Health and Dental benefits on an ASO basis is a funding arrangement that larger groups explore, because they have the financial stability to be able to take on the additional risk (of being fully liable for claims costs), while also lowering their administrative costs. Please keep in mind that the Life, Dependent Life and Long Term Disability will remain as is as there is not an ASO option for these benefits. °/EM-G❑L6 III/ LLHVC$ 6 2 ESLRSRVDO EH(L IV_DLILM _IERI EER❑ VNIO ❑ADM RI _& QU_J W- V plan would have performed over the past two years, if the funding arrangement had been ASO; Municipality of Clarington Health and Dental Consolidated Analysis Retrospective Two (2) Year ASO Analysis i2017/2018 All Years Combined Paid Premium/Deposits $1,663,154 $2,114,615 1 $3,777,76 Paid Claims 1,538,828 1,746,838 I_ 3,285,666 Pooling Credit (101,889) (110,792) I_ (212,681) $1,436,939 $1,636,046 $3,072,985 212,630 121,134 $1,770,703 ($107,549) 246,179 137,919 $2,020,144 $94,471 * Charge for Out-of-Country/$15,000 Stop Loss threshold is based on 24.50%. 458,809 259,053 $3,790,847 ($13,078) ** General Administration, Claims Handling, Profit Charge, Premium Taxes, Consulting Fees (8.43% of total expenses). Attachment #1 to Report COD -001-19 Mosey & Mosey Recommendations • ASO would result in modest savings from expenses, however, The Municipality would assume the risk of any increase in claims; since the two year combined ASO result would have been a deficit, Mosey & Mosey recommends retaining the insured non -refund accounted funding arrangement at this time and revisit the ASO funding arrangement at a later date. Consideration of Appropriate Funding/Underwriting Arrangement Risk: The primary difference between Non -Refund Accounted and ASO funding arrangements is the degree of risk and the level of liability assumed; the primary factor is your own tolerance for risk and the level of liability that you wish to assume under the plan. The emergence of high cost drugs to treat catastrophic health conditions has threatened the stability of employee group benefit programs; these drugs have the potential to significantly improve their health while at the same time jeopardize the sustainability of your employee benefit program. Other factors to consider: Aging workforce and increased chronic disease (e.g. diabetes, heart disease, asthma etc.). Pending changes to OHIP+; dependents less than 25 years of age will now go to private plan first for their prescription drugs (expected date of March 2019 and expected increase of 2%-10%). Each client must carefully consider the potential advantages and disadvantages when deciding upon the most appropriate underwriting method. No one factor will be more important to this C-1-FLAR VVD-1WW l-F(t-IIAV CJD/N ID FHF_ Conclusion: Mosey & Mosey will support the final decision made by the Municipality of Clarington as we have no vested interest moving forward with a Non -Refund Accounted or ASO funding arrangement.