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Agenda Item # 15

BOARD MEMORANDUM

RECOMMENDATIONS:

Authorize the General Manager to renew benefit contracts with Kaiser, PacifiCare, Valley Health Plan, Delta Dental, and Pacific Union Dental for VTA employees and retirees for calendar year 2005.   Authorize the General Manager to execute a contract with Custom Benefits Administrators for one year for flexible spending account plan administration and Metropolitan Life Insurance Company for life, accidental death and dismemberment, and long-term disability insurance for three years.

DISCUSSION:

VTA currently contracts with Kaiser, PacifiCare, Valley Health Plan, Delta Dental, Pacific Union Dental, Vision Service Plan, Highmark Life Insurance Company and ADP for health and welfare benefits.   These contracts will expire December 31, 2004. Renewal of these contracts, effective January 1, 2005, is necessary in order to continue the specific benefit plans (and providers) named in the various labor agreements for VTA employees and retirees.

The Arlen Group, VTA’s benefit consulting firm, markets, negotiates and analyzes the benefits plan renewals.

PacifiCare costs are projected to increase approximately 18% overall this year.  The cost increase was more than the 16% projected, due to increased utilization. 

Although the standard Kaiser premium increase for 2005 is approximately 12%, VTA received a 22% increase based on group demographics and significantly increased utilization.   Utilization of medical services was approximately 80% greater than the prior year and prescription drugs approximately 150% greater.

The Valley Health Plan increase of approximately 23% is so significant because their rates were previously below market. Valley Health has brought VTA’s rates to parity with the rest of its major commercial accounts.   Their rates still remain lower than the other VTA HMO plans.

The Delta Dental and Pacific Union Dental increases are consistent with dental trend (inflation). 

Based on cost and service issues, The Arlen Group is recommending that VTA change Flex Plan Administrators from ADP to Custom Benefit Administrators.   This will result in a 31% cost savings in the administration fees paid by VTA and will also result in lower fees for employees.

The Arlen Group is recommending that VTA move the life, accidental death and dismemberment and long-term disability insurance to Metropolitan Life Insurance Company because the current carrier, Highmark, has requested a 31% increase in premiums. The Metropolitan Life proposal for 2005 is approximately 17% less than the renewal provided by Highmark. They have also provided a three-year rate guarantee.

The following represents the overall 2005 average change in cost over 2004 rates: 

ALTERNATIVES:

There are no practical alternatives for most of the providers.   Specific coverage has been negotiated through the collective bargaining process.   However, VTA could remain with ADP or select one of the alternate flex plan vendors and could remain with Highmark Life Insurance.

FISCAL IMPACT:

The estimated annual cost for these benefits is approximately $29,000,000.   This figure includes employee contributions for medical coverage.   This represents an estimated increase of approximately $4,400,000 over calendar year 2004 costs, when adjusted for decreased enrollment (estimated costs for calendar years 2004 and 2005 were based upon current enrollment and corresponding rates).  Because these are calendar year contracts, only half of these costs will be incurred during this fiscal year. Funds have been budgeted to cover these costs.

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