The Human Resources Department is recommending City Council authorize the contract with Cigna for specific and aggregate stop-loss coverage for the self-funded medical plan for period January 1, 2021, through December 31, 2021.
Beginning in 2012 and continuing through the present, the City has self-funded the medical plan. The main components of a self-funded medical plan are the administrative fees, access fees, stop-loss premiums, and claims. Stop-loss insurance provides protection for the City by serving as a reimbursement mechanism for catastrophic claims that exceed predetermined levels on both a plan member basis (specific) and the plan as a whole (aggregate). In the FY21 budget, the City increased the reserve for claims to $2.3M, which is sufficient to cover any potential liability over the deductible amount until the aggregate stop-loss coverage kicks in at 120% of expected claims.
Our benefits consultant, HUB International, negotiated the best and final offer from Cigna for the 2021 Stop Loss Renewal. The Specific and Aggregate Stop Loss Premium has renewed at an +11.4% or $132k increase, and there will be only one laser of $500k issued for 2021. In regard to our aggregate deductible liability, it has been reduced by -9.0% or -$1,227,880 for the 2021 renewal. Overall, considering the stop-loss premiums, lasers, and aggregate deductible adjustments, the City’s total stop-loss liability has been reduced by -9.1% or -$1,420,423 with this renewal. It is important to note that the stop-loss premium increase this year is primarily driven off of loss history as well as block of business trend increases with Cigna. The 3-year loss ratio for the City’s plan is 139%, even when including the much better results for the 2020 year (12% Loss Ratio through August).
The 2020 contract contains 2 lasers on the plan accounting for $1,000,000 in additional liability, and that will be cut in half for 2021. Additionally, HUB has negotiated with Cigna to add a ‘no new laser’ provision and a 45% rate increase cap to the policy for the 2022 renewal. This means Cigna will not be able to add any new lasers for the 2022 renewal and the maximum they could go up on premiums is 45% (that would assume a very bad year to reach 45%). These provisions are added layers of protection for our plan and are worth about 5% in additional premium, but Cigna agreed to offer it at no cost increase with their best and final offer.
Staff recommends City Council authorize the execution of all necessary documents relating to the renewal of a contract with the Cigna for the specific and aggregate stop-loss coverage for the City’s self-funded group medical plan. Fixed costs, as stated in the proposal, are projected based on employee and dependent assumptions. The actual cost will fluctuate with the number of employees on the plan at any given time.