RTC#02-490

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RTC#02-490 December 10, 2002

SUBJECT: Renewal of Dental Insurance Contracts
for Calendar Year 2003

REPORT IN BRIEF
This report recommends the renewal of two existing separate contracts between the City of Sunnyvale and Metropolitan Life Insurance Company (MetLife), and between the City of Sunnyvale and United Concordia Dental Plans of California, Inc. (United Concordia). Both of these contractors currently provide dental insurance for City employees and expire as of December 31 2002. The recommendation provides the renewals to be effective January 1, 2003.

BACKGROUND
As part of its employee benefit package, the City of Sunnyvale provides employees represented by the Sunnyvale Employees Association (SEA), Regular Part-time employees, represented by the Service Employees International Union, Local 715 (SEIU), Management employees, Confidential employees, and Council members with a dental insurance benefit. Employees represented by the Public Safety Officers Association (PSOA) and the Communication Officers Association (COA) do not participate in the City’s plan as they have their own alternative program provided through their respective Associations.

The first existing contract for dental insurance is provided by MetLife and has been since the City’s self-funded insurance plan was replaced in 1996. The City also provides an alternative choice for employees with a pre-paid dental program provided by United Concordia Dental Plans of California, Inc.

DISCUSSION
Marsh Risk and Insurance Services (Marsh) is the City’s insurance broker and is charged with negotiating benefit contracts, including dental insurance, on behalf of the City of Sunnyvale. Marsh conducted a comprehensive marketing analysis less than two years ago in order to determine whether the current contracts are competitive, and to review potential alternatives to the City’s existing providers. In addition to proposals received from the current providers, MetLife and United Concord, Marsh also received proposals from CIGNA, Blue Cross, and United Concord. The only plans that bid would represent either a significant reduction in the benefits provided or higher co-payments for many procedures, or out of network benefits that would significantly increase cost, this has been due to the experience that the City has had and the composition of the demographics as evaluated during the marketing.

Marsh has for this year secured and recommended a two (2) year agreement with MetLife which includes a 2.9% increase in actual premiums effective January 1, 2003, initially an increase of 6.3% was expected, with a second year cap of no more than 10.0%. Marsh is also recommending a one (1) year agreement with United Concordia for its pre-paid program which includes an increase of 8.7% in premiums. This is the first increase for United Concordia since January 2000. Staff agrees with the recommendations for the extension on one year agreement on the MetLife contract and a renewal of a second year with a 10% cap. However, if the rate increases to more than 10%, staff will be returning to Council for authorization of the second year.

An increase of more than 10% may be possible in the second year due to the fact that MetLife had established in 2000 a Premium Stabilization Reserve to be used to offset the increase of the rates for all employees. This occurred due to a demutualization process when MetLife converted from a mutual insurance company to a stock insurance company. The reserve originally had $78,000. Currently the reserve has approximately $15,000 and soon will be exhausted. It is expected it may last throughout the end of this calendar year. At such time the reserve is exhausted affected employees will be notified of the increase.

FISCAL IMPACT
Funding for this expenditure is provided in the Benefits Fund, and the cost of the contract renewals has been provided for in the Fiscal Year 2002/2003 Base Budget.

MetLife	Current Employees covered	1998/99 Premium	1999/00 Premium	2000/01 Premium	2001/02 Premium	2003 Premium Projected**	2004 Premium Projected**
	543 *	$398,389	$460,464	$494, 978	$516, 020	$530,985	$530,985 with a maximum of 10% or $584,084

** MetLife to renew with a 2.9% premium effective January 1, 2003 and a second year cap of no more than 10%.

United Concordia	Current Employees covered	1998/99 Premium	1999/00 Premium	2000/01 Premium	2001/02 Premium	2002/03 Premium Projected	2003/04 Premium Projected
	45 *	$23,839	$24,855	$25,000	$21,325.80	$23,181	N/A

*Includes all from single coverage to family coverage

PUBLIC CONTACT
Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, and the availability of the report in the Library and the City Clerk’s Office.

ALTERNATIVES

Renew the contract with United Concordia for one year and renew the contract with MetLife for two years with the specified provisions.

Renew either of the contracts or do not renew either contract, and continue to seek other alternatives.

RECOMMENDATION
Staff recommends renewing the contract with United Concordia for one year and renew the contract with MetLife for two years with the specified provisions.

Prepared by:
Myriam Castaneda
Human Resources Supervisor

Reviewed by:
Mark Gregersen
Director, Human Resources

Approved by:
Robert S. LaSala
City Manager

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