November 25, 2003

SUBJECT: Change of Providers for Dental, Life/AD&D, and Long-Term Disability Insurance 

REPORT IN BRIEF

This report recommends changes to the providers of the City’s Life/AD&D, long-term disability, and dental insurance programs.  The proposed changes will provide significant cost savings for the City.

Metlife, the current Life/AD&D insurance carrier will be replaced by Unimerica.  Unimerica will also replace AIG as the City’s long-term disability insurance carrier.  Delta Dental will replace MetLife for dental PPO coverage, and will provide an expanded provider network, and reduced premiums.   The pre-paid dental plan, United Concordia, will be renewed for one additional year, with a modest increase in premiums.

For all programs, current coverage and benefit levels will remain the same.

BACKGROUND

Last summer, Council directed staff to research alternatives to existing insurance carriers to determine if cost savings could be found.  Mayor Miller mentioned a broker who was able to reduce insurance costs for the Bay Area Air Quality Management Board.  The broker, Driver-Alliant Public Entity Insurance Group, was asked to research the market for coverage identical to the coverage currently provided.  Driver Alliant was able to find carriers that offered rates that are more favorable and less costly to the City.

Eight carriers were asked to provide quotes on Life/AD&D and long-term disability insurance.  Unimerica, an A+ rated company, provided the most favorable quotes.

For dental insurance, six carriers were approached, with Delta Dental having the most favorable quotes while maintaining the current coverage and benefit levels.  An added benefit of the Delta program is that 90% of Santa Clara County dentists belong to the Delta PPO, while only 33% belong to the MetLife PPO.  Due to its popularity, as well as its complexity, the United Concordia pre-paid plan will continue to be offered, but will be a phased-out over the next calendar year.   Outreach efforts will be made during the year so that the differences, as well as the plan improvements, between United Concordia and the Delta pre-paid plan can communicated to employees.

EXISTING POLICY

Legislative/Management sub element Policy 7.3D.1a – Maintain a competitive pay and benefit package for employees.

DISCUSSION

The City provides, at no cost to the employee, basic Life/AD&D coverage at one times the employee’s annual base salary for employees represented by the Sunnyvale Employee Association (SEA), the Public Safety Officers Association (PSOA), and the Communications Officers Association (COA), and for Confidential employees.  Basic Life/AD&D coverage for Management is $50,000.  Supplemental life insurance is offered on an optional basis, and provides up to two times an employee’s annual base salary, not to exceed $175,000.  Management employees pay the full cost of the supplemental coverage; however, due to the benefit structure for non-management employees, the City may pay the full cost of supplemental coverage, or it may be shared with the employee.

The City pays the full premium for long-term disability insurance for full-time employees, including the premiums for the long-term disability insurance provided through PSOA for its members.

For dental insurance, with the reduced premiums and depending upon the number of dependents covered by each employee, substantial savings may be realized either by the City or by the employee.

Representatives from the bargaining units affected by the changes were notified of the proposed changes and have met with staff to discuss the proposals, and are in agreement with the changes.

FISCAL IMPACT

Funding for these expenditures is provided in the Employee Benefits Fund.

It is estimated that the savings resulting from the change in carriers for Life/AD&D, long-term disability, and dental insurance will be approximately $157,000 for Calendar Year 2004.  The savings will be adjusted slightly due to the costs associated with the open enrollment needed to process both carrier and/or coverage changes.  It is estimated that approximately $4,218 will be required to administer and process open enrollment changes (80 hours technical and 20 hours clerical assistance). 

Details regarding the savings in each area are provided below:

Coverage Type	Current Coverage Carrier        Premium		Proposed Coverage Carrier       Premium         Term			Annual Savings**
Dental PPO	MetLife renewal quoteÞ	$616,788 $600,751	Delta	$554,239	Jan 2004 Dec 2004	$62,549
Dental HMO***	United Concordia renewal quoteÞ	$31,058 $32,996	Delta HMO***	$21,818	Jan 2004 Dec 2004	$11,178
Long-Term Disability *	MetLife	$255,304	Unimerica	$230,192	Jan 2004 Dec 2004	$25,112
Life Insurance (Basic)	AIG	$178,332	Unimerica	$133,749	Jan 2004 Dec 2006	$44,573
Life Insurance (Supplemental)	AIG	$163,777	Unimerica	$150,129	Jan 2004 Dec 2006	$13,648
*PSOA LTD coverage is not affected.
**Life and LTD rates are guaranteed for three years for total estimated savings of approximately $250,000.  Annual dental savings are listed, but a significant level of savings will be realized each year, similar to the first year, as a 10% cap on rates has been guaranteed.  ***The City will offer two pre-paid dental plans, United Concordia and Delta, for a period of one year.  United Concordia will not accept new enrollments, and will be phased out effective December 31, 2004.

PUBLIC CONTACT

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

ALTERNATIVES

1. Change providers for Life/AD&D, long-term disability, and dental insurance, at a significant cost savings to the City, and renew the contract with United Concordia.

2. Remain with current providers for Life/AD&D and long-term disability, and change carriers for dental insurance, with savings at a rate lower than provided by Alternative 1.

3. Change providers for Life/AD&D and long-term disability insurance, and remain with current providers for dental insurance, with savings at a rate lower than provided by Alternative 1.

4. Remain with current carriers for Life/AD&D and long-term disability insurance, and renew dental coverage with MetLife and United Concordia with minimal cost savings.

RECOMMENDATION

Staff recommends Alternative #1, change providers for Life/AD&D, long-term disability, and dental insurance, at a significant cost savings to the City, and renew the contract with United Concordia. 

Prepared by:

Barbara J. Coats
Risk and Insurance Manager

Prepared by:

Myriam Castaneda
Human Resources Supervisor

Reviewed by:

Mark Gregersen
Director, Human Resources

Approved by:

Robert S. LaSala
City Manager