November 9, 2004

SUBJECT:  Renewal of Dental Insurance Contracts for Calendar Year 2005

REPORT IN BRIEF

This report recommends the renewal of the existing contract between City of Sunnyvale and Delta Dental-Preferred Provider Organization (PPO) and Dental Care Dental-Health Maintenance Organization (DHMO) through the City Advantage Plan (CAP) Pool, to be effective January 1, 2005 for one calendar year.

BACKGROUND

As part of the 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, City Council and Confidential employees with dental insurance benefits through the Delta carrier under two different plans.

Employees represented by the Public Safety Officers Association (PSOA) and the Communication Officers Association (COA) do not participate in the City’s plans as they have their own alternative program through their respective Associations.

Last year, Council approved a change of broker, Driver Alliant, which provided the City with savings in several insurance plans.  Driver Alliant was asked to market and provide premium quotes for this benefit plan.  Driver Alliant has access to a pool for the same current benefit level through Delta Dental.  One of the advantages of being in a pool is that lower rates can be offered, usually through savings in the administrative function, although individual experience is always a very important factor in the setting of premiums.

The Council also approved a change in carrier from MetLife to Delta, for dental benefits. These changes afforded the City with savings estimated at $73,000 per year by seeking more favorable quotes and an expanded network for City employees. As of October 2004, approximately $55,000 has been saved.

In addition, Council also approved elimination of the contract with United Concordia effective December 31, 2004. Association representatives and all affected employees were notified of these changes during the special open enrollment process in November 2003.

EXISTING POLICY

Legislative/Management, Sub-element Policy 7.3D.1a – Maintain a competitive pay and benefits package for employees.

The current Memoranda of Understanding for SEA and SEIU and Salary Resolution for unrepresented employees and Council, also contain provisions to provide this benefit to eligible employees and Council.

DISCUSSION

Delta Dental has proposed a 9.9% rate increase on the Delta Dental (PPO) Plan.  Driver Alliant has notified us that the claims experience so far this year, warrants a 19.46% increase; however, due to the fact that a 10% renewal cap was negotiated last year, this is the maximum rate increase that can be imposed based on this agreement.  It is expected that the claims experience will stabilize over the next calendar year to hopefully yield a better renewal rate; otherwise, a new marketing effort could be initiated to replace Delta Dental (PPO).

Delta has recommended no increase for Delta Care (DHMO).  Therefore, Driver Alliant has recommended acceptance of both renewals based on its independent analysis of the City experience for 2004.

Another option that has been explored with the broker is the possibility of a self-insured plan.  However, given the current short span of experience and current cost, is not advisable at this time.  The broker’s analysis shows that the City would be exposed to more liability than at the current fully insured rate in the current pool.    

FISCAL IMPACT

The total fiscal impact for these expenditures is provided in the Employee Benefits Fund and the cost of the current renewals has been provided for in the Fiscal Year 2004/2005 and 2005/2006 Budgets in Program 784. 

Details regarding the proposed rates are provided on the next page:

CONCLUSION

Although it seems that this is a sharp increase of rates for this calendar year the City’s claims experience since January 2004 in the PPO seems to justify it.  The plans will continue to be monitored and appropriate alternatives, such as seeking proposals from other carriers will be pursued, if the costs continue to climb.             

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

1.      Authorize renewal of the existing Dental Plans for one year with the proposed rates and closely monitor experience trends for next year.

2.      Do not authorize renewal of the contract and direct the broker to seek other quotes. 

RECOMMENDATION

Staff recommends adoption of Alternative #1: Authorize renewal of the existing Dental Plans for one year with the proposed rates and closely monitor experience trends for next year.

The reasons for this recommendation follow:

1. It is expected that experience for Delta Dental (PPO) will stabilize over the next year to establish a more beneficial rate for the following year or an opportunity to explore self-insurance options, if appropriate.
2. The DHMO, under the same carrier is experiencing no increases.
3. A very recent change just occurred ten months ago, it is very doubtful that other carriers would offer a lower premium at this time.
4. Changes in carriers are disruptive and create problems for employees and their dependents, especially if they are in long-term treatments.
5. Finally, additional staff time is required to have a special open enrollment process, thus increasing the cost of the dental plan.

Reviewed by:

Mark Gregersen, Director, Human Resources

Prepared by: Myriam Castaneda, Human Resources Supervisor

Approved by:

Amy Chan

City Manager