04-05-11 Public Safety and Human Resources CommitteeCITY OF EDMONDS
PUBLIC SAFETY/HUMAN RESOURCES COMMITTEE
MINUTES
APRIL 5, 2011
Committee Members Present: Council Member D.J. Wilson
Council Member Diane Buckshnis
Others Present: Council Member Adrienne Fraley Monillas, Police Chief Al Compaan, Assistant
Police Chief Jim Lawless, Assistant Police Chief Gerry Gannon, HR Director Debi
Humann, Recreation Services Manager Renee McRae, Environmental Education
Coordinator Sally Lider, Cultural Services Manager Frances Chapin, Recreation
Coordinator Tammy Rankins, Engineering Technician 2 JoAnne Zualuf, Executive
Assistant Cindi Cruz, Cultural Services Assistant Kris Gillespie, Office
Supervisor/SEIU Shop Steward Sue Johnson, Engineering Technician 3 Ed Sibrel,
Parks & Recreation Director Carrie Hite, Fire Marshal John Westfall, City Attorney
Jeff Taraday, City Clerk Sandy Chase, City Engineer Rob English, Public Works
Director Phil Williams, Building Official Leonard Yarberry
Public Present: Jack Loos, Volunteer Health Benefits Committee Consultant
Roger Hertrich
The meeting was called to order at 5:30 pm.
MINUTES
Council Member D.J. Wilson started the meeting by having all attendees introduce themselves. After introductions
were made, Council Member Wilson explained that he served as a delegate on the labor council for the Edmonds
Community College union and was present at the bargaining table [during those contract negotiations]. Council
Member Wilson further stated that from his experience with negotiations, he would prefer to have had more flexibility
[with regard to subjects of bargaining] and he expressed concerns about AWC being a "good" partner for the City.
When it comes to benefits, it is his goal to provide the same services and benefits [as AWC] at the same cost or at a
lower cost. Council Member Wilson stated that it is also his goal [and possibly that of Council Member Diane
Buckshnis] to "do more with less."
Council Member Wilson explained that at the last HR Committee meeting a discussion was held regarding the best
health care insurance options for the City. At that meeting, Volunteer Consultant Jack Loos spoke to the subject
(see minutes of that meeting) and the recommendation of the HR Benefits Committee was reviewed.
Council Member Wilson stated that he came up with a self -funded insurance model [to share] and that the goal of
tonight's meeting was to review the self -funded model and to have a conversation amongst the committee
members, Volunteer Consultant Loos and HR Director Humann (prior to having a further conversation with the rest
of council) to determine the problems associated with a self -funded plan, to understand how it really works, and to
clear up any misconceptions about self -funded plans.
Council Member Wilson provided a memo to the committee members, Volunteer Consultant Loos and HR Director
Humann. Council Member Wilson stated that it was his intention to provide the memo and template of the self -
funded insurance model to council. Council Member Wilson explained that it was his understanding that the City's
Health Benefits Committee, with the assistance of Volunteer Consultant Loos and the Consultant/Broker Wells
Fargo, went to market to see what healthcare insurance options were available. The goal of the Health Benefits
Committee was to find reasonable plans but not to increase the city's current healthcare insurance costs.
Council Member Wilson pointed out that [in his opinion] Wells Fargo only solicited information from the big insurance
companies such as Regence and Premera which do not primarily handle self -funded plans. Council Member Wilson
further stated that he believes there is no way that the City can get a good self -funded insurance model without
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talking to self -funding experts, which would involve a third party administrative committee (with some additional
involved costs). Council Member Wilson pointed out that under the current fully -funded structure (AWC plan), there
will always be a 10-13% increase in costs each year and the City will not be able to change the benefit options
under the current plan. Council Member Wilson also summarized that the Health Benefits Committee suggested
staying with AWC for 2011 and possibly 2012 and opting to go with the HealthFirst plan, which would save the City
some money.
Council Member Wilson explained that, as he understood it, the majority of costs for health insurance premiums for
each dollar paid (60-65%) are spent on patient care costs while the remaining 30-35% of each dollar is spent on
administrative costs, profit, taxes and reserves, etc. The basic "premise "of self -funded insurance is to cut out the
administrative costs and possibly keep the additional savings [if there are any] with the City. If there is a surplus (or
"extra" money) additional programs for benefits may be offered with the savings such as smoking cessation, etc.
Council Member Wilson stated that the next premise of self -funding is to diversify risk by having a larger risk pool to
dilute the risk. Premiums are based on risk and we may be in a higher risk class. Council Member Wilson explained
that another key element in moving to a self -funded plan is to examine employee utilization costs (history of what
types of services are used by employees such as in vitro fertilization) for the last three years.
Council Member Wilson also pointed out that in order for self -funding to work, there has to be enough in "reserves"
[money held by the City to pay out on healthcare claims]. Under the current structure, the City spends $2.7M in
premium costs that will continue to escalate with the CPI (cost of living increases). Council Member Wilson
emphasized that his concern is not with the necessary expense involved in paying for patient care services but with
the 30-35% that could be saved with a self -funded plan model. Council Member Wilson explained that in his self -
funded model, the estimate is that 75% of costs would be spent on patient care services. If a third party
administrator (TPA) was retained to handle the self -funded insurance plan, it would cost approximately $100,000 a
year and this could possibly be done without the City having to obtain a loan for reserves.
Council Member Wilson further explained that stop -loss coverage would be purchased to create a maximum out-of-
pocket cost for the City for each claim cost and that he thought that when the City was previously self -funded, the
City did not have stop -loss coverage. HR Director Humann pointed out that the City did have stop -loss coverage
when it was self -insured previously. Council Member Wilson stated that he found a carrier for stop loss coverage
with a $40,000 stop loss coverage plan at an annual cost of $280,000.
Council Member Wilson explained that if no changes are made with regard to health insurance plans, the City will
have a $2.7M cost anyway. Using the self -funded model in comparison (with 75% of costs for patient care) and
adding back in the cost of paying for claims through a TPA as well as stop loss coverage, the total cost would be
approximately $2.4M, with an estimated savings to the City of $275,000. Council Member Wilson further discussed
his good working relationships with various insurance brokers that he feels are credible, etc. as well as not putting
himself in a situation that would cause a conflict of interest [with his self-insurance background].
Council Member Wilson further explained that one of the issues is that the TPA (without a claims history) would
likely place the City into the highest risk pool possible (1.5 -2 times what our cost is now) but that we may, over time,
get the money that is not paid out on claims back (provided that we did not incur a number of catastrophic
healthcare claims that would reach the stop loss limit) by having the unspent funds placed in a trust fund. Council
Member Wilson further discussed how accruing the unspent funds (after 6 years) may create a considerable savings
to the City. Council Member Wilson estimated that by years three and four (with a claims history), the self -funded
model could be adjusted actuarially to reflect the lower healthcare insurance cost and savings to the City.
In summary, Council Member Wilson stated that the only feasible way the City could continue on the fully -funded
Regence Plan under the AWC model is to spend more money or to cut benefit levels and City premium costs by
switching to Healthfirst.
Volunteer Consultant Loos stated that he does not claim to be an expert in self -funded insurance but it is clear that
insurance companies are "out to make money." In Volunteer Consultant Loos opinion, overhead costs are "dramatic"
and tend to comprise at least 50% of the total costs for healthcare premiums. Additionally, self -funded reserves
must be established and it needs to be determined as to what amount that should be. In a consortium pool like
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AWC, the City is currently placed in a risk pool with all of the other cities that may skew the risk pool (creating higher
costs for the City). Volunteer Consultant Loos stated that one of the unknown pieces of information is whether or not
we are benefitting from the current risk pool or not (since it is likely that half of the cities are paying higher than the
average cost for premiums and the other half is likely paying lower than the average cost for premiums based on the
combined risk pool). Council Member Wilson opined that this is why it will be important to see our claims history
(utilization review).
Volunteer Consultant Loos stated that some of the concerns with self -funded insurance are: 1) the unknown impacts
of future Federal healthcare legislation; 2) annual and lifetime maximum healthcare insurance limits no longer being
in place; 3) dependent children being eligible for coverage now through age 26; 4) the Mental Health Parity Act —
requiring mental healthcare coverage level to be the same as for other conditions; 5) healthcare purchasing
cooperative options in 2015; 6) budget constraints; 7) an unstable population or workforce due to economic
conditions including the possibility of layoffs.
Council Member Wilson pointed out that under our current health insurance plan, every additional benefit must be
paid for. Under the self -funded model, it may be possible for all kinds of additional benefits to be available that may
not be utilized very often.
Council Member Diane Buckshnis inquired as to whether the increase in medical costs (as Council Member Wilson
notes in his self -funded model) will always be at 13% per year. Council Member Wilson explained that the rate of
medical inflation in the last twenty years (with the exception of the 1990's) has caused the average to be around
13%. Volunteer Consultant Loos explained that it was important to distinguish between the CPI and the increase in
medical costs; the increase in healthcare premiums each year is not based on the CPI. HR Director Humann
pointed out that the average increase in healthcare premiums has been about 10% for the last few years.
Council Member Buckshnis inquired as to whether self -funding would require that the City had $4.6M in reserves to
start. There was some discussion that followed between Council Member Wilson and Council Member Buckshnis
about the $3M that is currently being paid out in healthcare insurance premiums and the usage of the $1.3M
associated with transitioning the fire department to Fire District 1.
Council Member Buckshnis inquired as to how the stop loss policy works and Council Member Wilson explained that
stop loss coverage limits the City's liability for the amount paid out on a claim within a specific period of time not to
exceed a set cost ceiling per claim. Volunteer Consultant Loos further clarified that, when speaking about aggregate
stop loss, the stop loss insurance carrier determines what they think the insured's total claims costs will be then they
add an additional 25% to the total cost to the insured. Council Member Wilson stated that currently, if there is a
benefit that is not covered under AWC Regence Plan A, the individual users of the plan have to pay for that benefit
out of pocket. With a Benefits Committee under self -funding, the City has the ability to choose additional benefits to
add to the plan. Council Member Buckshnis inquired as to who the members of the committee would be. Volunteer
Consultant Loos clarified that the Benefits Committee members would have the authority to make benefits decisions
(not reporting to council) with confidentiality.
There was a question from one of the attendees about self -funded insurance possibly having greater costs to the
City than what is projected in the self -funded model. Council Member Wilson stated that a more realistic threat to
increased costs to self -funding is finding out that our risk pool is higher than the population at large (or average).
Council Member Wilson stated that he believes two important self -funding questions to consider are: 1) Does the
City want to take the cash flow "hit" now to start; and 2) do we think we have an employee population which wants to
be actively engaged in their healthcare insurance plan.
Recreation Manager Renee McRae stated that, having participated in self-insurance before at the City, she would
have some concerns with the unknown risk pool under a self -funded plan. Ms. McRae also stated that she heard
the HealthFirst plan has significantly reduced benefits from our current Plan A. HR Director Humann explained that
while there are $10 co -pays under the Healthfirst plan, and the hospital coverage level is 90% as opposed to 100%
under Regence Plan A with a maximum out of pocket of $1000 for hospital stays, on the offset, routine and
preventative care are covered under Healthfirst at 100%. These services are currently not covered under the
current Regence Plan A (including well -adult and child visits, etc.) which results in significant out of pocket for most
users.
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HR Director Humann stated that every employer does need to look at healthcare insurance costs. The City was
self -funded several years ago and HR Director Humann stated that she served on the Appeal/Benefits Committee.
This committee was very difficult to operate because it is made up of employees and the culture is such that a
benefit could be asked for, but if it was denied, it made it very hard to continue on with the model due to "guilt"
factors (of disallowing employee benefits) even though it was not fiscally responsible and based on good cause. HR
Director Humann stated this experience was a learning one and that better planning would have helped the
committee. One example is when the group decided to add benefits such as well -baby examinations, $250 toward
physicals (for every covered employee and dependent), in addition to adding orthotics without any actuarial
research. The cost of these additional services greatly impacted and "bankrupted" the plan. HR Director Humann
said that the principle of self -funding is an excellent way to select benefits and contain costs of a healthcare
insurance plan.
HR Director Humann said her main concern about self -funding, however, is in the timing. With Federal legislation
coming down the pipeline as well as having a smaller employee population size (and potential layoffs without the
levy passing nor having the additional employees from the former fire department) along with the minimal size of the
HR staff, self -funding may not be feasible. Even with a TPA with the prior self -funded plan at the City, the HR staff
spent a lot of time on appeals, claims issues and working with Finance, etc. Council Member Wilson inquired as to
whether or not Finance paid for all claims under the self -funded plan. HR Director Humann stated that she didn't
handle that part, but believed they approved the claims.
HR Director Humann asked if the City moves $1 M to front the self -funded plan, will it bring the City closer to having
to do layoffs since the money to do so is not a readily liquid asset. HR Director Humann stated that she is very
concerned because while she believes that the long-term impact of self -funded insurance is very beneficial, in the
current economic condition, how is it possible to fund this. The timing, the cost, the employee base and lack of HR
staffing are all factors [in her opinion].
Council Member Wilson stated that the issues that HR Director Humann brought up are all reasons to bring forth a
levy and that these very issues could help support one. Additionally, it is clear that more HR staff is needed and
going through the budget process could assist with this.
HR Director Humann asked (if a self -funded model is the health insurance proposal) would it not be expected that a
proposal would have to go out to the market in order to come up with a self -funded plan to propose to the Council
and the unions. She further stated that if we know what the plan model is (HealthFirst with 100% hospital
coverage), and with HR putting together a census, shouldn't the next step be to take that information to the market
and seek hard numbers for consideration. Council Member Wilson stated that in theory, the union could be
provided with the Healthfirst plan benefit level [under a self -funded plan] and not have to pay AWC the 30%
overhead. There was some discussion that followed about the Appeals/Benefits Committee process. Council
Member Wilson stated that he is not in favor of an internal Appeals/Benefits Committee.
There was some discussion that followed about the idea/need of bringing a self -funded proposal forward to
council/unions. Council Member Wilson expressed to the attendees that the $1.3M from the transition of the fire
department to Fire District 1 has been "earmarked" for the council's interest in self -funded health insurance.
Recreation Services Manager McRae pointed out that a decision has not been made by council at this point to
commit to self -funded health insurance.
HR Director Humann asked for clarification as to benefits usage under a self -funded model- are the benefits paid for
only when accessed. Council Member Buckshnis stated that [in her opinion] it would be important to have experts
on the Benefits Committee. HR Director Humann responded that one of the values of the self -funded plan is to have
employee input on the process. By having an external Benefit Committee without employee participation, it may take
away from this and it would appear, in fact, that we (as a city) could not make the plan choices for our program but
that they would be decided by the external Benefit Committee. Council Member Wilson stated that the appeals
process only pertains to certain claims and that if needed, the committee can examine line items for each service.
Assistant Police Chief Gannon asked if retiree health insurance coverage was available to retirees if the City
switches to a self -funded plan. HR Director Humann stated that COBRA would be offered, but that it is not a legal
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requirement to provide subsidized retiree healthcare plan options (although it is unlikely that the City would not
consider this).
Engineering Technician Ed Sibrel pointed out that there are considerable software and security requirements
(regarding HIPAA regulations) that would be required that would require additional costs with the self -funded plan
that need to be kept in mind.
In closing, Council Member Wilson stated that the committee would resume discussion about the healthcare
insurance plan (self -funded) on the second Tuesday in May @ 5:30 pm. Council Member Wilson strongly
encouraged the union attendees to take the memo he provided on self -funded insurance to share with their union
members.
The following action was taken regarding the remaining items scheduled on the agenda:
1. Authorization to surplus and sell Police Department equipment.
Action: Forward to City Council consent agenda with recommendation to approve.
2. Adopt by reference RCW 9A.56.063, making or possessing motor vehicle theft tools.
Councilmember Wilson asked that this item be placed on the committee agenda for April 12t", however
Councilmember Buckshnis said she felt it could be placed on the consent agenda as it was a matter of adopting an
existing RCW. Assistant Chief of Police Gannon gave a brief explanation of the agenda item. Councilmember
Wilson agreed that the item could be placed on the consent agenda for the next regular City Council meeting.
Action: Forward to City Council consent agenda with recommendation to approve.
3. Close out Subcontract 87898, Puget Sound Small Vessel PRND (Preventive Radiological/Nuclear
Detection), DNDO
Action: Forward to City Council consent agenda with recommendation to approve.
4. Discussion regarding self -funded medical insurance
This item was discussed earlier in the meeting and will also be scheduled on the May 10 Committee Agenda.
5. Discussion of compensation consultant
This item was forwarded to the April 12 Committee Agenda.
6. Discussion of new council staff position related to budget/financials/insurance.
This item was forwarded to the April 12 Committee Agenda.
7. Operations policy for Shell Valley emergency access road.
Action: Forward to City Council consent agenda with recommendation to approve.
The meeting adjourned at approximately 6:50 p.m.
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