CC SR 20201201 J - HSA Discussion
CITY COUNCIL MEETING DATE: 12/01/2020
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to increase the City’s contribution towards the
employee Health Savings Account.
RECOMMENDED COUNCIL ACTION:
1) Authorize Staff to increase the City’s contribution to the employee Health Savings
Accounts (HSA) by a total of $27,600 for employees enrolled in the high
deductible Preferred Provider Organization (PPO) medical plan.
FISCAL IMPACT: Increasing the City’s contribution to employees enrolled in the PPO
with HSA health plan will cost the City an additional $27,600. The
additional funding is available through current cost savings
achieved through employee vacancies and will therefore not require
additional appropriation.
Amount Budgeted: $169,300
Additional Appropriation: None
Account Number(s): various benefit accounts
ORIGINATED BY: Karina Bañales, Deputy City Manager
REVIEWED BY: Same as Above
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
None
BACKGROUND:
The City has six (6) medical plan options available to employees (three HMO's, one
traditional PPO, a high deductible PPO with HSA, and a declined City-health insurance).
The City currently pays the entire premium for the employee and 50% of the dependent
care premium. Employees who show proof of insurance elsewhere and do not enroll in
the City's medical plan may receive up to 50% of the premium cost of the least
expensive medical plan on a monthly basis.
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As medical insurance premiums continued to rise, in 2007, the City Council introduced a
high deductible PPO medical plan with an HSA that is partly funded by the City. The
concept behind the HSA is to reduce the City’s health care cost over time. Moreover,
the City Council chose to contribute towards an employee’s HSA as an incentive to
increase participation in this medical plan which would decrease the cost in premium s
incurred by the City over time. Currently, the City's annual contribution to an employee's
HSA plan is $3,000 for single coverage or $6,000 for employee and dependent
coverage. Employees can make additional contributions, on a pre-tax basis, to their
HSA through payroll deductions, up to the IRS limits, based on their age (50+) and
coverage level.
On November 2, 2020, the City began their open enrollment for health insurance
elections for eligible City employees. Initially, the enrollment period was scheduled to
conclude on November 16, 2020. However, during the four-week open enrollment
period, benefit-eligible employees expressed concerns regarding the medical insurance
renewal for the upcoming 2021 year and the increased out -of-pocket expense.
Specifically, employees impacted the most with the increased out-pocket-cost where
those participating in the high deductible PPO with HSA plan.
As a result, it came to management’s attention that some employees were considering
changing their medical plan to a less expensive one, such as the PPO without the HSA,
which includes their current medical providers. If this occurred, the City would begin to
see an increase in premium costs borne by the City. In response, management
explored lessening the out-of-pocket costs to employees by increasing the City’s
contribution to an employee’s HSA, as discussed below.
DISCUSSION:
Currently, the City has 71 benefit-eligible employees. However, only 54 employees are
enrolled in one of the City’s medical plans (17 employees decline medical insurance
from the City). The table below describes the 2020 medical plan selections enrolled by
benefit-eligible employees.
Medical Plan No. of
Participants
Average
Cost
Employee
Only
Average Cost
Employee + 1
Average Cost
Employee +
Family
HIGH DEDUCTIBLE PPO + HSA 30 12,83
8
20,661 21,994
PPO W ITH NO HSA 3 15,10
4
21,250 -
KAISER HMO 11 8,59
9
12,625 15,005
PLATINUM ACCESS HMO 7 9,17
6
13,476 15,990
TRIO HMO 3 7,72
9
11,353 -
DECLINED HEALTH 17 322
71 53,76
8
79,365 52,989
As indicated in the table above, 30 employees are enrolled in the high deductible PPO
with an HSA plan. The 2021 deductible and out-of-pocket employee cost for the PPO
w/HSA are summarized on the next page:
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In-Network Out-of-Network
Deductible (Individual/Family) $2,100/$4,200 $4,200/$8,400
Out of pocket expense (Individual/Family) $6,900/$8,900 $13,800/$27,600
As illustrated above, for 2021, the out-of-pocket cost for individuals could be $3,900,
and for families in network could be $2,900 when you consider the City’s HSA
contribution of $3,000 for individuals and $6,000 for families. For comparative
purposes, the following are the limits for the same health benefit for 2020:
In-Network Out-of-Network
Deductible (Individual/Family) $2,000/$4,000 $4,000/$8,000
Out of pocket expense (Individual/Family) $6,500/$7,500 $12,550/$25,100
In an effort to alleviate the out-of-pocket costs borne by employees, management is
requesting City Council to consider increasing the City's HSA contribution to $3,600 for
individuals and $7,200 for family plans for 2021. This is the maximum allowed per
Internal Revenue Service (IRS) for 2021. Increasing the HSA contribution amount will
benefit the City by continuing to incentivize employees to remain or join, as new
enrollees, in this high deductible medical plan which in return will keep premium
insurance costs low for the City. It is important to note, the City’s premiums for 2021 did
not increase; only the out-of-pocket costs borne by employees increased. Moreover, the
City has not increased the City’s contribution to the employees HSA since 2009.
The high deductible PPO with HSA medical plan saves the City an average of
approximately $34,000/year. Additionally, for every participant that switches from the
PPO with HSA to the PPO without HSA, it would cost the City an average of
$2,800/year per participant.
The table below illustrates the additional cost to the City of $27,600 should the City
increase its HSA contribution to $3,600 for individual and $7,200 for the family plan
between 2020 and 2021.
2020 - CURRENT 2021 - PROPOSED
INDIVIDUAL FAMILY INDIVIDUAL FAMILY
CITY'S H.S.A. CONTRIBU TION 3,000 6,000 3,600 7,200
Participating Employees 14 16 14 16
SUB-TOTAL 42,000 96,000 50,400 115,200
TOTAL 138,000 165,600
ADDITIONAL COSTS 27,600
PERCENT OF INCREASE 20%
Management recently met and discussed with the Rancho Palos Verdes Employee
Association (RPVEA) of this proposal for the City Council’s consideration as part of the
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medical benefits for 2021. Since management’s proposal can only enhance employee
benefits, the board of the RPVEA had no objection to proceeding with this agenda item
at this time. Thus, Staff recommends the City Council consider increasing the City’s
contribution to employees’ HSA at a total cost of $27,600 for 2021. If approved, this
contribution will take effect on January 1, 2021.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available
for the City Council’s consideration:
1. Identify a different amount to contribute towards an employee’s HSA within the
parameters established by the IRS.
2. Take other action as deemed appropriate.
3. Take no action.
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