CC SR 20211102 J - HSA 2022 plan year
CITY COUNCIL MEETING DATE: 11/02/2021
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 $2,400 for employees enrolled in the high deductible
preferred provider organization (PPO) medical plan; and
2) Direct Staff to return with a resolution memorializing this authorization which
thereby would amend the existing Rancho Palos Verdes Employee Association
Memorandum of Understanding before December 31, 2021.
FISCAL IMPACT: Increasing the City’s contribution to employees enrolled in the PPO
with HSA health plan will cost the City an additional $2,400 for the
2022 plan year. The additional funding is available through current
cost savings achieved through employee vacancies and will
therefore not require an additional appropriation.
Amount Budgeted: $907,700
Additional Appropriation: None
Account Number(s): various benefit accounts
ORIGINATED BY: Julie DeZiel, Human Resources Manager
REVIEWED BY: Karina Bañales, Deputy City Manager
APPROVED BY: Ara Mihranian, AICP, City Manager
BACKGROUND:
The City offers six medical plan options to employees: three health maintenance
organization (HMO) plan, one traditional preferred provider organization (PPO) plan, a
high deductible PPO plan with a health savings account (HSA), and an option of declining
City-provided health insurance. The City 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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In 2007, in response to a rise in medical insurance premiums, 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 costs over time. Moreover, the
City Council chose to contribute toward an employee’s HSA as an incentive to increase
participation in this medical plan, which would decrease the cost in premiums incurred by
the City over time. Currently, the City's annual contribution to an employee's HSA plan is
$3,600 for single coverage or $7,200 for employee and dependent coverage. Employees
can make additional contributions, on a pre -tax basis, to their HSA through payroll
deductions, up to Internal Revenue Service (IRS) limits, based on their age (50+) and
coverage level.
At the December 1, 2020, Council meeting, City Council approved increasing the City’s
HSA contribution to $3,600 for individuals and $7,200 for family plans for the 2021
calendar year in an effort to alleviate the out-of-pocket costs borne by employees.
If employees change their medical plan by unenrolling from the high deductible PPO with
HSA, the City would begin to see an increase in premium costs borne by the City.
Therefore, it is prudent for the City to incentivize employees to retain or join the PPO with
HSA medical plan.
DISCUSSION:
Currently, the City has 69 benefit-eligible employees. However, only 58 employees are
enrolled in one of the City’s medical plans (11 employees declined medical insurance
from the City). The table below summarizes the 2021 medical plan selections enrolled by
benefit-eligible employees.
Medical Plan No. of Participants
HIGH DEDUCTIBLE PPO + HSA 30
PPO W ITHOUT HSA 6
KAISER HMO 13
PLATINUM ACCESS HMO 5
TRIO HMO 4
DECLINED HEALTH 11
69
In an effort to retain a high-quality workforce by enhancing the high deductible PPO with
HSA plan, management requests the City Council consider increasing the City's HSA
contribution to $3,650 for individuals and $7,300 for family plans for 2022 to be current
with rate increases for 2022. This is the maximum allowed by the IRS for 2022. Increasing
the HSA contribution amount will benefit the City by continuing to incentivize employees
to remain or join this high deductible medical plan , which in return will keep premium
insurance costs low for the City.
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The high deductible PPO with HSA medical plan saves the City an average of
approximately $34,000 per year. Additionally, for every participant that switches from the
PPO with HSA to the PPO without HSA, it costs the City an average of $2,800 per year.
As a result, staff seeks City Council’s authorization to increase the City’s contribution to
the employee HSA by a total of $2,400 for employees enrolled in the high deductible
Preferred Provider Organization (PPO) medical plan with HSA effective January 1, 2022.
To memorialize the City Council’s decision, staff recommends returning to the City
Council before December 31, 2021, with a resolution amending the Rancho Palos Verdes
Employees Association MOU. This is action is pursuant to the requirements of the
Meyers-Milias-Brown Act (“MMBA,” commencing at California Government Code § 3500
et seq.)
ADDITIONAL INFORMATION
Management recently met with the Rancho Palos Verdes Employees Association
(RPVEA) and discussed this proposal for the City Council’s consideration as part of the
medical benefits for 2022. Since management’s proposal can only enhance employee
benefits, the board of the RPVEA had no objection to proceeding with this agenda item.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available for
the City Council’s consideration:
1. Do not approve of the increase.
2. Identify a different amount to contribute toward an employee’s HSA within the
parameters established by the IRS.
3. Take other action, as deemed appropriate.
3