CC SR 20221101 L - HSA 2023 plan year
CITY COUNCIL MEETING DATE: 11/01/2022
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to increase the City’s contribution toward the employee
health savings account.
RECOMMENDED COUNCIL ACTION:
1) Authorize Staff to increase the City’s contribution to the employee health savings
accounts (HSA) to $3,850 for individuals and $7,750 for family plans for the 2023
High Deductible PPO+HSA medical plan; and
2) Direct Staff to return with a resolution memorializing this authorization which
thereby would be included in the 2022-2025 Rancho Palos Verdes Employee
Association Memorandum of Understanding.
FISCAL IMPACT: Increasing the City’s contribution to employees enrolled in the PPO
with HSA health plan will cost the City an additional $29,900 for the
2023 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: $182,800
Additional Appropriation: None
Account Number(s): 101-400-XXXX-4206 (General Fund – various HSA contribution accounts)
ORIGINATED BY: Karina Bañales, Deputy City Manager
REVIEWED BY: Same as above
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. June 21, 2022 City Council Staff Report
B. Resolution No. 2022-42 – RPV AND RPVEA Tentative Agreement
BACKGROUND:
The City offers six medical plan options to employees: three health maintenance
organization (HMO) plans, 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
1
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.
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
$3,650 for single coverage or $7,300 for employee and dependent coverage. The amount
increased in 2021 and 2022. On a pre-tax basis, employees can make additional
contributions to their HSA through payroll deductions, up to Internal Revenue Service
(IRS) limits, based on their age (50+) and coverage level.
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:
This evening, Staff seeks City Council approval to increase the HSA contribution amount
to $3,850 for individuals and $7,750 for family plans for the 2023 High Deductible
PPO+HSA medical plan.
Currently, the City has 67 benefit-eligible employees. However, only 55 employees are
enrolled in one of the City’s medical plans (12 employees declined medical insurance
from the City). The table below summarizes the 2022 medical plan selections enrolled by
benefit-eligible employees. As of October 25, 2022, the City has 13 vacancies.
Medical Plan No. of Participants
HIGH DEDUCTIBLE PPO + HSA 33
PPO W ITHOUT HSA 1
KAISER HMO 13
PLATINUM ACCESS HMO 6
TRIO HMO 2
DECLINED HEALTH 12
67
In April 2022, the Internal Revenue Service (IRS) announced that 2023 HSA contribution
limits will rise to $3,850 for individual single coverage and to $7,750 for family coverage,
which are increases of $200 and $450, respectively, from 2022. 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
$3,850 for individuals and $7,750 for family plans for 2023 to be current with rate
increases for 2023.
2
Additionally, increasing the HSA contribution will incentivize employees to stay with the
high deductible plan. For every participant that switches from the high deductible PPO
with HSA to the PPO without HSA, it costs the City an average of $6,200 per year for
those enrolled in employee-only plans, $7,900 for those in enrolled in employee-plus-one
plans, and $10,000 for those enrolled in family plans.
As a result, Staff seeks City Council approval to increase the HSA contribution amount to
$3,850 for individuals and $7,750 for family plans for the 2023 High Deductible PPO+HSA
medical plan effective January 1, 2023.
ADDITIONAL INFORMATION:
On June 21, 2022, the City Council adopted Resolution No. 2022-42 (Attachments A and
B), approving and adopting the Tentative Agreement for a Successor Memorandum of
Understanding (MOU) between the City and the Rancho Palos Verdes Employees
Association (RPVEA) for the period between July 1, 2022 through June 30, 2025. This
action essentially extended the terms of the existing MOU with the agreed upon
amendments until the successor MOU is presented and approved (which is estimated to
occur before the end of 2022). Thus, an amendment will not be required if the City Council
agrees to raise the contributions, as recommended, because language currently exists in
the MOU.
Staff will meet and confer with the City’s labor unit representatives to discuss the HSA
limits for the 2023 calendar year to the maximum IRS limits prior to returning to the City
Council with the resolution.
CONCLUSION:
Staff therefore recommends the City Council authorize increasing the City’s contribution
to the employee HSA and direct Staff to return with a resolution memorializing this action.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available for
the City Council’s consideration:
1. Do not authorize 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