Title
Selection of Blue Cross Blue Shield of Florida, Inc. as the provider of Specific Stop-Loss Carrier for the City Group Health Plan (B)
This item involves a request for the City Commission to approve the rankings and selection of Blue Cross Blue Shield of Florida, Inc. as the provider through their subsidiary, High Mark Insurance, of specific stop-loss insurance for the City's Group Health Plan.
Explanation
The City maintains a self-funded health plan for its employees, retirees and their family members. The health plan utilizes a risk transfer tool to mitigate the impact of large claims. Specific Stop-Loss insurance is the risk transfer tool that the group health plan utilizes to cover the cost of large claims. Under a specific stop-loss policy, the City's group health plan is responsible only for a fixed dollar amount of a covered members annual claims costs, after that specified amount has been paid, all subsequent claims costs are reimbursed to the City.
Recently, the City conducted a comprehensive Invitation to Bid (ITB) process to select a carrier to provide specific stop-loss coverage for the City's group health plan. In response to the ITB, the City received responses from four carriers or their representatives providing for over sixteen different coverage options. The bids were evaluated on price, coverage, past performance and financial stability. Both prices and policy forms varied greatly with the broadest coverage options having the highest cost and the narrower policy forms providing the most favorable pricing. There were three different policy forms offered by the various bidders. They are differentiated by when a claim had to be incurred and when the claim had to be paid. A summary of the submissions and cost associated with each is included in the backup.
The best coverage form would be a paid contract basis. This is the coverage form the City currently utilizes but it is increasingly becoming less affordable. Under a paid contract, when the claim was incurred is irrelevant as long as the payment is made during the policy term (January 1 - December 31, 2015). This policy, keeping the specific stop-loss "deductible" at $250,000 would cost over $1.1 million per year.
The second broadest coverage included an incurred period of 24 months and paid in the policy year (24/12 policy). Under this arrangement, the claim would have to have been incurred with the last or current plan year and be paid within the policy term. Using the same "deductible" this coverage would cost approximately $996,000.
The final option was a coverage form that required a claim to be both incurred and paid within the policy tern (12/12). While the coverage is not as broad as the first two, it is still a viable option, specifically as it comes to hedging against single shock claims. This option would cost approximately $725,000 but does create a coverage gap for large claims that were incurred in November and December but not paid until January or later. For example, if the health plan incurred a large claim for hospitalization for $300,000 with incurred dates of November 15-December 15, 2014 but the claim did not process until January, there would be no reimbursement above the deductible creating an additional non-reimbursable claim payment of $50,000 ($300,000-$250,000). Given the almost $400,000 reduction in cost, it would take eight such claims to eliminate the premium savings. Based on our past experience, this does not appear likely.
Price accounted for fifty percent of the evaluative process, thus making the cost of coverage a significant factor in the selection process. Based on the evaluations of staff, the option presented by Blue Cross Blue Shield of Florida, Inc. was ranked first and does not include a broker commission or placement fee. Staff recommends retaining the current stop-loss attachment point of $250,000 given the significant savings between the current policy form and the recommended policy form. These policies are rated each year and renewal will be subject to acceptable pricing and policy form. Specific stop-loss deductibles in future years may be increased if pricing produces a benefit to the plan to increase exposure.
Fiscal Impact
Funds of approximately $725,000 are included for specific stop-loss insurance in the 2015 EHAB fund budget.
Recommendation
The City Commission: 1) Approve the rankings and selection of Blue Cross Blue Shield of Florida, Inc. as the provider of the Specific Stop-Loss coverage for three-years beginning January 1, 2015 with an option to extend one additional two-year term; 2) Authorize issuance of a purchase order in an amount sufficient to cover applicable charges for the policy; and 3) Authorize the City Manager or his designee to negotiate an agreement with the top-ranked vendor for a period of three years with one two-year extension, subject to approval of the City Attorney as to form and legality.