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Home My WebLink AboutFCS-11-071 - Group Benefits Providers ReviewREPORT TO:Finance and Corporate Services Committee DATE OF MEETING: April 11, 2011 SUBMITTED BY: Michael May, Interim Director of Human Resources PREPARED BY: Ita Magid, Supervisor of Benefits Development WARD(S) INVOLVED: All DATE OF REPORT: April 6, 2011 REPORT NO.: FCS – 11-071 SUBJECT: Group Benefits Providers Review RECOMMENDATIONS: Sun Life Financial Thatbe awarded the role of the group insurance provider for the City's group benefit program effective July 1, 2011 at their quoted annual estimated cost of $6,115,959, plus PST for a total of $6,605,236, based on a satisfactory contract being negotiated, and further that the Mayor and Clerk be authorized to execute a contract satisfactory to the City Solicitor. BACKGROUND: The city is contractually obligated to provide benefits to its employees as outlined in its collective agreements with each union group. In an effort to market the city’s benefits program through a fair and competitive process that will result in the best possible outcome for the corporation (both service levels and costs), the city has traditionally engaged an outside expert benefits consultant to conduct a detailed market analysis of group benefit providers. Performing this type of market analysis is a standard industry practice for public and private sector organizations looking to engage the services of benefits providers. In February 2010, city council directed staff to initiate a market analysis of group benefits providers who could offer the city’s benefits program starting in 2011. Following that council direction, the city engaged the services of Mercer (Canada) Limited to complete that market analysis and conduct a competitive vendor search for four major components of the city’s benefits program: 1. Group Benefits Program – current provider is Manulife 2. Accidental Death & Dismemberment (AD&D) Benefits – current provider is ACE INA 3. Third Party Administrator (flex benefits) (TPA) – current provider is Buffett Taylor 4. Employee Assistance Program (EAP) – current provider is Mosaic é ó ï This report details the process and recommendations for components 1, 2 and 3 of the city’s benefits program as listed above. Work continues to short-list, interview and identify a preferred vendor for the city’s EAP program (item #4 above) and a recommendation will be forthcoming once that work is complete. REPORT: 1. Group Benefits Program A Request for Proposals (including benefit program specifications as outlined in the city’s collective agreements, and background on the structure of the city’s benefits program) was sent to the following 19 providers/insurance companies in November 2010: Manulife Financial Sun Life Financial Green Shield Canada La Capitale ClaimSecure Industrial Alliance ACE INC AXA Assurances Chartis Chubb Insurance Sutton Special Risk Desjardins Financial Empire Life Equitable Life Medavie Blue Cross SSQ Financial Standard Life RBC Financial The Cooperators Prior to receiving submissions, city staff worked with Mercer to identify the selection criteria upon which submissions would be evaluated. Those selection criteria were determined to be: 1) competitive costs 2) ability to duplicate existing plan designs (as per the city’s contractual obligations) 3) proactive and effective administration services 4) demonstrated service capability Proposals were received from 7 group benefits providers. After reviewing those initial submissions, the three lowest cost proposals were short-listed for further analysis and interviews. Each of the three short-listed proponents were provided 1.5 hours to present their proposals to a selection committee of city staff and representatives from Mercer. Following those short-listed interviews the evaluation committee further reviewed each submission against a number of metrics including financial, employee experience, wellness program capabilities, technology, service team, implementation capabilities and account management. Based on all of that analysis, staff recommend the city award the provision of its group benefits program to the lowest cost bidder – Sun Life financial. At an annual estimated cost of approximately $6,115,959 + pst, Sun Life’s proposal would reduce the city’s benefit costs by approximately 7% or $475,000 when compared to its previous costs for group benefits. é ó î These cost savings are the result of aggressive premiums set by Sun Life, reduced administrative fees charged by Sun Life to process claims, and a highly competitive marketplace. They are estimated costs based on the city’s previous claims experience. In addition to being the lowest cost proposal, the evaluation committee is recommending Sun Life Financial for the following reasons: Sun Life is able to duplicate the city’s existing benefit plans Sun Life offers claims technology that will enhance the employee experience (including on- line claims submission, employee web portal) Sun Life has a strong financial and service reputation Sun Life’s proposed implementation process and account management team was well received by the selection committee Sun Life’s premium rates and administrative expenses are subject to a rate guarantee and therefore will not change for a period of 30 months following the effective date of the new policy. 2. AD&D Benefits Proposals were received from 5 companies for the provision of AD&D insurance. After reviewing and analyzing each of these proposals, in accordance with the city’s purchasing bylaw the evaluation committee has chosen AXA Assurances as the city’s AD&D provider. The proposal received from AXA Assurances was the lowest cost proposal received. At an annual cost of $10,769 + pst, this proposal would save the city approximately 30.3% or $4,682 when compared to current costs. 3. Third Party Administrator (TPA) A Request for Proposal was sent to the following 6 providers in February 2011. Specifications were sent to each provider with background on the structure of the city’s benefits program, the required timelines for submission and implementation, and a description of current TPA service arrangements. Buffett Taylor My Benetech RWAM Administrators The Johnston Group Manulife Financial Sun Life Financial Proposals were received from 4 providers. All submissions received were able to match the services currently provided, however, only one submission (Buffett Taylor) would not result in increased costs to the city when compared to its current TPA costs. As a result, in accordance with the city’s purchasing bylaw, the evaluation committee has chosen to engage Buffet Taylor as the city’s third party administrator of the flex benefits program at a cost of $15,920 + hst – the same cost the city is currently paying for these services. é ó í Stop Loss Insurance Stop loss insurance protects a program by mitigating the risk of large, unforeseen claims. In such an arrangement, any health claims in excess of a predetermined annual amount are absorbed by the insurance company and are not directly charged to an employer’s program. In exchange for this protection, the insurer includes a stop loss insurance charge as part of the health expenses. The City’s current program does not contain any level of stop loss insurance. This is unusual for a Canadian municipality. Given the city’s recent history with some significantly higher drug claim costs, stop loss insurance has the potential to mitigate those costs in the future. Assuming council support for the recommendations contained in this report, in the coming weeks staff will work with Sun Life Financial to further analyze the cost-benefit of stop loss insurance and report back to council at a later date with a recommendation in this area. 5 Year Cycle for Review of Benefits Providers A Request for Proposal of the city’s benefit providers is a necessary governance exercise to ensure that the city’s program remains competitive; both from financial and service perspectives. The Request for Proposals process is in-depth, has a lengthy timeline and requires both the support of internal resources and external specialists at some time and cost to the city. It also requires a significant investment of time and money from bidding companies. In order to balance the need to adhere to an appropriate governance framework and the resources required for a Request for Proposal, staff intend to follow a 5 year cycle for the competitive marketing of the city’s benefits program. Five years is an industry standard and best practice and corresponds with the timeframes for other outside professional support engaged by the city such as banking and external audit services. FINANCIAL IMPLICATIONS: As recommended, the total cost for the provision of the three components of the city’s benefits program outlined in this report would be $6,142,648 (plus applicable taxes). This total cost is broken down as follows: Group Benefits Program ($6,115,959) Accidental Death & Dismemberment ($10,769) Third Party Flex Benefits Provider ($15,920) These costs would see the amount of money spent on the city’s benefit program reduced by approximately $480,000 a year (when compared to our previous years actual experience) – $432,000 of which can be attributed to the tax-base with the remainder allocated to the city’s enterprise units. é ó ì As part of the city’s 2011 budget process, and in anticipation of the awarding of this RFP for a July 1 implementation date, city council has already reduced benefits expenditures by $180,000 in 2011. This reduction represents the anticipated savings the city would experience in 2011 after the transition has been made on July 1, 2011. The balance of the savings in benefits expenditures will be realized through additional budget reductions in 2012. It is important to note these savings will be more than offset by the required increases to OMERS contributions rates as mandated by the OMERS pension plan. Next Steps: In order to achieve a July 1, 2011 transition date, upon acceptance of the recommendations noted above, the implementation process with Sun Life and AXA Assurances will begin immediately. This process includes: Development of insurer contracts, financial agreements and employee education materials, Meetings with the insurers to review service expectations and establish key service contacts Determine employee communication materials, transfer of enrolment data, staff training Production of employee wallet/drug cards, ‘welcome’ packages etc. ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services é ó ë