CC - Item 3D - Health Benefit Cost Savings Option•
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ROSEMEAD CITY COUNCIL
STAFF REPORT
TO: THE HONORABLE MAYOR AND CITY COU CI
FROM: ANDREW C. LAZZARETTO, CITY MANAG
DATE: SEPTEMBER 26, 2006
SUBJECT: HEALTH BENEFIT COST SAVINGS OPTION
SUMMARY
The City currently pays the entire cost of any health insurance plan selected by full-time
employees, and also pays the entire cost of Kaiser HMO health insurance coverage for
permanent part-time employees.
According to the Kaiser Family Foundation (Attachment B), health insurance premiums
increased an average of around 12.2% per year between 2000 and 2005. This
independent study is reflective of the City's experience with escalating health care
costs. In fact, three of the four health insurance programs offered by the City will
experience cost increases of between 12.5% to 13.8%, effective January 2007
(Attachment C).
In an effort to control health care costs while continuing to provide employees with
health insurance benefits, the City can establish an optional health benefit cost savings
program for employees. Under this program, employees can choose to take no action
and continue to receive the current health insurance benefit offered by the City.
However, if an employee could demonstrate health insurance coverage through another
source, that individual could then elect to take a fixed dollar amount in place of the
health insurance benefit cost.
Staff Recommendation
Staff recommends that the City Council approve Resolution No. 2006-16 (Attachment A)
establishing a health care benefit cost savings option.
ANALYSIS
Optional Program
The proposed health benefit cost savings program has been structured to be an
optional employee benefit for those individuals who can show proof of health insurance
coverage through another source.
APPROVED FOR CITY COUNCIL AGENDA: I~
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City Council Meeting
September 26, 2006
Page 2 of 5
It is important to note that under this plan, those employees who elect to continue
receiving their current health benefits would not see any change to their coverage.
However, by allowing eligible employees to enroll in the proposed health benefit cost
savings program, the City can realize significant cost savings.
Increasing Health Care Premiums
Currently, the City offers full-time employees the option of enrolling in one of the
following four different health insurance programs (permanent part-time employees are
automatically enrolled in Kaiser):
■ PERSCare
■ Blue Shield
■ Kaiser
■ PERS Choice
For each of the four different programs, employees are eligible to enroll in the "Single"
option (health coverage for just the employee), the "Employee + 1" option (health care
coverage for the employee plus one dependent), or the "Employee + 2 or more" option
(health care coverage for the employee plus two or more dependents). Regardless of
the plan selected by the employee, the City pays the entire cost of health insurance
premium. In 2006, monthly premiums for each of the plans were as follows:
2006 Health Plan Premium R
ates
Monthly
Monthly
Monthly
Health Plan
Premium -
Premium -
Premium -
Single
Employee + 1
Employee + 2
or more
PERSCare
$ 633.27
$ 1,266.54
$ 1,646.50
Blue Shield
$ 312.98
$ 625.96
$ 813.75
Kaiser
$ 306.54
$ 613.08
$ 797.00
PERS Choice
$ 376.55
$ 753.10
$ 979.03
Recently, the City was notified by CalPERS of the monthly 2007 Health Plan Premium
Rates. Those rates, and the percentage increase over 2006 rates, include the
following:
• •
City Council Meeting
September 26, 2006
Page 3of5
200
7 Health Plan Premium Rates
Monthly
%
Monthly
%
Monthly
%
Health Plan
Premium -
Increase
Premium -
Increase
Premium -
Increase
Single
Over
Employee + 1
Over
Employee +
Over
2006
2006
2 or more
2006
PERSCare
$ 716.17
13.1%
$ 1,432.34
13.1%
$ 1,862.04
13.1 ° .
Blue Shield
$ 356.17
13.8%
$ 712.34
13.8%
$ 926.04
13.8%
Kaiser
$ 329.14
7.4%
-
$ 658.28
7.4%
$ 855.76
7.4%
PERS Choice
$ 423.63
12.5%
$ 847.26
12.5%
$ 1,101.44
12.5%
The proposed health benefit cost savings program allows the City a risk-free opportunity
to reduce the cost of its health care premium liability. This is accomplished by offering
employees the opportunity to take an amount less than the City is currently paying each
month for health insurance as cash or as deferred compensation. Also, the Attorney
General of the State of California has ruled that City Council Members may also
participate in such a program by taking the value of health insurance benefits as
deferred compensation (Attachment D).
In practice, this program has been structured such that those electing to enroll in the
health benefit cost savings option would be given a monthly cash disbursement amount
of less than the current amount the City pays for their health care premium. Individual
employees could then choose to use those funds for either of the following options:
■ Purchase additional insurance
■ Allocate those dollars to a deferred compensation account
■ Take the disbursement as cash
In order to make this option attractive for employees while still providing the City with
significant cost savings, the disbursement amounts for those who elect to enroll in the
program are recommended to be in the following amounts:
Cost Savin s Program
Monthly
Monthly
Monthly
Health Plan
Disbursement
Disbursement
Disbursement
- Single
- Employee +
- Employee +
1
2 or more
PERSCare
$ 500.00
$ 1,100.00
$ 1,500.00
Blue Shield
$ 250.00
$ 500.00
$ 750.00
Kaiser
$ 250.00
$ 500.00
$ 750.00
PERS Choice
$ 250.00
$ 500.00
$ 750.00
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City Council Meeting
September 26, 2006
Page 4 of 5
Potential Cost Savings
By enacting this program, the City could potentially save around $16,525 through the
end of 2006. Furthermore, based on our 2007 health insurance premiums, the City
could save around $131,841 in 2007 if this program is enacted.
Should the City Council decide to enact the proposed plan, the City would experience
the following annual cost savings for each employee who opted to participate in the
program:
2006 Annual Savin s Per Part
ici
pant
Health Plan
Single
Employee + 1
Employee + 2
or more
PERSCare
$
1599.24
$ 1998.48
$
1758.00
Blue Shield
$
755.76
$ 1511.52
$
765.00
Kaiser
$
678.48
$ 1356.96
$
564.00
PERS Choice
$
1518.60
$ 3037.20
$
2748.36
In addition, the City's annual cost savings per employee in 2007 would include the
following:
2007 Annual Savin s Per Part
ici
pant
Health Plan
Single
Employee + 1
Employee + 2
or more
PERSCare
$
2594.04
$ 3988.08
$
4344.48
Blue Shield
$
1274.04
$ 2548.08
$
2112.48
Kaiser
$
949.68
$ 1899.36
$
1269.12
PERS Choice
$
2083.56
$ 4167.12
$
4217.28
Benefits For Both The City And The Employee
This program has been structured in a way that provides benefits for both the City and
our employees. From the City's perspective, those employees that are able to prove
that they have health insurance through another source and who opt to participate in the
program will enable the City to decrease its health insurance liability. This will enable
the City to maintain its commitment to ensuring that all employees have access to
health care coverage while also allowing the City to save money.
From the employee perspective, individuals who have health coverage through another
source will be able to receive a disbursement of funds that can be put to a better use.
9
CJ
City Council Meeting
September 26, 2006
Page 5 of 5
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
LEGAL REVIEW
This staff report and the attached resolution have been reviewed and approved by the
City Attorney.
Submitted by:
Oliver Chi
Director of Administrative Services
Attachment A:
Resolution 2006-16
Attachment B:
Kaiser Family Foundation Report
Attachment C:
2007 Health Plan Premium Rate Increase
Attachment D:
Attorney General Opinion 05-910
• •
ATTACHMENT A
RESOLUTION NO. 2006-16
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
ROSEMEAD, CALIFORNIA, ESTABLISHING A HEALTH
CARE BENEFIT COST SAVINGS OPTION FOR CITY
EMPLOYEES.
WHEREAS, the City currently pays the entire cost of any health insurance
program selected by City Council Members and full-time employees; and
WHEREAS, the City currently pays for the entire cost of Kaiser HMO health
insurance coverage for all permanent part-time employees; and
WHEREAS, the City is committed to ensuring that all employees have some type
of health insurance coverage; and
WHEREAS, according to the Kaiser Family Foundation health insurance
premiums rose 73% between 2000-2005; and
WHEREAS, the City continues to explore ways to control health care costs while
providing employees with health insurance benefits; and
WHEREAS, municipalities have the option of offering employees an optional
health care program that will assist with controlling health insurance premium costs; and
WHEREAS, such a plan can be structured such that participating employees are
offered a flat monthly disbursement amount in place of the City purchasing health
insurance on their behalf; and
WHEREAS, employees who can prove that they have health insurance coverage
through another source are eligible to take a health and welfare benefit as deferred
compensation or salary; and
WHEREAS, the Attorney General of the State of California has ruled in Opinion
05-910 that City Council Members may also redirect the value of health insurance
benefits to a deferred compensation plan; and
WHEREAS, by offering employees the opportunity to enroll in an optional health
benefit which offers a monthly contribution that is less than the current cost of providing
health insurance coverage is a risk-free way for the City to reduce its health care
premium liability.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ROSEMEAD,
CALIFORNIA, DOES HEREBY RESOLVE, DECLARE, DETERMINE AND ORDER AS
FOLLOWS:
• •
SECTION 1. A health care savings plan for the purpose of providing employees
with health benefit options shall be offered to all full-time employees, part-time
employees, and City Council Members, effective October 1, 2006. Initially, said
individuals will have between October 1, 2006 and October 31, 2006 to opt into the
program. Thereafter, any full-time employee, part-time employee, and Council Member
may enroll in the program either during their initial appointment or during the City's
normal open enrollment period.
SECTION 2. To be eligible for the program, participating employees must
demonstrate evidence that they have health insurance coverage through another
source.
SECTION 3. The monthly amount offered to City Council Members who enroll in
this option can be taken as deferred compensation and shall be established as follows:
A. PERSCare health insurance coverage costs the City the following
amounts per month:
■ Single - $633.27 / month
■ Employee + 1 - $1,266.54 / month
■ Employee + 2 or more - $1,646.50 / month
For those City Council Members who are currently enrolled in a
PERSCare plan, the monthly cafeteria amount offered shall be:
■ Single - $500 / month
■ Employee + 1 - $1,100 / month
■ Employee + 2 or more - $1,500 / month
B. Blue Shield health insurance coverage costs the City the following
amounts per month:
■ Single - $312.98 / month
■ Employee + 1 - $625.96 / month
■ Employee + 2 or more - $813.75 / month
For those City Council Members who are currently enrolled in a Blue
Shield plan, the monthly cafeteria amount offered shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
■ Employee + 2 or more - $750 / month
0
0
C. Kaiser Permanente health insurance coverage costs the City the
following amounts per month:
■ Single - $306.54 / month
• Employee + 1 - $613.08 / month
■ Employee + 2 or more - $797 / month
For those City Council Members who are currently enrolled in a Kaiser
Permanente plan, the monthly cafeteria amount offered shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
■ Employee + 2 or more - $750 / month
D. PERSChoice health insurance coverage costs the City the following
amounts per month:
■ Single - $376.55 / month
■ Employee + 1 - $753.10 / month
■ Employee + 2 or more - $979.03 / month
For those City Council Members who are currently enrolled in a
PERSChoice plan, the monthly cafeteria amount offered shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
■ Employee + 2 or more - $750 / month
SECTION 4. The monthly amount offered to full-time employees who enroll in
this option can be taken as deferred compensation or as salary and shall be established
as follows:
A. PERSCare health insurance coverage costs the City the following
amounts per month:
■ Single - $633.27 / month
■ Employee + 1 - $1,266.54 / month
■ Employee + 2 or more - $1,646.50 / month
For those full-time employees who are currently enrolled in a
PERSCare plan, the monthly cafeteria amount offered shall be:
• Single - $500 / month
■ Employee + 1 -$1,100/ month
■ Employee + 2 or more - $1,500 / month
0
•
B. Blue Shield health insurance coverage costs the City the following
amounts per month:
• Single - $312.98 / month
• Employee + 1 - $625.96 / month
• Employee + 2 or more - $813.75 / month
For those full-time employees who are currently enrolled in a Blue
Shield plan, the monthly cafeteria amount offered shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
■ Employee + 2 or more - $750 / month
C. Kaiser Permanente health insurance coverage costs the City the
following amounts per month:
■ Single - $306.54 / month
■ Employee + 1 - $613.08 / month
■ Employee + 2 or more - $797 / month
For those full-time employees who are currently enrolled in a Kaiser
Permanente plan, the monthly cafeteria amount offered shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
■ Employee + 2 or more - $750 / month
D. PERSChoice health insurance coverage costs the City the following
amounts per month:
■ Single - $376.55 / month
■ Employee + 1 - $753.10 / month
■ Employee + 2 or more - $979.03 / month
For those full-time employees who are currently enrolled in a
PERSChoice plan, the monthly cafeteria amount offered shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
• Employee + 2 or more - $750 / month
i 0
SECTION 5. The monthly amount offered to permanent part-time employees
who enroll in this option can be taken as deferred compensation or as salary and shall
be established as follows:
A. Permanent part-time employees are offered Kaiser Permanent health
insurance coverage.
B. Kaiser Permanente health insurance coverage costs the City the
following amounts per month:
■ Single - $306.54 / month
■ Employee + 1 - $613.08 / month
■ Employee + 2 or more - $797 / month
For those permanent part-time employees who are currently enrolled
in a Kaiser Permanente plan, the monthly cafeteria amount offered
shall be:
■ Single - $250 / month
■ Employee + 1 - $500 / month
■ Employee + 2 or more - $750 / month
SECTION 6. All new City Council Members who can demonstrate health
insurance coverage through another source shall be offered the maximum monthly
health benefit amount as governed by Section 53208.5 of the California Government
Code in lieu of a City paid health insurance program. That amount shall be determined
on an annual basis and can be taken as deferred compensation.
SECTION 7. All new full-time employees hired by the City that can demonstrate
health insurance coverage through another source shall be given the option of taking a
monthly health benefit amount not to exceed the average cost of providing health
premiums for all full-time employees in lieu of a City paid health insurance program.
That amount shall be determined on an annual basis and can be taken as deferred
compensation or as salary.
SECTION 8. All new permanent part-time employees hired by the City that can
demonstrate health insurance coverage through another source shall be offered a
monthly amount not to exceed the average cost of providing health premiums for all
permanent part-time employees in lieu of a City paid health insurance program. That
amount shall be determined on an annual basis and can be taken as deferred
compensation or as salary.
•
PASSED, APPROVED and ADOPTED by the City Council of the City of
Rosemead on this 26th day of September, 2006.
Mayor, City of Rosemead
ATTEST:
City Clerk, City of Rosemead
0
RICH AND EDUCATIONAL TRUST
EMPLOYER-SPONSORED HEALTH INSURANCE PROVIDES COVERAGE FOR 160 MILLION AMERICANS, REACHING NEARLY THREE OF
EVERY FIVE OF THE NONELDERLY.1 To PROVIDE CURRENT INFORMATION ABOUT THE NATURE OF EMPLOYER-SPONSORED HEALTH
BENEFITS, THE KAISER FAMILY FOUNDATION (KFF) AND THE HEALTH RESEARCH AND EDUCATIONAL TRUST (HRET) CONDUCT AN
ANNUAL NATIONAL SURVEY OF PRIVATE AND PUBLIC EMPLOYERS OF THREE OR MORE WORKERS.
'['he key findings from this year's
survey show that the rate of growth
of health insurance premiums
declined for die second straight year,
slowing to 9.z7v in 2005, and that the
percentage of all fines offering health
benefits to their employees has fallen
significantly from 69% to 6o% over
the last 5 years.
The =0o5 findings also show growth
in the percentage of firms offering
health benefits that offer a high-
deductible health plan (HDI IP) to
at least sonic of their employees.
Twenty percent of firms that
offer health benefits offer a high-
deductible health plan. 'T'hese
firms are beginning to took at new
consumer-driven arrangements.
Among all firms that offer health
benefits, 1.9% offer an I IDI IP with a
health reimbursement arrangement
(PIRA), covering 1.6 million workers,
and 2.3% offer an I IDIJP that meets
federal requirements enabling a
worker to establish a health savings
account (HSA), covering 81o,ooo
workers.
HEALTH INSURANCE
PREMIUMS
I3ehveen spring Of 2oo4 and spring
of 2005, premiums for employer-
sponsored health insurance rose by
9.2%, lower than the u.2% increase in
2004 and the 13.9% increase in 2003
EXHIBIT A
Increases In Health Insurance Premiums Compared to Other Indicators,
1988-2005
1988 1989
19go 1993 1996 2999 2000 2001
2002
2003 2004
2005
HEALTH
12.0 18.0
14.0 8.5 0.8 5.3' 8.2' 10.9'
12.9'
13.9t 11.2'
9.2• - INSURANCE
PREMIUMS
OVERALL
3.9 5.1
4.7 3.2 2.9 2.3 3.1 3.3
1.6
2.2 2.3
3-5 -
INFLATION
3.1 4.2 3.9 2.5 3.3 3.6 3.9 4.0 2.6 2.9 2.2 2.7 -WORKERS'
EARNINGS
• Estimate is statistically different from the previous year shown at p <.05. No statistical tests were conducted for years
prior to 1999.
1 Estimate Is statistically different from the previous year shown at p <.1o.
Note Data on premium Increases reflect total health insurance premiums for a family of four. Historical estimates of
workeri eamings have been updated to reflect new Industry classifications (NAICS).
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits: 1999-2c o5; KPMG Survey or Employer-Sponsored
Health Benefits: 1993. 1996; The Health Insurance Association of America (HIAA): 1988, 1989, i99o; Bureau of Labor
Statistics. Consumer Price Index, U.S. City Average of Annual Inflation (April to ApriO, 1988-2005; Bureau of Labor
Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April), 1988-2ooS.
(Exhibit A).' Despite this slowdown, wage growth of 15"/x. Average annual
premiums continued to increase premiums for employer-sponsored
much faster than overall inflation coverage rose to $4,024 for single
(3.5%) and wage gains (2.7%). Since coverage and $1o,88o for family
zooo, premiums for family coverage coverage (Exhibit R),
have increased by 73%, compared
with inflation growth of 14% and
7
1988 1989 1990 1991 1992 1993 1994 1995 7996 1997 1998 1999 2000 2001 2002 2003 2005 2005
cAnPoi t o
Average Annual Premiums for Covered Workers for Single and Family Coverage, by Plan Type, 2005
CONVENTIONAL
SINGLE 53,782
HMO
SINGLE 53,767'
SINGLE S3,S48
FAMILY $8,449 511,090
SINGLE 53,911
FAMILY
ALL PLANS
SINGLE "''-53473 54,024
FAMILY $8,167 510,880
s0 $2,000 $4,000 $6,000 $8,000 $10,000 S141
Estimate of total premium is statistically different from All Plans by coverage type shown at p <.05.
■ WORKER CONTRIBUTION
Note: Family coverage is defined as health coverage for a family of four,
Source: Kaiser/HRET Survey of Employer-Sponsored Health aeneRrs,:oo5. FIRM CONTRIBUTION
CA17ID1 I
Distribution of Covered Workers by Percentage of Premium Contributed by Their Firm for Single and Family
Coverage, by Firm Size, 2005
SINGLE COVERAGE
ALL SMALL FIRMS
(3-199 WORKERS)
ALL LARGE FIRMS
(200 OR MORE WORKERS)
ALL FIRMS 21%
FAMILY COVERAGE
ALL SMALL FIRMS
18%
(3-199 WORKERS)
ALL LARGE FIRMS
(200 OR MORE WORKERS) 1•
j 0% to% 20% 30% 40% 50% 6o% 70% 80% 90% too%
M LESS THAN 50%
Note Famay coverage is defined as health coverage for a (amity of four GREATER THAN OR EQUAL TO 50%, LESS THAN 75%
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2oo5. GREATER THAN OR EQUAL TO 75%, LESS THAN 100%
€ 100%
THE KAISER FAMILY FOUNDATION t.:7 HEALTH RESEARCH AND EDUCATIONAL TRUST
Although the average premium
increase for 2005 is 9.2%, many
covered workers are in firms that
experienced premium changes that
were substantially above or below
the average: 32% of covered workers
work for firms where premiums
increased by 5% or less, while 17% of
covered workers work for firms inhere
premiums increased by more than
15%. Premiums in fully insured plans
and premium equivalents in self-
funded plans grew at similar rates.
Preferred provider organizations
(PPOs) cover a majority of covered
workers, but health maintenance
organizations (HMOs) remain less
expensive. The average annual PPO
premium is $4,150 for single coverage
and $n,ogo for family coverage,
compared to average annual HMO
premiums of $3,767 for single coverage
and $10456 for family coverage.
Almost 80% of covered workers with
single coverage, and over go% of
covered workers with family coverage
make a contribution toward premiums
in 2005 (Exhibit Q. Workers on
average contribute S6to of the $4,024
annual cost of single coverage and
Sz,713 of the S10,88o annual cost of
family coverage (Exhibit B). Covered
workers in small firms (3-199 workers)
on average make a significantly higher
contribution toward family coverage
than covered workers in large firms
(zoo or more workers) (S3,170 vs.
Sz,,t87). The average percentage
of premiums paid by workers is
statistically unchanged over the
last several years, at 16% for single
coverage and 26% for family coverage
(Exhibit U).
payments when they use health care
ser vices. Fifty-six percent of covered
workers are in a health plan that
requires that a deductible be met
for single coverage before most plan
benefits are provided. In PPOs, die
most common plan type, the average
deductible for in-network services is
S3z3 for single coverage and 5679 for
family coverage. Across all plan types,
average deductibles for single coverage
in small firms iqq workers) are
substantially higher than average
deductibles in large firms (zoo or more
face separate cost sharing when they
are admitted to a hospital. Thirty-
six percent of covered workers face
a separate deductible or copaynient
for each hospital admission, with an
average payment of Sz4i. Ten percent
of workers face separate coinsurance
when they are hospitalized, with
an average coinsurance rate of 16%.
An additional 3% of workers face
both a deductible or copayruent and
coinsurance when hospitalimcl.
The vast majority of covered workers
face copaynhents when they go to
tie doctor or fill it prescription.
Copaynhcnts for physician office
Asits changed little in zoos. Forty-
four percent of covered workers
are in a plan with a $zo or $25
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits. t999.2005; KPMG Survey of Employer-Sponsored Health Benefits, 1996;
The Health Insurance Association of America (HIAA). 1988.
LAnIDI I L
Percentage of Firms Offering Health Benefits, by Firm Size, 1996-2005
100%
so%
60% 6 53 57.58
5 51
47
40% '
20%
0%
BASED COVERAGE
' Estimate is statistically different from the previous year shown at p c.o5. 1996
t Estimate is statistically different from the previous year shown at p <.1o. ® 1999
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, t999-2oo5: KPMG Survey of Employer-5ponsored Health Benefits, 1996. 2000
copayment. For workers covered by
multi-tier drug plans, the average
copayrnents are $lo for generic
drugs, S2z for preferred drugs, and
S35 for nonpreferred drugs. A small
percentage of plans have added a
fourth tier of prescription drug cost
sharing, with an average copay nient
in that tier of $74.
While the percentage of finns
offering health bencfits is statislically
unchanged from last year, it has
declined over the last few years.
Annual changes have been small, but
99 99 99 88799 8
J
657 68 66 6
9 3 59
t~
ALL SMALL FIRMS ALL LARGE FIRMS
(3-399 WORKERS) (200 OR MORE WORKERS)
2002
- 2004
2005
of firths offering hcalth benefits, from
69% in zooo to 6o% in 2005. This
drop is driven largely by a significant
decline in the percentage of small
firms (3-199 workers) offering
coverage, which has fallen from 68%
to 59% over the same period.
the cumulative result is a statistically
significant decline in the percentage
LA17I D 1 I r
Among Firms Offering Health Benefits, Percentage That Offer an HDHP, by Firm Size, 2003-2005
100%
80%
60%
40%
33%*
m° ' 2096• 20%'
20% 37°6 20% j I
0% = =
ALL SMALL FIRMS MIDSIZE FIRMS LARGE H;US JUMBO FIRMS
(3-199 WORKERS) (200-999 WORKERS) (1,000-4,999 WORKERS) (5,DDOOR MORE WORKERS)
• Estimate is statistically different from the previous year shown at p <.o5. We note that the definition of an HDHP has
changed somewhat over the past three surveys (see endnote A)-
Note: The prevalence shown above is for all HDHPs, regardless of whether they are offered with an Hit& are HSA
qualified, at neither.
Source! Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 200.V--2005.
THE KAISER FAMILY FOUNDATION 1Ni;-HEALTH RESEARCH AND EDUCATIONAL TRUST
The health benefits offer rate
continues to vary substantially by
firm size: only 47°! of the smallest
companies ('3--9 workers) offer health
benefits, compared to T% of firms
with lo-z4 workers, 87% of firms with
25-49• and over 90% of firms with 50
or more workers (Exhibit E).
Even when a firm offers health
insurance, not all workers get covered.
Some workers are not eligible to
enroll as a result of waiting periods or
minimum work-hour rules, and others
choose not to enroll because they must
pay a share of the premium or can get
coverage through a spouse. Within
offering firms, 8o% of workers arc
eligible for coverage, and 83% of those
eligible elect to enroll.
Enrollment in PPOs grew over the
last year, while HMO enrollment
declined. PPOS continue to be
the most common plan in 2005,
enrolling 61% of employees with
health coverage, up from 55% in
2004.' HMO enrollment fell to 21%
of covered workers from 25% in zoo. .
POS enrollment, which has been
deelining in recent years, remained
stable this year at 15%.
UTILIZATION MANAGEMENT
AND DISEASE MANAGEMENT
About eight-in-ten workers (81%) with
job-based coverage are in a health
plan that uses case management for
large claims. Prior certification for
inpatient services (75% of covered
workers) and outpatient surgery (55%
of covered workers) also apply to most
covered workers.
Over half of covered workers (56%)
are in a plan with at least one disease
management program. Among
workers in these plans, virtually all are
in a plan that provides management
for diabetes, and high percentages are
in plans that provide
for asthma (86%), by
(Sz%), and high chol
HIGH-DEDUCTIBLE HEALTH
PLANS
Employers appear to be embracing
increased consumer responsibility
and higher cost sharing as strategies
for reducing the growth in health
care costs. Twenty, percent of finns
offering health benefits offer an
HDI-IP (defined for zoos as having
a deductible of at least Sr,ooo for
single coverage and $2,000 for family
coverage) (Exhibit F). Jurnbo firms
(5,000 or more workers) offering
health benefits are more likely than
all firms to offer such a plan. We note
that the definition of an 1 IDI IP has
changed somewhat over the past three
survevs.'
We asked employers offering an
HDI IP whether they offer either (r)
Among All Firms Offering Health Benefits, Percentage That Offer an HDHP/HRA and/or an HSA Qualified HDHP, 2oo5
EITHER (HDHP/HRA OR HSA)
QUALIFIED HDHP OR BOTH)$
i This includes o.3% of all firms offering health benefits that offer both an HDHP/HRA and an HSA qualified HDHP.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits. 2oo5.
an HRA to their employees (referred
to here as an " I-ID14P/I IRA") or
(2) an HDHP that permits their
employees to establish an HSA
(referred to here as an °HSA
qualified HDHP"). Among all firms
offering health benefits, 1.9% offer
an HDHP/FIRA, with 1.6 million
workers enrolled in the HDHP/FIRA,
and 2.3% offer an HSA qualified
HDHP, with 8io,ooo workers
enrolled in the HSA qualified HDHP
(Exhibit C).1 About 25% of workers
offered an II DHP/I IRA and about
15% of workers offered an HSA
qualified FiDHP participate in the
arrangement that is offered.
arrangements are relatively high: in
HDHP/I-IRAs, annual deductibles
average Sr,8-;o for single coverage
and $3,686 for family coverage;
in I ISA qualified FIDi IN, annual
deductibles average $1,c)o1 for single
coverage and $4,070 for family
coverage. TITe average premiums for
the I1DIlPs in these arrangements are
generally lower than average health
plan premiums overall, although
these differences lessen or disappear
when employer contributions to the
premium. The average total annual
spending for HDHP/FIRAs (premiums
plus employer contributions to the
I IRA) is not statistically different than
average annual health plan premiums
for either single or family coverage.
In contrast, the average total annual
spending for HSA qualified HDHPs is
significantly lower for both single and
family coverage than annual average
premiums for health plans generally
(Exhibit 1I).
On average, workers enrolled in
an 14DHP/I-1RA receive an annual
employer contribution to their HRA of
5792 for single coverage and $1.556 for
family coverage. Workers enrolled
in an HSA qualified tIDHP on
average receive an annual employer
contribution to their HSA of S553
for single coverage and $1,185 for
family coverage.' About one-in-three
employers offering an I-ISA qualified
1 IDHP (covering about 35% of
workers enrolled in these plans) does
not contribute to HSAs established
by their employees.
RETIREE COVERAGE
The implementation of the new
Medicare Part D drug benefit,
combined with cutbacks in coverage
by several large national firms, has
put a spotlight on retiree health
benefits. III 2o05, 33% of large finns
(zoo or more workers) offer retiree
health coverage, virtually the same
percentage as last year, but down
from 66% in 1988. Among large firms
Average Annual Premiums and Contributions to Spending Accounts For Covered Workers in HDHP/HRAs and HSA
Qualified HDHPs Compared to All Plans, 2005
HDHP/HRA
IISA Qualified IIDiiP I
All Plans'
Single
Family
Single
Family
Single
Family
Total Annual Premium
S3,503'
$8,530
$2,700
$7.909
$4,024
$10,880
Worker Contribution to Premium
$42>
$2.654
$431
51,664'
$61o
$2,713
Firm Contribution to Premium
$3,080
$5,876'
$2,270
$6,245
$3,413
$8,167
Total Annual Firm Contribution
(Firm Share of Premium Plus
S3,872
$7,538
$2,850
$7.337
$3413
$8,167
Contribution to HRA or HSA)
Total Annual Spending
(Total Premium Plus Firm
$4,295
$10,193
$3,280'
$9,001'
$4,024
$io,88o
C:nntrihntinn to I-IRA or HSAi
• Estimate is statistically different from All Plans by coverage type at p < 05.
S All Plans refers to all conventional, HMO, PPO. and POS plans In the survey, not just HDHP(H RAs or HSA qualified HOHPs.
Note: Average Firm Contributions to the HSA or HRA cannot be calculated by subtracting the average Total Annual Premium from the average Total Annual Spending due to _
varying sample saes. Some firms provided data for premiums and worker contributions that were inconsistent with other data they provided about their HDHP/HRA or NSA
qualified HOW These data were excluded from estimates of the average premium, worker contribution, and firm contribution for the HDHP; therefore there are fewer cases
used in calculating those averages than for the average firm contribution to the HSA or HRA. ,
Source: KaiserlHRET Survey of Employer-Sponsored Health Benefits, 2oo5.
offering retiree benefits, virtually all
(94%) offer henefits to early retirees,
while just over 81%a offer benefits to
Medicare-age retirees.
Although growth in health insurance
premiums has moderated in each
of the last two years, it continues to
outpace inflation and average wage
growth by wide margins. Over the
last five years (since 2ooo), health
insurance premiums have grown
by 73%, compared with cumulative
inflation of around 14% and
premiums relative to the rest of
the economy appears to be placing
significant strains on the eniployer-
sponsored health insurance
systeuu. Over the past five years, the
percentage of employers offering
health benefits has Fallen from 69%
to 6o%, with the decline occurring
predominantly among small firms (3-
tqq workers). This decline has helped
drive a reduction in the percentage of
workers covered by health insurance
offered through their own employer,
which has fallen from 63% of workers
To address cost issues, employers
are broadly making use of disease'
management and utilization
management, but continue to move
away from 11MOs, whose premiums
are generally below more prevalent
PPOs. Employers also have looked
to higher cost sharing over the past
few years, first through increases in
deductibles and copayluents, and
more recently in the form of new
plan tees. While cost sharing grew
little on average over the past year, we
do see an increase in the offering of
I-IDHPs and the emergence of new
consumer-driven plans. We ealpect the
prevalence of these consumer-driven
that only 16%a of empli
they believe that these
"very effective" in con
Health insurance premiums for a
family of four now average almost
$I i,ooo a year, about equal to the
full time earnings for a minimum
wage worker! It is not surprising
then that firms with a relatively
high percentage of lower-wage
workers are less likely to offer health
insurance-given the cost of coverage
relative to what their workers cam;
nor is it surprising that smaller firms,
who on average pay their workers
less than larger firms, are having an
increasingly hard time offering health
benefits to their workers. Unless cost
increases moderate substantially, or
new wars are found to finance health
care for lower income workers, we
may well see the downward trends in
offer rates and coverage continue.
3 A portion of the change in enrollment Is likely attributable to Incorporating more recent Census Bureau estimates of the number or state and local warkers and removing federal
workers from the weights. See the Survey Design and Methods section In the full report for additional information.
In 2007 and 2004 the survey used a different definition and asked firms If they offered a health plan with a deductible of more than fl.ooo for single coverage. The 2007 and 2004
surveys did not specify a minimum deductible for family coverage. Some of the change In the percentage of firms offering an HDHP between 2o07 and 2oo5 may be due to this
change In the definition of an HDHP.
s This estimate of the number of workers enrolled in an HDHP(HRA oran HSA qualified HDHP does not include federal workers because the federal government is not included in the
survey.
6 The average firm contributions to HSAs for single coverage (SS57) and family coverage ($1.195) include covered workers whose firm makes no contribution to the account.
Average Firm Contributions to the HSA or HRA cannot be calculated by subtracting the average Total Annual Premium from the average Total Annual Spending (rxhlbil H) due
to varying sample sizes. Some firms provided data for premiums and worker contributions that were inconsistent with other data they provided about their HDHP/HRA or HSA
qualified HDHP. These data were excluded from estimates of the average premium, worker contribution. and firm contribution for the HDHP; therefore there are fewer cases used
in calculating those averages than for the average firm contribution to the HSA or HRA.
The Kaiser Family FoundationrHealth Research and Educational Trust 2005
Annual Employer Health Benefits Survey (Kaiser/HR£T) reports findings from
a telephone survey Of J,013 randomly selected public and private employers.
Firms range in size from small enterprises with a minimum of three workers
to corporations with more than 300,00o employees. The KoiserfIRET
Employer Health Benefits Survey is based on previous surveys sponsored
by the Health Insurance Association ofAmerica from 1986-iggi and Bearing
Point (KPMG of the tine of the surveys) from 1991-1998. Findings in this
report draw on the 1999-2oo5 Koiser1HRET Survey of Employer-Sponsored
Health Benefits, the 1993, 1996, and 1998 KPMG Surveys of Employer
Sponsored Health Benefits, and the 1988, 1989 and 199o studies conducted
by HIAA Researchers at Health Research and Educational Trust and the
Kaiser Family Foundation designed and analyzed the survey National
Research LLC conducted the fieldwork between January and May zoos. In
2005 our overall response rate is 48%, which includes firms that offer and
do not offer health benefits. Among firms that offer health benefits, the
surveys response rote is 51%.
From previous years' experience, we have learned that firms that decline
to participate in the study are more likely not to offer health coverage.
Therefore, we asked one question to all firms in the study with which we
made phone contact where the firm declined to participate. The question
was, "Does your company offer or contribute to o health insurance program
as a benefit to your employees?" A total of 2,995 firs responded to this
question (including 2,013 who responded to the full surrey and 982 who
responded to this one question). Their responses are included in our
estimates of the percentage of firms offering health coverage.
The response rate for this question was 72%. Since firms are selected
randomly, it is possible to extrapolate from the sample to national, regional,
industry, and firm size estimates using statistical weights. In calculating
weights, we first determined the basic weight, then applied a nonresponse
adjustment, and finally applied a post-stratification adjustment. We used
the Statistics of the U.S. Census Bureau as the basis for the stratification
and the post stratification adjustment for firms in the private sector, and we
used the Census of U.S. Governments as the basis for post stratification for
public sector firms. All statistical tests are performed of p <.05 except where
otherwise noted.
For more methodology information, please visit our Survey Design and
Methods Section at www.kff.orgAnsurance113151
The Kaiser Family Foundation, based in Menlo Pork, California, is a nonprofit
private operating foundation dedicated to providing information and
analysis on health care issues to policymakers, the media, the health care
community, and the general public. The Foundation is not associated with
Kaiser Permonente or Kaiser Industries.
The Health Research and Educational Trust is a private, not-for-profit
organization involved in research, education, and demonstration programs
addressing health management and policy issues. Founded in 1944.
HRET collaborates with health care, government, academic, business, and
community organizations across the United States to conduct research and
disseminate findings chat help shape the future ofhealth care.
-AND- H- X
MuY.M R6L6Al1GH
[g1GAM1NaL tM/6i
The Henry I. Kaiser Family Foundation
2400 Sand Hill Road
Menlo Park, CA 94025
Phone 650.854.940o Fax 650.854.4800
Washington Office
133o G Street NW
Washington, DC 20005
Phone 202-347-527o Fax 202-347•,5271
The full report of survey findings (#7315)
is available on the Kaiser Family Foundation's website at www.kff.org.
Additional copies of this summary (#7316) are also available at www.kff.arg.
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ATTACHMENT D
TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
BILL LOCKYER
Attorney General
OPINION
of
BILL LOCKYER
Attorney General
SUSAN DUNCAN LEE
Deputy Attorney General
No. 05-910
May 22, 2006
THE HONORABLE BOB MARGETT, MEMBER OF THE STATE
SENATE, has requested an opinion on the following question:
May city council members of a general law city redirect the value of health
insurance benefits to a deferred compensation plan without violating the statutory limitation
upon the amount of compensation authorized for council members?
CONCLUSION
City council members of a general law city may redirect the value of health
insurance benefits to a deferred compensation plan without violating the statutory limitation
upon the amount of compensation authorized for council members.
05-910
0 0
ANALYSIS
Government Code section 365161 authorizes a city to provide its city council
members with a salary of between $300 and $1,000 per month, depending upon the size of
the city's population. However, an exception to the salary limitation is provided by
subdivision (e) of the statute, which states:
"Any amounts paid by a city for retirement, health and welfare, and
federal social security benefits shall not be included for purposes of
determining salary under this section provided the same benefits are available
and paid by the city for its employees."
The question presented for resolution is whether city council members may redirect the value
of their health benefits to a deferred compensation plan without violating the compensation
limitation of section 36516. We conclude that they may.
In 2000, we considered a similar situation involving members of the governing
board of a school district. (83 Ops.Cal.Atty.Gen. 124 (2000).) There, as here, the amount to
be paid to board members for their services was limited by statute. (1d. at pp. 125-126; see
Ed. Code, § 35120.) There also, as here, another statutory provision allowed the school
district to provide its members with certain benefits, including health insurance, without
concern for the statutory compensation limitation. Section 53208, the statute governing the
analysis in our 2000 opinion, states:
"Notwithstanding any statutory limitation upon compensation or
statutory restriction relating to interest in contracts entered into by any local
agency, any member of a legislative body may participate in any plan of health
and welfare benefits pennitted by this article." (Italics added.)
Our prior opinion resolved whether a school district could provide school board members
with cash payments in lieu of health insurance benefits without running afoul of the statutory
limitation upon compensation. We concluded that it could not because, while "health and
welfare benefits" could be provided without regard to the compensation limitation, cash
payments were not "health and welfare benefits" for purposes of the statute. (Id. at p. 127;
see § 53200, subd. (d) [defining "health and welfare benefit"].)
I All further references to the Government Code are by section number only.
2 05-910
9 0
We believe that there are material differences between the statutes governing
the present situation and those that governed our 2000 opinion. First, we are given here that
the city offers a variety of benefits to all employees on a "cafeteri a- style" plan. That is, the
city contributes a fixed amount to each employee for all benefits, with the employee then
choosing from among the benefits offered. The offered benefits include health insurance and
a deferred compensation plan.
The city's deferred compensation plan is a retirement-related plan organized
under section 457 of the Internal Revenue Code (26 U.S.C. § 457). This type of deferred
compensation plan allows employees of government agencies and non-profit organizations to
place pre-tax earnings into an account and to defer income taxes on the interest as it accrues.
Significantly, the contributing employee has no immediate claim on the assets in the
account. Instead, distributions may be made to the employee only upon retirement, severance
from employment, in an unforeseeable emergency, or to a named beneficiary upon the
employee's death. (See 26 C.F.R. § 1.457-6 (2005).)
Under the city's cafeteria-style benefits plan, any employee may elect to forego
health insurance and redirect the value of the coverage to a deferred compensation plan or
other selected benefit.2 Thus, there is an important factual difference between this situation
and the one we considered in 2000. Here, the redirection to a deferred compensation plan
would not be equivalent to a cash payment because the funds in a deferred compensation
plan are not immediately available. Contributions to a deferred compensation plan are
intended to provide the employee with a retirement benefit, and may only be distributed upon
the occurrence of specified contingencies.
More importantly, the statutory exception to the compensation limitation in our
earlier opinion extended only to "health and welfare benefits." (83 Ops.Cal.Atty.Gen., supra,
at pp. 126-127.) In contrast, the exception to the salary limitation in question extends not
only to "health and welfare" benefits but also to "retirement" benefits. 36516, sub. (d),
(e).) Consequently, retirement benefits are not counted for purposes of determining the
amount of a city council member's salary. In effect, redirecting the value of a health
insurance benefit to a deferred compensation plan does nothing more than convert one type
of exempt benefit to another type of exempt benefit. And since "the same benefits are
available and paid by the city for its employees" (Gov. Code, § 36516, subd. (e)), the
redirection would not violate the statutory limitation on salaries for city council members.
2 We are informed that an employee who elects to forego a health insurance benefit may be required
to demonstrate existing health coverage.
3 05-910
0 0
Accordingly, we conclude that city council members of a general law city may
redirect the value of health insurance benefits to a deferred compensation plan without
violating the statutory limitation upon the amount of compensation authorized for council
members.
4 05-910