Trust hears detailed presentation on self-insured medical plan proposal with stop-loss protection; decision deferred

City employee benefits consultant Lance Penley and benefits staff presented a recommendation Thursday to switch the city's medical and pharmacy coverage to a self-insured arrangement administered by UnitedHealthcare, with specific and aggregate stop-loss insurance (attachment point recommended at $200,000). Trustees removed the medical/pharmacy item from the package for separate consideration and recessed the special meeting until the following day to allow additional analysis on premium impacts and plan design.

The recommendation and rationale: Lance Penley, senior vice president for employee benefits at McGriff Marsh McLennan Agency, explained the difference between fully insured and self-funded health plans and said the recommendation is to move to a self-funded program with UnitedHealthcare effective Oct. 1, 2025. "A self insured health plan is a funding arrangement in which the employer assumes direct responsibility for cost enrolled, cost of enrollees in the medical in medical claims," Penley said. He described that the city would still purchase stop-loss coverage and that "we will pay premiums for stop loss insurance" to cap catastrophic exposure.

Stop-loss specifics and financial context: Penley said the recommended stop-loss specific attachment point is $200,000 and that the city would purchase both specific and aggregate stop-loss coverage. He noted current industry trends in claim severity, with some individual claims reaching hundreds of thousands to over a million dollars. Staff and consultant estimated an aggregate cost for the recommended vendor of about $9,000,000 (shown as $8.2M with a performance-share adjustment in staff slides) compared with a lowest-cost vendor estimate of $7,300,000; staff cautioned these are vendor-provided estimates rather than guaranteed final totals.

Premium and budget impacts: Benefits staff said employees on the PPO buy-up plan could see a maximum monthly premium increase of $78 (family plan) and an employer increase of $118 per family; the proposed premium split was described as 60% employer / 40% employee. Staff said the FY2026 budget assumes a 12% increase if UnitedHealthcare is selected and that the requested budget impact for health insurance is about $1,200,000, which staff said is partially attributable to added positions (staff cited 42 positions in the proposed FY2026 budget and 9 positions added since the FY2025 adopted budget) as well as health cost increases.

Concerns raised and vendor comparison: Trustees questioned how provider reimbursement rates would be set under self-funding and raised concerns about provider disruption. Penley and staff explained that provider payment rates would be based on UnitedHealthcare's negotiated contracts and discounts, and that the recommended vendor was shown to have a nationwide owned network with a higher provider disruption score (about 99% of current providers in-network) than the lowest-cost vendor. The consultant also warned that lower-cost proposals may rely on a different network structure and materially lower provider reimbursement (the consultant cited examples where the alternative program's direct-contract reimbursement could be "150% of Medicare allowable charges" versus more typical 200'to—200% of Medicare under other carriers), which would affect provider payments in the community.

Process, timeline and next steps: Staff said an answer is needed before the Oct. 1 effective date because open enrollment and administrative setup must occur beforehand. The trust removed item A from the current motion and scheduled a continuation of the meeting for the next day at 2:00 p.m. so trustees could receive additional premium charts and analysis on employee impacts. No formal vote on the medical/pharmacy recommendation occurred at the meeting.

Ending: The trust recessed and set the medical and pharmacy procurement for further consideration at the continued meeting; staff will provide the requested premium charts and additional vendor comparisons at that session.