Stop loss insurance is budgeted annually by the City. The City anticipates an increase of up to 20% for the stop loss premium each fiscal year.  The City’s current premium is $462,218.

In addition to the premium, a stop loss agreement has an established deductible. A deductible for stop loss coverage is the amount paid by the City’s Group Health Plan on behalf of a claimant’s large medical or Rx claim before stop loss insurance will initiate any payment to the applicable vendor. The City’s current deductible is $300,000.  If the individual catastrophic claim reaches $300,000 in paid claims, stop loss insurance will initiate payment to the applicable vendor for claims costs exceeding $300,000 for the remainder of the fiscal year.

A stop loss agreement may also include “lasers”.  Lasers are attached to claimants when a past or current medical condition or prescription medication is anticipated to greatly exceed the established deductible. To mitigate exposure to the stop loss carrier, large individual claims may be identified in the agreement as a laser.

If a laser is identified, the City is required to either pay a higher deductible for each laser or a pre-determined dollar amount before stop loss insurance will initiate payment to the applicable vendor for claims costs. In fiscal year 2020, the stop loss agreement had two (2) lasers adding liability to the City in the amount of $1,370,000.

In April of each year, the City's health insurance broker/consultant, LP Insurance Services conducts an open bid process for a stop loss carrier. Since stop loss insurance is based on the City’s claim history, stop loss carriers typically provide a bid as close to the end of the fiscal year as possible, in order to evaluate all medical and pharmacy claims impacting the plan.

As a result of this bid process, thirteen (13) companies were sent offers to bid, with eleven (11) choosing not to bid or offer quotes.  One (1) carrier did not provide a competitive quote.  The City’s current stop loss carrier, VOYA Financial presented the only viable options for renewal, which are:

1. VOYA Renewal Only
   1. An increase of 15.8% over the current premium for an annual amount of $535,457
   2. Specific stop loss deductible remains at $300,000

2. VOYA Option 1
   1. An increase of 3.9% over the current premium for annual amount of $480,159
   2. Increase the stop loss level deductible from $300,000 to $325,000

3. VOYA Option 2
   1. A decrease of -7.7% to the current premium for an annual amount of $426,791
   2. Increase the stop loss level deductible from $300,000 to $350,000

Lasers - In addition to the premium and deductible, each option for fiscal year 21 will have four (4) lasers.  Three (3) lasers will have an individual deductible of $500,000 each; and one (1) laser will be the entire amount of the anticipated claim totaling $1,600,000.  

The increases in the various quotes were not unexpected due to large claims in the past year, industry trends, rising healthcare and pharmacy costs and the potential for plan increases due to COVID-19.

After review by the City and with the assistance of our broker, staff determined that the best option was VOYA Option 1, which will increase our stop loss deductible to $325,000 from the current $300,000 and benefit the City by only a 3.9% over our current premium of $462,218 to an annual amount of $480,159. 

While this option raises the City's level of liability by $25,000, if the City experiences two (2) catastrophic claims during fiscal year 21, the Group Health fund would be in the same position as if the City were to remain with the current stop loss deductible and a 15.8% increase in the annual premium.

Therefore, the recommendation is to increase our stop loss level from $300,000 to $325,000.

If approved by council, this agreement will be effective July 1, 2020.

1. Council may approve the proposed participation in an agreement with VOYA Financial as outlined by staff, and authorize the City Manager to execute policy documents.
2. Council may direct the City Manager to provide alternatives to staff.

I move to approve the purchase of stop loss insurance with VOYA Financial for the City’s self-funded group health plan program for Fiscal Year 21 in the amount of $480,159 and authorize the City Manager to execute policy documents.