HomeMy WebLinkAboutItem 4.04 DentalBeneftsRpt (2)
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CITY OF DUBLIN
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: February 27, 1995
SUBJECT: Informational Report Regarding Dental Benefits (Report
prepared by: Lou Ann Riera-Texeira, Assistant to the
city Manager)
EXHIBITS: None
RECOMMENDATION: Accept 'report
FINANCIAL
STATEMENT:
This is an informational report. There is no cost
associated with this item.
DESCRIPTION: In 1993, the city Council directed staff to evaluate the
feasibility of implementing a self-funded dental program. Currently, the
city of Dublin provides dental insurance coverage to regular part-time and
full-time employees. Since 1989, the City has contracted with Delta
Dental for dental insurance. . The current agreement provides for a $1,500
annual cap per enrollee with a $25 calendar year deductible ($75 per
family). It also provides for standard dental coverage including 100%
coverage for diagnostic & preventive services (Cleaning, X-rays); 80%
coverage of basic services (fillings, extractions, oral surgery, root
canals); 50% coverage of crowns, cast restoration and prosthodontics; and
50% orthodontics WhlCh is limited to eligible dependent children ($1,000
lifetime max).
Presently, the City of DUblin insures approximately 36 employ~es and City
officials. The estimated annual cost based on current enrollment is
approximately $29,340.
since 1989, the city has venewed
year basis. Over the past four
increase in premium rates. This
by Delta Dental, along with an
benefit coverage initiated by the
summary of premium rate increases
its ..contract with Delta Dental on a two
years, the city has ~xperienced a 29%
includes renewal rate increases imposed
increase associated with an upgrade in
City in February of 1993. An historical
is shown below:
Oct 89 oct 91 Feb 93 Oct 93
(Renewal) (Upgrade) (Renewal)
single $25.61 $29.69 $30.80 $ 33.70
2-Party $48.36 $56.58 $58.64 $ 64.15
3-Party+ $81.93 $95.86 $98.37 $107.62
For rate setting purposes, Delta Dental pools the experience of a number
of em~loyers. According to Delta, renewal rates are based on the combined
experlence of more than 700 groups employing less than 100 employees each.
Further, Delta indicates that pooling experience has proven to be the most
,- reliable method of forecasting,costs for groups of this size. This also
provides the city with more stable rates then would be experienced if the
city's rates were based on the experience of a smaller pool.
On October 1, 1994, the City renewed its agreement with Delta Dental for a
two year period. The City received a written notification from Delta
Dental indicating that there wou1d.be~ rate increase during the upcoming
two year service period.
However, in an ongoing effort to monitor and control costs, staff has
reviewed options with regard to dental insurance., One option considered
is self-funding. In reviewing this option, staff considered the following
components: 1) Prior experience with the ABAG self-funded trust program;
2) advice from the City's insurance broker regarding self-funding; 3) a
survey of cities which currently selz-zund dental insurance; 4) a review
of the Direct Reimbursement Plan provided by the council on Dental Care
Programs of the American Dental Association; 5) and a survey of city
employees designed to measure claims experience/exposure and ultimately
help determine the cost efficiency of the existing dental program as
compared to self-funding. ,- ,
Prior Experience with a Self~Funded Program - Prior to contracting with
Delta Dental for dental insurance, . the City of Dublin participated in the
Association of Bay Area Governments Benefits Trust (ABT). The ABT was a
self funded program, comprised of several public agencies. The ABT
provided both health and dental -insurance. However, the City of Dublin
participated only in the dental program.
CITY CLERK
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The ABT experienced di~cultY maintaining reasontltle premiums. Due to
soaring medical costs within the health program, and increasing costs
associated with administering the program, ABAG elected to discontinue the
trust program. consequently, city staff solicited proposals for dental
insurance coverage and selected Dental Dental as its provider.
Advise From the city's Insurance Broker The city of Dublin currently
uses Alexander & Alexander Benefit Services (A&A) as its insurance broker.
A&A has been successful in maintaining competitive, cost effective Life
and Long Term Disability insurance programs for the city. city staff
contacted A&A with regard to dental insurance. In response, A&A
recommended against self-funding for the following reasons:
1. Increased coodination and costs associated with employee communication
materials (i.e., plan certificates, booklets, enrollment materials).
2. Cost associated with developing a plan document.
3. Claims administration costs - trust account for claim payments,
administration fees, etc.
4. Legal expenses.
5. Need for fudiciary bond.
6. Potential full liability of all claims.
7. potential costs and responsibilities associated with disclosure and
filing requirements for public entities using self-funding.
8. Difficulty in budgeting/forecasting without a historical claims
experience report.
Market Survey The third element of Staff's review involved a market
survey. Staff surveyed a number of surrounding cities which currently self
fund dental insurance (Livermore, Brisbane, Belmont, San Ramon,
Burlingame, orinda and Menlo Park). Of the seven agencies surveyed, three
self administer their own program and four use third party administrators
(two of the four use Delta Dental as an administrator). All agencies
employ between 100 and 200 employees, with the exception of Orinda which
employs 30 staff. It appears that the larger the pool of enrollees, the
lower the monthly "premiums." consequently, it appears that the monthly
"premiums" to the self-funded programs are lower tlJan the insurance
premiums currently paid by the city of Dublin. The monthly "premiums" for
family coverage ranged from $62 to $77 per month; compared to Dublin's
family premium of $107.62.
Most of the agencies surveyed have used a self-funded program from 5 to 22
years. Thus, it was difficult to gauge the cost savings issue comparing
the prior dental insurance plans to the self-funded programs.
When asked about the major advantages and disadvantages of self-funding,
most agencies indicated that the major advantage is cost-savings. The
disadvantages include the following: 1) a lower level of benefit (three
of the eight agencies surveyed exclude all orthodontic benefits); 2) all
agencies require the employee to pay for dental services out-of-pocket and
subsequently request reimbursement (agencies typically limit
reimbursements to quarterly; with one agency, reimbursements are made once
annually); 3) typically, the employee receives a higher level of benefit
than eligible dependents and employee claims are paid before dependent
claims; and 4) with most agencies surveyed, the employee is not guaranteed
100% reimbursement; reimbursement is dependent upon the agency's
experience and available funding. The disadvantages appear to outweigh
the potential cost savings.
Direct Reimbursement Plan - Another component of staff's research included
a review of the Direct Reimbursement Plan provided by the Council on
Dental Care Programs of the American Dental Association (ADA). The ADA
through the California Dental Association (CDA) provides employers with an
information kit detailing the Direct Reimbursement Plan along with a
complimentary actuarial cost estimate. The Direct Reimbursement Plan
provides an alternative approach to self-funding dental coverage.
City staff has received an acturial cost estimate from CDA based on
enrollment of 36 employees. The cost estimate provided by CDA included two
sample plans. Both plans attempt to mirror the city's current benefits
provided through Delta Dental. Further, both plans provide for an
annual maximum benefit of $1,500. The estimated cost of the two plan
options ranges from $21,318 to $25,437 per year, exclusive of any
administrative costs associated with self-funding.
It should be noted that this actuarial was conducted without the benefit
of actual historical claims costs for the City of Dublin. Because Dublin
is included in Delta Dental's small agency pool, individual agency claims
experience reports are not available.
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Further, the CDA Direct Reimbursement Plan serves primarily private
employers. It was found through the city's prior experience with the
ABAG trust program that public and private employers have very different
claims experience. Public employers experience higher dental insurance
useage than private employers.
Survey of City Employees - The third element of staff's review included a
surve~ of city employees. The survey was designed to measure claims
experlence/exposure and ultimately help determine the cost efficiency of
the existing dental program as compared to self-funding.
Of the 36 employees currently receiving dental benefits, 25 (69%)
responded to the survey. Based on the survey response, approximately 53
Cit~ employees and their eligible dependents obtained dental treatment
durlng the 12-month survey period (calendar year 1993). The estimated cost
of dental treatment received by city employees and their eligible
dependents during the survey period was approximately $47,200. And the
anticipated cost of dental claims projected for calendar year 1994 was
comparable. In addition, four City employees indicated that they are
currently using the orthodontic benefit; an additional three employees
anticipated using orthodontic benefits in the upcoming year. As indicated
above, the orthodontic benefit has a lifetime value of $1,000 per eligible
dependent child. Thus, the claims exposure to the city of Dublin would
have been significantly greater than the estimated premiums paid to Delta
Dental, if the city had been self-insured.
staff has conducted a review of self-funding dental insurance. It is
staff's recommendation at this time to continue to utilize a fully insured
group plan for the provision of dental benefits for the following reasons:
1. The city's prior experience with the ABAG trust
2. The city's relatively small size
3. Potential costs and risks associated with self-funding including
a. A lower level of benefit coverage
b. Unknown administrative costs
c. Potentially high useage and claims exposure &
staff will continue to periodically monitor health & welfare benefits to
ensure cost efficiency.
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