DEPARTMENT: Human Resources
DEPARTMENT HEAD: Joe Angelo, Chief Human Resources Officer
COUNCIL DISTRICTS IMPACTED: City-Wide
SUBJECT:
United Healthcare Services - Contract Extension
SUMMARY:
This Ordinance authorizes the City Manager or her designee to execute an amendment extending the term of the contract with United HealthCare Insurance Company (UHC), the City's Third Party Administrator for the City's self-funded medical plans, for one additional year through Plan Year 2015, and amends the fee terms for Plan Year 2014 (current year) and Plan Year 2015 to increase the administrative credits and shared savings to the City, resulting in an estimated net fee paid to UHC of $5.3 million in 2014 and $4.6 million in 2015.
BACKGROUND INFORMATION:
The City of San Antonio offers medical and prescription benefit plans to approximately 10,000 civilian and uniformed full-time active employees along with 350 civilian and pre-1989 Fire and Police retirees (since 1989, the City pre-funds health care for uniform retirees). The services of a Third Party Administrator (TPA) and Pharmacy Benefits Manager (PBM) are utilized to process medical, prescription and flexible spending claims for the approximately 25,000 covered lives, including dependents, and reduce health care costs resulting from contracted provider discounts, utilization review, large case management, wellness programs and disease management. Beginning January 1, 2013, the addition of administrative services for Health Rewards with Outcomes Program, subcontracting services with Virgin Pulse and administration of H S A and HRA were used to complement health care plan design changes and wellness initiatives.
The contract with UHC for TPA and PBM services for the self-funded medical plan commenced on January 1, 2008 for a five year term and included two one year options for extension. Both options for extension have been exercised and the current contract expires on December 31, 2014.
As the City is currently in collective bargaining negotiations with the San Antonio Police Officers Association and San Antonio Professional Firefighters Association, it is recommended that the TPA and PBM agreement be extended by one year to provide continuity in these services. In addition to the extension in term by one year, the fees for the current contract year have been renegotiated and fees established for the proposed extension for calendar year 2015. The proposed changes in fees are as follows and result in an estimated fee of $5.3 million in 2014 and $4.6 million in 2015:
· Increase in the administrative fee credit by $1.32 PEPM in 2015
· City to share in pharmacy rebates at 30% for 2014 and 32% for 2015
· Shared Savings Fee for negotiation of discounts outside the network reduced from 35% to 29%, with a cap of $110,000 monthly for 2015
ISSUE:
This Ordinance would approve a one year extension to the TPA and PBM agreement with United Healthcare and approve revised fees for calendar year 2014 and 2015.
ALTERNATIVES:
The alternative to awarding this contract extension will be to obtain a new contract. A new contract will require the completion of an RFP process, which could result in delay or disruption of services for the 2015 plan year.
FISCAL IMPACT:
Funds are included in the FY 2014 Adopted Budget for City provided third party administration services for employees, retirees and dependents. The estimated fees under the agreement net of shared rebates and credits is $5.3 million for 2014 and $4.6 million in 2015.
RECOMMENDATION:
Staff recommends approval of this ordinance to execute a contract extension for one (1) year with UnitedHealthcare Insurance Company for a term beginning January 1, 2015 and ending on December 31, 2015.