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RESOLUTION NO. 7,867 8.
A RESOLUTION AUTHORIZING THE CITY MANAGER
TO ENTER INTO A CONTRACT WITH PRUDENTIAL
LIFE INSURANCE COMPANY OF AMERICk".FOR CITY
EMPLOYEE HEALTH AND LIFE INSURANCE COVERAGE.
NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF
THE CITY OF LITTLE ROCK, ARKANSAS:
SECTION 1. The City Manager is hereby authorized to enter
into a contract with Prudential Life Insurance Company of America
for City employee health and life insurance coverage as set out
in their proposal submitted on October 9, 1987.
SECTION 2. Funds have been allocated for this expenditure
and will be available in General Fund Account Nos. 6510 -112 and
6510 -120 for 1988.
ADOPTED: December 1, 1987
ATTEST:
APPROVE S TO FO
MARK STODOLA, CITY ATTORNEY
APPROVED:
XI, ()X'V�
ASST. MA OR F. G. VILLINES
4_Z6
AD-7
= 1 = = = NI =
Marsh & McLennan Group Associates
105 West Capitol • P.O. Box 1310 • Little Rock, AR 72203.501- 372 -2222
•
TO: MS. BRITT RICE
DIRECTOR OF PERSONNEL
FROM: STEVE rpZGAN , VI - PRESIDENT
MARS A T U ITTS
CONS F LITTLE ROCK.
SUBJECT: MEDICAL AND LIFE INSURANCE PROPOSALS
DATE: NOVEMBER 18, 1987
During the last 18 months, there have been repeated
requests by various employee groups within the City of
Little Rock to offer HMO type benefits. The reason for this
request is simply due to the attractive nature of these
programs to the consumer. Specifically, limited deductibles
and no 20 percent co- payments. Such programs provide
managed health care with virtually no out -of- pocket exposure
to the employee.
A review of competing proposals began during December 1986.
This process involved an in -depth analysis comparing both
conventional insurance programs with various HMO benefit
packages. It was initially anticipated that an HMO would be
offered; and that traditional indemnity coverage would be
maintained for those that chose not to participate in the
HMO.
HMO's have only recently been available in Little Rock and
rates for HMO coverage are based on community averages
rather than the claims experience or demographics of a
specific group. Due to those facts plus the potential for
adverse selection, the City of Little Rock has taken the
position of not removing a portion of its health care
dollars from a claims sensitive arrangement to a community
rated program, such as an HMO.
The danger of adverse selection deals with the fact that
younger more healthy employees may exit the traditional
program which will bring about new increased pressure on
traditional coverage rates. This adverse selection has been
evidenced in several groups, including the Pulaski County
group locally and the Aetna Life Insurance Company on their
own employees.
After two Requests for Proposals and repeated discussions
with insurance representatives and their underwriters, it
was decided that the ideal arrangement would be a dual
M6
Marsh & McLennan Group Associates
105 West Capitol • P.O. Box 1310 • Little Rock, AR 72203 •501- 372 -2222
389
option medical program offering HMO type benefits and
traditional coverage combined under one claims sensitive
contract. In this arrangement, any surpluses created under
the managed care HMO type area could be-used to offset any
losses on the traditional insurance program.
Three insurance companies were able to offer the dual
option. These included Blue Cross and Blue Shield of
Arkansas, the Prudential Insurance Company, and the Equicor
Group. Basic plan differences existed among the
alternatives, which I have analyzed relative to their
respective costs. The Prudential Plus Contract was
determined to be the most attractive. Basically, Prudential
quoted a rate equal to the City's current expenditure
level.
If the City decided not to take any action at this time,
there would be a 20 percent needed premium increase which
represents approximately $39,000 to $40,000 monthly under
the current self- insured program. Blue Cross and Blue
Shield expected claims would generate a 23 percent increase
while the maximum exposure level would generate a 45 percent
maximum expenditure. Equicor, on the other hand,
illustrated a 4 percent expected increase and 13 percent
maximum expenditure under a combination of fully insured and
self- insured dual option coverages.
SUMMARY
Due to the relative attractiveness of the Prudential Plus
program in addition to the experience rated nature of all
its medical benefits, I feel that financially this program
to be preferable.
It is our recommendation that this contract be entered into
effective 1 -1 -88, with employee solicitations and question
and answer sessions taking place during early December.
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