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Agenda 12/10/2013 Item #16E 2 12/10/2013 16.E.2. EXECUTIVE SUMMARY Recommendation to approve the purchase of Group Health Reinsurance coverage for calendar year 2014 in the estimated amount of $776,056 to SunLife Insurance Company. OBJECTIVE: To protect the Group Health Fund from catastrophic losses through the purchase of group health reinsurance coverage. CONSIDERATIONS: The Board of Commissioners through the Risk Management Department administers a partially self-funded Group Health Insurance Program (the Plan) for its employees, participating constitutional officer employees and their eligible dependents. Group health reinsurance coverage, also known as "Stop Loss", is purchased to protect the Plan against adverse loss experience. Two types of reinsurance coverage are generally available. Specific excess insurance protects the plan if a covered member incurs claims cost in excess of a "per member" deductible. Aggregate excess insurance provides coverage to the Plan if total losses exceed an aggregate deductible for the Plan. Currently, the County purchases specific excess insurance through SunLife Insurance Company with a specific deductible of $325,000 per member. This coverage provides an unlimited maximum lifetime benefit per covered member. Aggregate excess coverage is not purchased. The current Stop Loss coverage expires on December 31, 2013. Willis, Inc., the County's benefits brokerage and actuarial firm marketed the Stop Loss program on behalf of the County. Specific excess retention levels (deductibles) ranging from $325,000 per claimant to $375,000 per claimant were sought. Willis approached seventeen carriers. Two carriers provided proposals. One carrier proposed a 71.6% rate increase which was not considered responsive. The incumbent, SunLife proposed a 16.5% increase at the current specific retention level of $325,000. The lack of market response is due to two concerns expressed by underwriters. The first concern relates to the number of catastrophic losses which occurred in calendar year 2012. Underwriters expressed concern that these may re-occur. The second concern relates to the fact that the current rates through SunLife are significantly below their manual rates, which prevents them from being competitive. SunLife offered three self insured retention options ranging from $325,000 to $375,000. Willis completed an actuarial analysis to determine which retention option presents the best value. A comparison of the three options indicates that the Expected Cost of Risk Transfer is relatively similar for each option (approximately an $18,160 difference) which does not justify the assumption of a higher retention in exchange for the uncertain promise of such small savings. Cost of Risk Transfer Specific Premium Expected Specific Return on Expected Cost of Deductible Recovery Premium Risk Transfer $325,000 $776,056 $461,265 0.594 $314,791 $350,000 $712,850 $414,191 0.581 $298,659 $375,000 $669,410 $372,779 0.557 $296,631 Packet Page-1864- 12/10/2013 16.E.2. Therefore, Willis recommends that the County continue to purchase a specific retention level of $325,000 per member. The proposal submitted by SunLife has no lifetime maximum benefit limit. SunLife carries a Best's "A" (Superior) rating. SunLife did not offer an aggregate excess quote. However, based upon past experience, Willis has repeatedly determined that there is a 99% probability that the aggregate deductible will never be met. Thus, the purchase of aggregate reinsurance has never been recommended. Finally, it is possible that other carriers may be willing to offer proposals for the January 1 renewal deadline. In certain instances, carriers have uncommitted capacity at the end of the calendar year which they may wish to commit at reduced premium. Thus, it may be possible to secure coverage at the same terms and conditions but at a lower price toward the end of December, 2013. Due to the limited number of scheduled Board meetings prior the January 1 renewal date and the need to meet Board submission deadlines, staff is recommending that the Board permit the staff and the broker to continue to seek competitive proposals with the authority to bind coverage should another carrier present greater cost savings at the same terms, conditions and Best's financial rating. FISCAL IMPACT: The total estimated cost of group health reinsurance in calendar year 2014 is $776,056 based upon an estimated average enrollment of 1,810 employees. This represents a premium increase of $109,903 annually. The composite rate per employee per month is $35.73. Stop Loss premium comprises only 2% of total program costs. Thus, the impact of the increase on total program costs is not significant. There are sufficient funds available in Fund 517 for this purchase. GROWTH MANAGEMENT IMPACT: There is no growth management impact associated with this item. LEGAL CONSIDERATIONS: This item is approved as to form and legality, and requires majority vote for Board approval.—SRT RECOMMENDATION: That the Board approves the purchase of Group Health. Reinsurance as outlined in the Executive Summary and authorizes the County Manager or designee to sign the documents necessary to commence coverage effective January 1, 2014. PREPARED BY: Jeffrey A. Walker, CPCU, ARM, Director, Risk Management Packet Page-1865- 12/10/2013 16.E.2. COLLIER COUNTY Board of County Commissioners Item Number: 16.16.E.16.E.2. Item Summary: Recommendation to approve the purchase of Group Health Reinsurance coverage for calendar year 2014 in the estimated amount of$776,056 to SunLife Insurance Company. Meeting Date: 12/10/2013 Prepared By Name: WalkerJeff Title: Director-Risk Management,Risk Management 11/5/2013 8:54:09 AM Submitted by Title:Director-Risk Management,Risk Management Name: WalkerJeff 11/5/2013 8:54:10 AM Approved By Name: pochopinpat Title: Administrative Assistant,Facilities Management Date: 11/14/2013 11:16:16 AM Name: PriceLen Title: Administrator, Administrative Services Date: 11/15/2013 12:39:09 PM Name: GreeneColleen Title: Assistant County Attorney,County Attorney Date: 11/18/2013 10:32:58 AM Name: KlatzkowJeff Title: County Attorney Date: 11/18/2013 11:12:57 AM Packet Page-1866- 12/10/2013 16.E.2. Name: PryorCheryl Title: Management/Budget Analyst, Senior,Office of Manag Date: 11/22/2013 11:27:25 AM Name: KlatzkowJeff Title: County Attorney Date: 11/22/2013 2:48:58 PM Name: OchsLeo Title: County Manager Date: 11/25/2013 1:35:20 PM Packet Page-1867- 12/10/2013 16.E.2. 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