HomeMy WebLinkAbout12 - Retiree Medical Program ModificationsCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 12
March 14, 2006
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Sharon Wood, Assistant City Manager, (644- 3000), swood @city. newport-
beach.ca.us
SUBJECT: Modifications to Retiree Medical Program for Existing Retirees
ISSUES:
Should the City modify the Retiree Medical Program for existing retirees participating in
the program; and should the City provide supplemental funding for the Police retirees in
that program?
RECOMMENDATION:
Approve both the modified program and the supplemental funding.
BACKGROUND:
The subject of enhancing the retiree medical benefit for existing retirees has come up a
few times recently, mostly from a group of Police retirees. Essentially, their point is that
they feel the retiree benefit had been linked to the active duty benefit at one time, and
that should still be the case.
Relevant parameters of the existing ( "Old ") Retiree Medical Program:
• Provides a maximum benefit of $400 per month.
• Funds may be used only for City Medical Insurance.
• Retirees pay 25% of the cost.
• Requires enrolling in City Insurance upon retirement.
• Active employees have paid 25% of the cost for current retirees. (That provision
is being phased out as part of the "new" program for current employees.)
DISCUSSION:
The first potential change is to modify the "usage rules" for the available funds, but
retain the $400 per month cap. This would apply to all 'old" program retirees.
Retiree Medical Program
March 14, 2006
Page 2
The second potential change is to increase the monthly cap from $400 to $450, for
Police retirees only, with the $50 per month increase shared $25 by the City and $25 by
active Police employees.
• Neither of these changes will affect the retiree medical benefit for any current
employees and /or future retirees. Members in those categories are participating
in a new defined contribution medical expense reimbursement plan (MERP).
• This current proposal would change the "old" program by:
o Allowing existing retirees to use the $400 for any IRS approved medical
expense; and eliminates the 25% mandatory cost sharing by retirees.
This would bring the thresholds for existing retirees more closely in line
with those of the new MERP program, thereby simplifying administration.
o For Police retirees only, increasing the maximum benefit to $450, with the
City contributing $25 per month and the current Police employees
contributing $25 per month. By vote of their respective memberships,
both the Police Employees Association and the Police Management
Association have agreed to pay their share of the additional contribution,
subject to the City agreeing to pay its share.
Projected additional cost to the City for modifying the procedures and eliminating the
retiree 25% cost sharing is $128,000 for the first year. This additional cost will
effectively decline each year thereafter. After about four years, the additional cost is
projected to be minimal, if any. That is because each year, increasing medical
premiums are causing more and more retirees to reach the $400 cap anyway. Nearly
two- thirds of them are at that level already.
This change would eventually simplify administration of the overall program; which
would probably result in some offsetting future cost savings related to the vendor
contract. However, this is not yet quantifiable, and staff expects the transition period to
be staff intensive as retirees become accustomed to the new program and procedural
changes.
The projected additional cost to the City for a $50 per month increase for Police retirees
will be $31,000 the first year. This assumes the first provision is already in place; and
that active Police employees pay half the cost.
The additional cost of this part of the proposal ($50 increase) will also decline each
year, but it will take about 30 years to completely disappear. The cost to the City will
never exceed the $31,000 cost sharing agreement, absent some future Council action
changing the arrangement; which was also approved by the two Police Associations as
part of the meet and confer process.
Retiree Medical Program
March 14, 2006
Page 3
The target implementation date is June 1, 2006. However, the transition process for
this program change presents varied and unique administrative challenges. In addition,
it involves personnel and outside entities not entirely within the control of City Staff. If
the recommendation is approved by the City Council, staff is committed to move forward
with the conversion as quickly and efficiently as possible. But completion by that date
cannot be guaranteed. Implementation may be effected in phases over several months.
FUNDING AVAILABILITY:
Funding for the duration of this fiscal year will be provided by salary savings due to
vacancies. It will be included as part of the annual budget in the future.
Prepared by:
Submitted by:
Dick Kurth' Sharon Wood
Deputy Administrative Services Director Assistant City Manager