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REQUEST FOR COUNCIL ACTION Date: 9/9/2024 Item No.: 10.d. Department Approval City Manager Approval Item Description: Approve 2025 Insurance Benefit Renewals and City Cafeteria Contributions 1 2 Background 3 A cafeteria plan is a type of employee benefit plan offered pursuant to Section 125 of the Internal 4 Revenue Code. The Internal Revenue Code sets forth the requirements and tax treatment of cafeteria 5 plans. A cafeteria plan allows employees to choose between different types of pre-tax benefits. 6 Employees may choose benefits such as health insurance, group-term life insurance, voluntary 7"supplemental" insurance and flexible spending accounts through the plan. 8 9 The City of Roseville has a cafeteria benefits plan that meets the requirements of Section 125 of the 10 Code. One of the main purposes of a cafeteria plan are the tax savings advantages for both the 11 employer and the employee. Employees' pretax contributions are not subject to federal, state or social 12 security taxes. As an employer, the City saves on the employer portion of FICA, FUTA and worker's 13 compensation insurance premiums. 14 15 History 16 In 2022, the city solicited Request for Proposals for medical insurance for 2023. The contract was 17 awarded to Medica at the September 6, 2023, council meeting. This new contract set the renewal rates 18 for 2023 below what the city had been paying in 2022 and offered a rate cap of 12% for calendar year 19 2024. In 2024, the city received an average of 5% for its renewal rates. 20 21 2025 Rates 22 Historically, the city has offered 2 plans, one of which follows the IRS regulations for an embedded 23 Health Savings Account (HSA) for a High Deductible Health Plan (HDHP). The other traditionally has 24 been indexed to the High Deductible Plan for the annual deductible and coupled with a Health 25 Reimbursement Account (HRA) with a slightly lower annual deductible ($2,000). However, since the IRS 26 has increased the annual deductible required for the High Deductible Plan to remain embedded, the 27 other plan has not kept pace with the indexed deductible amount. This means that several years ago, 28 the HDHP had an annual deductible of $3,000, while the plan with the HRA had an annual deductible of 29$2,000. Over the last several years, the IRS has increased the annual HDHP deductible amount 30 required to remain embedded to $3,300, while the HRA plan has remained with a $2,000 annual 31 deductible. 32 33 This year, in order to lower the monthly premium costs for both the employee and employer and to 34 regain the index status of the plan, staff requested an increase to the deductible so it can again be 35 indexed to the HDHP. This increases the deductible from $2,000 to $2,300 for the HRA plan. This 36 results in a lowered monthly premium and an average cost increase of monthly premiums of 9.84% for 37 the two plans. This change resulted in nearly a full percentage point lower increase to the monthly 38 premiums than keeping the current plans. 39 40 City Cafeteria Contributions 41 Historically, as other municipalities have done, the city has paid 100% of the premium for medical Page 1 of 3 Qbhf!229!pg!26: