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REQUEST FOR COUNCIL ACTION Date: 9/15/2025 Item No.: 10.a. Department ApprovalCity Manager Approval Item Description:Approve 2026 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 benefits. Employees may 6 choose benefits such as health insurance, group-term life insurance, voluntary "supplemental" insurance 7 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 City Cafeteria Contributions 16 Historically, as other municipalities have done, the city has paid 100% of the premium for medical 17 insurance for a single plan. This does not mean that a single employee has free coverage. Employees 18 are still responsible for fulfilling their deductible as well as their out-of-pocket costs. Since 2010, the city 19 has utilized a benefit contribution incentive that has worked well and provides the full cafeteria dollar 20 amount only to those benefit-eligible employees who participate in a confidential health risk assessment, 21 a preventative care physical and blood pressure check. If an employee does not participate in these 22 wellness requirements, they receive $40 less per month in their cafeteria amount. This will be the first 23 year in which some, but not all, single plans are covered at 100% due to the increase in premium rates. 24 25 The city received a 14.95% increase in premiums for the 2026 plan year. Our broker, NFP, was able to 26 negotiate on our behalf and reduce the increase slightly to reflect an average 13.66% increase across 27 our current plans. Staff worked with the city's employee benefits committee, which has representatives 28 from various departments. This committee reviewed claims information and medical plan performance. 29 30 The City Manager has included sufficient funds in his recommended operating budget to cover an 31 average of a 5% increase in the cafeteria contributions. For 2026, this means the remainder of the 32 increase is covered by employees. In some instances, this results in several hundred dollar increases 33 per month depending on which plan is chosen. 34 35 Given the steep increase in premiums, as well as the additional cost to employees for Minnesota's 36 required Paid Family and Medical Leave (PFML), staff is recommending that the city offer two additional 37 plans for employees to choose from. These plans, called Accountable Care Organizations (ACOs), have 38 a smaller network and therefore a lower premium. These plans offer both a high deductible option 39 coupled with a Health Savings Account (HSA) as well as a lower deductible plan coupled with a Health 40 Reimbursement Account (HRA). These additional options provide employees a less expensive option Page 1 of 2 Qbhf!335!pg!354