Focus Area: Exceptional Services
Staff Contact: Erin Vader/Leslie Fortney
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title:
title
Review of marketing results for City’s self-funded medical and pharmacy claims administration and authorization to proceed with final contract award to Aetna.
Body
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recommended motion:
A motion to approve the letter of understanding with Aetna to provide the products, programs, and services outlined in the LOU for the years 2027 through 2031 for total fees not to exceed the financial terms outlined in the LOU, and additionally authorize staff to finalize the terms of a Master Services Agreement based on the LOU, subject to ratification by the Council if the total fees exceed the approved amount or there is a change in material terms.
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Summary:
Lockton Companies, the City’s benefits consultant, was engaged in early 2026 to conduct a marketing process for the City’s health plan and pharmacy benefit management services (PBM). The objectives of this vendor search were to identify a health management organization who is the best partner to:
• explore possible financial discounts and administrative savings
• utilize progressive resources and tools to assist the City’s population in making the most informed decisions about their health
• effectively manage overall plan costs to the City.
Proposals were received from all major carriers. Based upon Lockton’s analysis of financials and the capabilities proposed in the responses, the City determined Aetna’s proposal was the strongest overall and within the following specific areas:
• financially with savings in ASO fees and network discounts
• wellness and disease management solutions
• provider network access with minimal disruption for members covered on the plan.
Additional background and analysis for recommending Aetna as the health plan administrator, network, and prescription drug provider for the City self-funded plan is outlined below:
• Aetna’s financial proposal provides an estimated year one net savings of $674,471 for medical and pharmacy combined which is a 3.2% savings.
• Aetna’s proposal includes a one-year administrative credit worth $225,000 in addition to a wellness credit of $200,000 in year one, and $125,000 annually in years two through five.
• Aetna’s wellness programs have the qualitative needs to meet the City’s long-term strategies.
• Aetna offers a robust selection of additional programs (16) available to the City at a flat fee of $1.70 PEPM (roughly $21,603) for all programs.
• Aetna agreed to put $105,180 in fees at risk for performance guarantees and $210,361 at risk in network discount guarantees.
• Based upon recent claims submission data, Aetna’s network provides for 98.4% of facilities and physicians to be paid as In-Network, compared to Cigna’s 97.7%, ensuring minimal disruption to plan participants.
Both Lockton and City staff believe this proposal is representative of current market conditions and reflects the City’s commitment to employee wellbeing, financial stewardship, and proactive claim and risk management.
Staff recommends awarding a contract to Aetna for administrative services for the health and prescription program through December 31, 2031.
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Financial Information:
|
|
2026 Cigna |
2027 Aetna |
Change ($) |
Change (%) |
|
Estimated Administrative Fees |
$413,086 |
$655,503 |
$242,417 |
+58.68% |
|
Estimated Medical/Pharmacy Claims |
$22,657,275 |
$23,219,319 |
$562,044 |
+2.48% |
|
Pharmacy Rebates |
($2,003,603) |
($3,130,035) |
($1,126,432) |
+56.22% |
|
Admin/wellness credit |
$72,000 |
$425,000 |
($353,000) |
+490.28% |
|
|
|
|
|
|
|
Estimated Total Costs |
$20,994,258 |
$20,319,787 |
($674,971) |
-3.21% |
|
|
|
|
|
|
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Attachment(s):
A. Medical and RX financial proposal - 5 year LOU
B. Bid Summary of Financial & Network Comparison