City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Human Resources
Meeting Date: November 4, 2024
Report #:2409-3460
TITLE
Approval of Professional Services Contract Number C25191557 with The Advantage Group in an Amount Not to Exceed $231,000 to Provide Third Party Administration Services for the Palo Alto Retirees Health Benefit Reimbursement Program for a period of Five Years; CEQA Status - Not a Project.
RECOMMENDATION
Staff recommends that Council approve and authorize the City Manager or their designee to execute the attached Contract No C25191557 (Attachment B), with The Advantage Group, to provide administration services for the Palo Alto Retirees Health Benefit Reimbursement program for a term of five years and a total amount not-to-exceed $231,000.
BACKGROUND
The City offers medical benefits to retirees and their eligible dependents upon retirement, which may include partial reimbursement for their CalPERS Public Employees Medical Health Plan. The reimbursement amount varies based on employee’s date of hire and retirement from the City. Currently the City has four different reimbursement groups under this benefit program, Attachment A outlines the different benefit levels by group. The groups impact how much the City reimburses retirees for their medical deductions. These benefit levels are negotiated and approved as part of the employee contracts. Employees and retirees have an open enrollment window in October each year in which they can make changes to their healthcare plans that take effect in January of the following year.
The reimbursement process for Groups 1, 2 and 3 is managed by an external vendor. This is because CalPERS deducts the full cost of medical premium from retiree’s pension check, thus requiring the City to process reimbursement to retirees based on their eligibility. Our service provider meticulously reviews the CalPERS retiree roster and the specifics of each retiree's medical plan on a monthly basis. The provider determines the appropriate reimbursement amount, which is reviewed by City staff for accuracy. Finally, the provider requests approval from the City’s Administrative Services Department (Treasury Division) for monthly payments
and processes the reimbursement for over 900 City retirees. Group 4 is managed by CalPERS.
Retirees under Group 4 pay their portion of medical deductions directly from their pension check and CalPERS bills the City their portion on a monthly basis.
ANALYSIS
Procurement Process
A request for proposals (RFP) was issued by the City’s benefit broker, Alliant, on behalf of the City. Alliant conducted a targeted approach, reaching out to several known retiree health reimbursement providers. Four qualified retiree health reimbursement contractors responded to the RFP.
Table 1: Summary of Request for Proposal
Proposal Description Request for Proposal for Retiree Billing Premium Reimbursement Services
Proposed Length of Project 5 years
Number of Vendors Notified 5
Number of Proposal Packages Downloaded 4
Total Days to Respond to Proposal 21
Pre-Proposal Meeting No
Pre-Proposal Meeting Date N/A
Number of Proposals Received 4
Proposal Price Range $42,000 to $49,000 per year
Public Link to Solicitation N/A
The City evaluated responses based on each respondent's ability to ensure efficiency of processing reimbursements, reduce errors in the reimbursement processing to retirees, and enhance retiree satisfaction.
Given that the full medical deduction is directly deducted from retirees' pension checks, many retirees rely on the monthly reimbursement from this City process to fulfill their financial obligations. Recognizing the significant impact this process has on retirees' daily lives, it is critical to ensure that any change to this process would minimize any potential disruptions. To achieve this, staff focused on selecting a provider that ensured timely and accurate processing of reimbursements.
The City received proposals from The Advantage Group (current vendor), P&A, WEX Health and Navia. Staff reviewed the proposals with the assistance of the City’s benefit broker. After reviewing all submissions against the three main objectives outlined above, staff recommends continuing services with The Advantage Group (TAG).
TAG has been the City’s administrator for Retiree Health Benefit Reimbursements since 2017.
Prior to TAG being awarded the contract, the Employee Benefits Service administered this program. TAG has simplified the process for the complex City’s Retiree Health Benefit Reimbursement program and ensured reimbursements are processed on time and error-free.
Key variables including ensuring eligibility criteria checked monthly, reconciliation to CalPERS billing or address changes are maintained to ensure accurate retiree reimbursements are handled by TAG and all necessary coordination, communication, and recordkeeping maintenance involved.
TAG offered a direct single point of contact for retiree customer service. Other administrators that responded to the RFP did not offer a single point of contact for retirees; rather they have larger customer support centers with decentralized services. City’s retirees have developed an effective service connection with TAG and their representatives. Altering to a customer support center approach would involve significant transition change management with the retiree population and seen as a reduction in service provided.
Lastly, the proposal from all vendors provided similar annual cost for their services, ranging from $42,000 to $49,000. TAG will continue to provide their services with no change to their current cost. The annual cost for TAG will be $46,200 and is recommended to continue administering these services due to their expertise and quality service.
FISCAL/RESOURCE IMPACT
Funds for the Retiree Health Benefit Reimbursement contract are included in the FY 2025 Adopted Operating Budget in the General Benefits Fund. Funding for future years will be factored into the development future operating budgets and subject to City Council approval through the annual budget process.
The cost associated with this contract are for the administration of City of Palo Alto’s retiree healthcare benefit.
STAKEHOLDER ENGAGEMENT
Internal stakeholders will be informed of the contract status to ensure continuity in current processes.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because approval of this contract for benefit administration services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
ATTACHMENTS
Attachment A: Benefit Groups in the CalPERS Retiree Healthcare Benefit Plans Attachment B: The Advantage Group, Contract C25191557
APPROVED BY:
Sandra Blanch, Human Resources Director