City Council
Report
City Council Meeting: July 12, 2022
Agenda Item: 5.E
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Risk Management Subject: Approval of First Modification to Agreement with Intercare Holdings Insurance Services, Inc. for Workers' Compensation Claims Administration Services Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and execute a first modification to agreement #10506 in the amount of $1,090,267 with Intercare Holdings Insurance Services, Inc. (Intercare) for workers’ compensation claims administration services. This will result in an eight-year amended agreement with a new total amount not to exceed $2,789,776, with future year funding contingent on Council budget approval.
Summary
The City Council authorized a pilot program at the Big Blue Bus, now Department of Transportation (DoT) to determine the most cost-effective model for managing workers’ compensation claims. Consequently, effective November 1, 2017, claims administration responsibilities for all Big Blue Bus claims transferred from the City’s in-house workers’ compensation staff to Intercare, a Third-Party Administrator (TPA). Based on the pilot program’s performance, staff recommends a permanent shift to a TPA for management of DoT’s workers’ compensation claims. The current agreement with Intercare is set to expire on August 31, 2022. Intercare agreed to extend the agreement for three years with no year-to-year increase for the first year of the extension and 1.5% annual increase each year thereafter. Staff believes that such a modification to the agreement would be prudent and cost-effective for the City. The extension will provide additional time for the City to evaluate moving its entire Workers’ Compensation Program to the 2 of 5
TPA model and engage with bargaining groups regarding any potential labor relations issues.
Discussion
The Risk Management Division of the Finance Department is responsible for managing the City’s self-insured Workers’ Compensation Program. Self-insured employers can either administer the claims in-house or subcontract this service to a TPA. In 2001, the City moved to the internal management model to improve program outcomes through direct control and provide better customer service to injured employees. As a result, the Risk Management Division’s staff became responsible for coordinating medical care and financial benefits to injured workers, as mandated by State regulations.
Pilot Program: Background
In early 2017, a cross-departmental working group, tasked with developing initiatives to contain the City’s rising workers’ compensation costs, conducted an assessment of the TPA model. The working group found that the TPA model offers several advantages over a self-administered program like the City’s. Most significantly, a well-established TPA has more resources to support better claim outcomes. TPAs, by virtue of working with more than one client agency, have the ability to provide more supervisory and backup resources for their claims examiners, as well as dedicated assistants responsible for all clerical tasks. This ensures that claims are managed effectively even when the assigned examiner is out of the office. The City’s self-administered program is too small to have this level of staffing. In addition, many TPAs have in-house units to provide ancillary workers’ compensation services, such as fraud investigations, staff trainings, and medical management.
Given a favorable assessment of the TPA model, the working group developed a threeyear pilot program to determine whether the City could benefit from using a TPA to manage its workers’ compensation claims. The Big Blue Bus was selected as the Department to pilot the model primarily due to its sizable workforce consisting of employees in both physically demanding and sedentary jobs, and the Department’s desire to be more involved in management of its claims. On July 25, 2017 (Attachment A), Council approved the pilot program and the selection of Intercare as the TPA to manage the workers’ compensation claims for the Big Blue Bus. As a result, the City entered into an agreement with Intercare for three years with two one-year renewal 3 of 5
options (Attachment B). To avoid making any major changes to the City’s Workers’ Compensation Program during the pandemic, staff exercised the two renewal options, extending the duration of the pilot program to five years. This ensured stability for injured employees already dealing with the effects of the public health crisis.
Pilot Program: Assessment and Recommendation
Staff evaluated the pilot program’s success against a set of objective performance measures. The results from the pilot program are outlined below. It is important to note that most of the claims administered by City staff were filed by sworn public safety employees, who receive more generous workers’ compensation benefits, which makes those claims more costly.
• Total Liabilities (i.e., an estimated future value of all open claims) for DoT’s claims declined from $7.4 million to $5.4 million by March 31, 2022. In contrast, total liabilities for the claims from all other Departments increased from $21.9 million to $26.1 million.
• Total Expenses during FY 2020-21 for claims managed by Intercare increased by
0.4% from FY 2016-17. By comparison, total expenses for claims managed by in-house staff increased by 25.2%.
• In FY 2020-21, Temporary Disability Payments (i.e., payments for lost wages) per open claim for DoT increased by $628 from FY 2016-17. For all other Departments, the payments increased by $6,080.
Given the pilot program’s success, staff prepared a cost-benefit analysis to project savings if a TPA took over the administration of the remaining workers' compensation claims. The analysis is based on Intercare’s performance with DoT’s claims over the duration of the pilot program. It assumes that a TPA would achieve the same cost savings in total liabilities and total expenses for the Public Works Department since its employees receive the same State workers’ compensation benefits as DoT employees.
Sworn public safety employees, however, are entitled to a different set of benefits (e.g., injury presumptions, 4850 disability benefit, higher permanent disability, etc.). As such, 4 of 5
it is harder to project the cost savings – if there are any – that a TPA might achieve for claims from the Fire and Police Departments. The analysis below accounts for this difference by presenting three scenarios showing varying levels of impact on total liabilities and expenses when shifting all claims to a TPA:
• Scenario #1, a TPA would achieve a 50% reduction in liabilities and expenses for the Fire and Police Departments when compared to reductions achieved for the DoT over four years of the pilot program.
• Scenario #2, which staff believes to be the most likely scenario, assumes that reductions for these two departments would be 25% of what Intercare has achieved for the DoT.
• Scenario #3, assumes a TPA would not be able to reduce total liabilities and total expenses for claims from the Fire and Police Departments. As a result, in the third scenario, unlike under the other two scenarios, the City would not realize savings from shifting to the TPA model.
Below is a summary of the results from the analysis.
Likelihood Impact Annual Savings
Scenario #1 25% High $898,845
Scenario #2 50% Medium $351,756
Scenario #3 25% None ($195,333)
Given the uncertainty in cost savings realized from shifting all other departments to the TPA model, as well as the additional staffing disruption that it would create in the Risk Management Division, staff does not believe that a program-wide shift is feasible at this time. Staff therefore recommends a permanent shift to the TPA model for the management of DoT’s workers’ compensation claims only. However, the Risk Management Division would like the option to consider shifting portions of its in-house program to a TPA as attrition occurs over time and if ongoing analysis continues to show that a TPA can assist with lowering the City’s liabilities. As such, staff is requesting an authorization from the Council to extend the contract with Intercare, set to expire on August 31, 2022, for an additional three years. After three years, staff will 5 of 5
complete a new request for proposal (RFP) process and reconsider the manner in which the program is delivered.
Past Council Actions
Meeting Date Description
July 25, 2017
(attachment A)
Authorize agreement with Intercare Holdings Insurance Services, Inc. following an RFP process
Financial Impacts and Budget Actions
Staff seeks authority to approve funding from the Self Insurance, Workers’ Compensation Fund to increase the amount of the agreement with Intercare Holdings Insurance Services, Inc. for Workers’ Compensation Claims Administration Services.
The annual cost for the first year of the extension is $358,025, which is the same as the cost for the last year of the current agreement; each year thereafter contains an annual increase of 1.5%. Future year funding is contingent on Council budget approval.
Contract Modification Request
Agreement #
Current
Authorized
Amount
Modified
Request
Amount
Dept Account #
Total Revised
Contract
Amount
10506 $1,699,509 $1,090,267 74800002.534510 $2,789,776
Prepared By: Oles Gordeev, Risk Manager
Approved Forwarded to Council
Attachments:
A. 7.25.17 Staff Report (Attachment A)
B. Intercare Executed Agreement (Attachment B)
C. Intercare Oaks Initiative Disclosure Form