City Council
Report
City Council Meeting: July 8, 2025
Agenda Item: 4.C
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To: Mayor and City Council
From: Oscar Santiago, Director, Finance Department, Risk Management Subject: Award Request for Proposal to Intercare Holdings Insurance Services, Inc. for Workers' Compensation Claims Administration Services
Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines;
2. Award RFP# 442 to Intercare Holdings Insurance Services, Inc. for workers’ compensation claims administration services for the Finance Department; and
3. Authorize the City Manager to negotiate and execute an agreement with Intercare Holdings Insurance Services, Inc., in an amount not to exceed $4,281,974 for five years, with future year funding contingent on Council budget approval.
Summary
The City's Workers' Compensation Program has undergone significant transformation since the implementation of a Third-Party Administrator (TPA) pilot program in 2017, which became permanent in 2022. Under this program, Intercare Holdings Insurance Services, Inc. (Intercare), a private claims administrator, manages workers' compensation claims for the Department of Transportation (DoT). This program has achieved exceptional results, reducing the DoT’s workers’ compensation costs. In contrast, costs for in-house administered departments have risen significantly. This increase is partly due to a smaller claims team managing a higher volume of complex cases, leading to longer processing times. These delays pose operational risks and potential compliance challenges for the in-house self-administered program. 2 of 8
Staff aims to expand the TPA program model to all non-public safety departments, based on a comprehensive cost-benefit analysis projecting potential savings of $666,000 to $3.5 million over five years. Following a recently completed Request for Proposal (RFP) process, staff requests Council approval to contract with Intercare for workers' compensation claims administration across all City departments, except Fire and Police. Those two departments will continue operating under the in-house selfadministered program for sworn employees. Additionally, as part of the TPA transition, the self-administered program will be realigned to ensure adequate staffing for claims management, optimizing performance and reducing compliance risks.
Discussion
The City’s Workers’ Compensation Program is self-insured and has a Self-Insured Retention (SIR) of up to $1 million per occurrence. Additional insurance limits are secured through PRISM, a Joint Powers Authority comprised of cities, counties, school districts, and special districts.
Program performance is measured using three critical financial indicators:
• Total Program Liabilities: The aggregate value of all open claims, including projected future expenditures for both self-insured and excess insurance components.
• SIR Program Liabilities: Direct financial obligations for claims falling under the City’s SIR threshold, excluding liabilities covered by excess insurance. • Program Expenses: Costs for medical treatment, disability payments to injured employees, and miscellaneous expenses such as legal fees and medical bill review.
Self-insured employers, such as the City of Santa Monica, can either administer claims in-house or subcontract this service to a third-party administrator. The administration of claims involves processing and investigating claims, providing injured employees with medical care and all other State-mandated benefits, and resolving claims promptly. 3 of 8
The city has operated a self-administered model since 2001, overseen by the Risk Management Division. Since that time, workers' compensation costs have continued to accelerate. Between FY 2007-08 to FY 2016-17, total program liabilities increased by
98.0%, while program expenses grew by 69.1% over the same period. In response, Risk Management implemented strategic cost control measures, including the "Wow, That's Fast" Program, which provides comprehensive case management services and on-site mobile medical services, to injured sworn public safety personnel in the Fire and Police Departments.
Third-Party Administrator (TPA) Program
In early 2017, a cross-departmental working group assessed the TPA model as a possible cost-containment strategy. The assessment revealed several advantages over self-administered programs. Most significantly, a well-established TPA has more resources to support better claim outcomes. Resource advantages include enhanced supervisory and backup resources for claim examiners, dedicated claim assistants, and in-house ancillary services, such as fraud investigations, staff training, and medical management. All these resources ensure that claims are managed effectively even when the assigned examiner is out of the office. In contrast, the City’s self-administered program is not resourced appropriately to provide this level of service. Furthermore, increasing staff to achieve optimal service levels would be cost prohibitive. Additionally, TPAs can provide their employees with incentives for consistently exceeding claim resolution performance targets.
Based on the working group’s assessment, a pilot program was implemented for DoT, primarily due to its sizable workforce, which consists of employees in both physically demanding and sedentary jobs. On July 25, 2017 (Attachment A), Council approved the selection of Intercare to provide TPA services to manage the workers’ compensation claims for DoT as a pilot program.
The pilot program demonstrated significant improvements in both total liabilities and total expenses for DoT. The results from the five-year pilot program are outlined below:
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• Total Program Liabilities for DoT’s claims declined from $7.4 million to $4.7 million by June 30, 2022. In contrast, total liabilities for the claims from all other departments increased from $21.9 million to $23.3 million. • Program Expenses during FY 2021-22 for claims managed by Intercare decreased by 16.0% from FY 2016-17. By comparison, program expenses for claims managed by in-house staff increased by 55.1%.
On July 12, 2022 (Attachment B), Council approved extending the agreement with Intercare through August 31, 2025, to permanently transition DoT’s workers’ compensation claims management. At that time, staff did not recommend an immediate program-wide expansion that included sworn public safety employees, as they receive enhanced workers' compensation benefits, including injury presumptions, 4850 disability benefits, and higher permanent disability payments, making it more complex to project potential cost savings from transitioning to a TPA model.
Since that time, staff has continued to assess the self-administered program, evaluating the effectiveness of the TPA model, and exploring the potential to reduce workers’ compensation costs by shifting portions of the city's self-administered responsibilities to a TPA. Since its inception, the TPA program has consistently demonstrated superior performance compared to self-administered claims across the key metrics.
Below are the program results for the seven years since the program started:
Total Program Liabilities
Pilot Began
As of 10-31-17
Year Seven
As of 6-30-24
Monetary
Change
Percentage
Change
TPA $7,444,460 $3,921,751 -$3,522,709 -47.3%
Self-Administered $21,874,938 $32,100,624 $10,225,686 46.7% • SIR $18,808,173 $20,385,073 $1,576,900 8.4%
• Excess of SIR $3,066,765 $11,715,551 $8,648,786 282.0% Program Expenses
FY 2016-17 FY 2023-24 Monetary
Change
Percentage
Change
TPA $3,320,028 $2,654,022 -$665,940 -20.1%
Self-Administered $7,438,771 $13,888,102 $6,449,331 86.7% 5 of 8
It is important to note that the significant increase reflected in Total Program Liabilities for self-administered claims is primarily due to three catastrophic claims from the Fire and Police Department, resulting in the Excess of SIR Liabilities increasing by 282%.
These catastrophic claims also significantly impacted Total Program Expenses for the claims administered in-house. If the expenses were adjusted to exclude these three claims, adjusted program expenses during FY 2023-24 increased by 52.5%.
Self-Administered Program
Following the City’s restructuring in 2020, the self-administered program operates with one fewer dedicated Workers' Compensation claims administration position. After a significant downward trend in claims since FY 2019-20, the number of new claim filings increased 20% last fiscal year as compared to FY 2022-23. Consequently, the inventory of open claims for the self-administered program is at pre-FY 2019-20 levels. Staff currently handle approximately 150 claims per examiner, as compared to 110 claims per examiner for Intercare.
The City’s workers’ compensation claims have also become more complex. The severity rate, defined as the percentage of claims involving lost time and/or litigation, increased by 11% from FY 2022-23 to FY 2023-24. Additionally, the frequency of claim filings has increased for cumulative trauma injuries, which are common in an aging workforce, resulting from performing repetitive physically and/or mentally demanding tasks over long periods. Claims staff spend a significant amount of time managing each of these claims, as they typically involve extensive medical treatment for various body parts.
These challenges have created a cascade of operational and financial risks. Delayed claim resolution directly drives up both program expenses and liabilities. Additionally, there is now an elevated risk of non-compliance with State Workers' Compensation regulations, potentially exposing the City to significant fines and penalties. Perhaps most critical, failure to meet the Claims Administration Standards established by PRISM, the Joint Powers Authority providing the City's excess coverage, could result in the loss of essential workers' compensation insurance protection. 6 of 8
Recommendation for TPA Program Expansion
Given the TPA program’s demonstrated long-term success, staff seeks to expand the TPA model across additional departments. The expansion will focus exclusively on nonpublic safety departments due to several factors that complicate cost-benefit projections for Police and Fire Departments, as described previously.
A cost-benefit analysis was conducted to compare the TPA program expansion to the self-administered program as it operates now. Below is a summary of the analysis, presenting three case scenarios:
Assumptions Based on
TPA’s Performance
Savings in Program
Expenses Over 5 Years
Reduction in Program
Liabilities Over 5 Years
Best
Case
100% Reduction in Expenses
75% Reduction in Liabilities $3,492,417 $1,489,732
Average
Case
75% Reduction in Expenses
50% Reduction in Liabilities $2,079,171 $993,155
Worst
Case
50% Reduction in Expenses
25% Reduction in Liabilities $665,926 $496,577
Based on significant projected improved performance and cost savings, staff recommends expanding the TPA program to all City departments except Fire and Police. The expansion will include a comprehensive transition plan that prioritizes seamless continuity for employees with open claims, ensuring uninterrupted medical services and benefit payments, as well as clear communication protocols throughout the transition process.
Following the expansion, the TPA will administer approximately half of the City's workers' compensation claims, while Risk Management staff will continue to manage the remainder. The internal resources will be realigned to support both programs effectively. For the TPA program, this includes establishing a dedicated liaison role (Risk Management staff) to coordinate between the TPA, the departments, Human Resources, Payroll, and employees on workers' compensation matters. For the selfadministered program, realignment will provide adequate supervisory and backup resources to claims staff, ensuring optimal performance and reducing compliance risk.
Vendor Selection
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Bidder Recommendation
Best Qualified Firm Best Qualified Firm
Evaluation Criteria
(include all that apply)
Incentive plan, staffing commitment, understanding goals/objectives, price, value add/breadth of services, stability/references Municipal Code SMMC 2.24.190
RFPs Received
Acclamation Insurance
Management Services, Inc.
Elite Claims Management, Inc. Innovative Claim Solutions, Inc.
Intercare Holdings Insurance
Services, Inc.
RFP Data
Posted On Posted On
Advertised In
(City Charter & SMMC)
Vendors
Downloaded
Date Publicly
Opened
04/11/2025 City's Online
Bidding Site Santa Monica Daily Press 22 05/06/2025
Justification to Award
The Evaluation Committee, comprised of the Finance, DoT, and Human Resources Departments, evaluated the RFP submission from the four firms. Based on the evaluation criteria established in the RFP and criteria in SMMC 2.24.190, staff recommends Intercare Holdings Insurance, Inc. as the best qualified firm to provide workers’ compensation claims administration services based on their understanding of the City’s goals/objectives, their staffing commitment, breadth of services, and proven track record of providing this service to the City and a competitively priced proposal.
Environmental Review
This contract is exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines. The agreement is covered by the common sense exemption which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” The award contract would provide workers’ compensation claims administration services for the City. Therefore, it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.
Past Council Actions
Meeting Date Description
7/25/2017
(Attachment A)
Authorize agreement with Intercare Holdings Insurance
Services, Inc. following an RFP process
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7/12/2022
(Attachment B)
Authorize the first modification of the agreement with
Intercare Holdings Insurance Services, Inc.
Financial Impacts and Budget Actions
Staff seeks authority to approve available funding from the Self Insurance, Workers’ Compensation Fund to award an agreement with Intercare for Workers’ Compensation Claims Administration services.
Agreement Request
FY 2025-26
Request Amount
Department Account # Future Years
Amount
Total Agreement
Amount
$673,321 74800002.534510 $3,608,653 $4,281,974
Future year funding is contingent on Council budget approval.
Prepared By: Luis Hernandez, Executive Administrative Assistant Approved Forwarded to Council
Attachments:
A. 7.25.17 Staff Report (Attachment A)
B. 7.12.22 Staff Report (Attachment B)
C. Oaks Initiative Form (Attachment C)
D. Levine Act Disclosure Form (Attachment D)