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Brentwood City Commission Agenda

Meeting Date:	06/25/2018
Resolution 2018-52 Authorizing Acceptance of Renewal with the Hartford Life and Accident Insurance Company for Long-Term Disability Insurance
Submitted by:	Mike Worsham, Human Resource
Department:	Human Resource

Information

Subject

Resolution 2018-52 Authorizing Acceptance of Renewal with the Hartford Life Insurance Company for Long-Term Disability Insurance

Background

The City provides group long-term disability insurance at no cost to all full-time employees who have been employed with the City for at least two years. Since July 2012, this benefit has been provided to eligible employees through an insurance contract with the Hartford Life and Accident Insurance Company. This program provides employees who are unable to work due to a non-work related disability with benefits equal to 50% of their regular monthly earnings. Benefits begin after a 26 week waiting period and continue until the employee is able to return to work or until the employee’s normal social security retirement age. The current policy provides a maximum monthly benefit of $7,000 and the employee’s eligibility for benefits is based upon their inability to perform their own job up to their normal social security retirement age.

This “own occupation” definition of disability has long been a policy feature the City has diligently tried to maintain whenever considering LTD policy options. The prior policy with Prudential provided this policy feature for only 10 years and many policies do not include this important feature. For example, an employee disabled at age 45 and eligible for social security benefits at age 65, would be eligible to continue receiving benefits for up to 20 years so long as he/she remained unable to perform the duties of the job she/he was performing at the time of disability, as opposed to being unable to perform any job.

Another enhanced benefit with the Hartford policy is a Cost of Living Adjustment (COLA) feature. This provision is designed to increase the amount of approved disability payments, annually by 3%, for the first ten years of disability.

The current policy with Hartford expires June 30, 2018, and the company has notified the City’s insurance broker, Richard Hemmen, of their proposal to renew the current policy at a reduced rate for the next three-year period through June 30, 2021. Since the inception of the policy with Hartford in 2012, the rate charged to the City has been $.32 per $100 of covered income. This renewal proposal beginning in July 2018 includes a reduced rate of $.30 per $100. Hartford also provided an optional proposal with a five-year Cost of Living Adjustment (COLA) feature at a rate of $.28 per $100 of covered income.

The monthly premium for this benefit varies from month to month depending upon employee salaries, turnover and when employees reach their two-year employment anniversary. The projected annual cost of renewing the current policy with Hartford beginning in July 2018 is approximately $36,300 and the FY19 budget includes $40,000 for this benefit program.

Before recommending acceptance of the Hartford’s renewal proposal, staff asked Mr. Hemmen to obtain competitive quotes from other long-term disability carriers to determine the availability of the same policy at competitive rates. Mr. Hemmen requested quotes for identical coverage as the existing policy from 12 separate disability insurance carriers. Ten of these companies declined to submit quotes stating that their rates were not competitive to the current rate offered by Hartford. Two companies submitted quotes with a rate guarantee of two years compared to Hartford’s rate guarantee for three years. (See attached spreadsheet)

Lincoln National Life Insurance Company submitted a quote of .29/$100 of covered income and Mutual of Omaha submitted a quote of $.28/$100 of covered income. However, The Mutual of Omaha proposal only included a 3% cost of living adjustment (COLA) to disabled employees for the first five years of disability as compared to the current Hartford policy which provides a 3% COLA for the first ten years of disability. As mentioned above, Hartford also provided an optional proposal with a 3% COLA for the first five years at $.28/$100 matching the lowest quote from Mutual of Omaha.

Another advantage of the Hartford policy compared to the other two is their definition of a preexisting condition exclusion. Hartford’s definition is that during the first year of coverage, employees must only be treatment free for three months prior to the date of disability for the same condition. The Lincoln and Mutual of Omaha definitions state that during the first year of coverage, employees must have been treatment free for the three-month period prior to the effective date of coverage.

After a detailed analysis of the three available proposals and consideration of reducing the COLA feature to five years, staff concurs with the recommendation of our supplemental insurance broker, Mr. Hemmen for the renewal of the policy with Hartford at $.30 per $100 of covered income, effective July 1, 2018 through June 30, 2021 and maintaining the 10-year COLA feature. While this is not the lowest option staff believes it represents the best value for the City and employees for the following reasons:

A three-year rate guarantee compared to a two-year rate from the other two insurance carriers.
The ten-year COLA included in the current Hartford policy provides additional financial assistance to long-term, seriously disabled employees and will help to offset increases in living expenses during a difficult life event.
The more favorable definition of pre-existing condition exclusion in the Hartford policy.
Hartford’s long term relationship with the City during the previous six years and offering consistent competitive renewal pricing.

Staff Recommendation

Staff recommends accepting the group long-term disability renewal proposal from Hartford for the three-year period beginning July 1, 2018 through June 30, 2021.

Fiscal Impact

Amount :	$40,000
Source of Funds:	General Fund
Account Number:	110-41990-81480

Fiscal Impact:

Funding of $40,000 has been provided in the General Fund, Insurance and Other Benefits, for this purpose.

Attachments
Resolution 2018-52
2018 LTD Comparison
Signed Resolution