[Council Communication]  [Proposed Resolution]

Council Communication

Title:	Resolution adopting Health and Dependent Care Components of the City's Personal Choice Flexible Spending Account Program and Authorization for City
Dept:	Administrator to sign Personal Choice Agreement.
Date:	Administration
Submitted By:	December 16, 2003
Approved By: ...........................	Gino Grimaldi, City Administrator

Synopsis:	The City initiated a 5% employee cost-share on health premiums January 1, 2003. Currently, 99 employees contribute toward their health insurance premiums through a pre-tax program called the Personal Choice Account (PCA) which represents 7.65% payroll tax savings to the city of approximately $4,018 annually. The City committed to offering the premium conversion portion of the PCA with the intent of offering a full Section 125 Flexible Spending Account at a future date when it was cost effective. We estimate that the City would need at least $3,529.41/month in employee contributions to recoup the administrative costs of offering the full 125 Plan if 50 employees participated in the program. (Cost Analysis Worksheet provided as Attachment A). It is unlikely that half of the eligible employees would participate in the reimbursement accounts the first plan year, so our costs will be lower than $3,529.41/month. However, this example does help illustrate that our current contributions of $4,377.60/month in premium conversion program alone, already generate enough payroll tax savings to offset administrative costs of offering the full plan. Any funds employees elect to contribute into the reimbursement accounts will only result in additional payroll savings to the City. Therefore, the City is now able to offer a full Section 125 Flexible Spending Account to those employees already contributing through the premium conversion program without incurring any additional costs. By offering the dependent care reimbursement and medical reimbursement components of the PCA, the City will benefit from additional tax savings while offering employees an attractive new benefit. The medical and dependent care reimbursement accounts are an IRS-approved way for employees to set aside funds from their paychecks before taxes are deducted to pay for qualifying medical expenses. Expenses may include items like insurance deductibles, co-pays, out-of-pocket medical costs, over-the-counter pain medication, hearing aids, orthodontia, laser eye surgery, etc. Employees receive a value-added benefit that works with our health insurance and saves them money in income taxes. (Attachment B provides more detail about the program).
Recommendation:	Staff recommends the Council approve a Resolution adopting Health and Dependent Care Components of the City's Personal Choice Flexible Spending Account Program and Authorize the City Administrator to sign the Personal Choice Agreement.
Fiscal Impact:	There will be no additional costs associated with offering the remaining components of the Personal Choice Account. The City will benefit through additional payroll tax savings on all monies set aside by employees for qualifying health care expenses under the program. The savings will increase according to the participation level in the health and dependent care reimbursement accounts. The program is insured so the City is protected from financial liability of underpayments.
Background:	By putting a pre-tax foundation in place, the City was able to soften the financial impact to employees as they began contributing to the cost of their health benefits. The additional components of the PCA were delayed until such time that a detailed cost analysis could be performed. As additional employee groups joined the list of those sharing 5% of their monthly premium through the PCA, the program has paid for itself. We are now able to expand the benefits available to employees at no additional cost to the city or the employees. While there are many Flexible Spending Account options on the market, the City selected the Personal Choice Account offered through City County Insurance Services (CIS) because it is the only program currently available in the state of Oregon that protects the City from financial loss. When an employee elects to set funds aside in a medical expense reimbursement account, by law they are required to have access to the full amount of their election up front, even though the payments are actually deducted from their pay over the course of a plan year. If an employee uses the full balance of their medical expense account and leaves employment prior to repaying through payroll deduction, the City would normally take a loss. The Personal Choice Account is insured, so any underpayments are covered by City County Insurance and are not incurred by the City. The Personal Choice Flexible Spending Account Program is a valuable benefit that compliments our current benefit package while putting a mechanism in place that could be a catalyst for other labor groups to begin contributing to their health care costs. As employees realize the potential tax savings that can be obtained through the program, the savings to the City will only increase.
Attachments:	Proposed Resolution Cost Analysis Worksheets The Personal Choice These attachments are available in PDF format. To view the document on your computer, please click on the link below. The Adobe reader program will open in a new browser window.  Please use the browser's "Zoom" feature to adjust the size of the text for comfortable reading.

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Proposed_Reso_Personal_Choice.pdf (410KB)

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