The City provides medical and dental insurance (“the Plan”) to its employees and retirees through a self-funded plan that is currently administered by Cigna Health. The City contributes toward the cost of retiree health insurance coverage that is determined by the City Commission each year as part of the City budget process, based on available funds.  Some governmental entities are moving away from funding retiree health benefits, especially at the rate equal to those of active employees.  However, offering post-employment health benefits that are funded by the City is a recruitment tool that aids in the City’s hiring process. The Plan currently has approximately 2,800 members, including active employees, retirees, and dependents (excluding police and fire). Twenty-seven (27%) percent of the plan members are retirees and their dependents. The City is currently funding approximately 60% of the premium cost for retiree health benefits.

On March 8, 2006, the Mayor and City Commission adopted Ordinance No. 2006-3505, that made changes to the City’s Group Health Insurance Program for retiring employees.  The changes adopted in this Ordinance included (1) election to continue participation in group health insurance following retirement; (2) employees who participate in the Defined Contribution Retirement System (401a Plan) must have ten years of full-time City employment to be eligible for retiree health benefits¹; and (3) any employee hired on or before the effective date of the Ordinance shall be eligible for a City contribution toward the cost of continued health insurance coverage if the employee has made an election to continue to participate in the City’s group health insurance prior to termination of City employment, and has not thereafter discontinued or been discontinued from such coverage.  The contribution shall be an initial amount of $10 per year of creditable service, up to a maximum of $250 per month until age 65, and $5 per year of creditable service, up to a maximum of $125 per month thereafter.

The Ordinance requires that an employee who intends to participate in the City’s health plan upon retirement, must make a one-time irrevocable written election, prior to termination of City employment, to continue to participate in the City’s health plan upon retirement.  The Ordinance is silent on the matter of retired employees who become employed with organizations that provide employer-sponsored healthcare coverage.  This means that when retired employees are provided with an opportunity to enroll in another employer-sponsored healthcare plan, they are only able to do so with an understanding that reenrolling in the City’s Plan in the future could only be done at their expense, with no City contribution toward the cost of coverage.

¹Employees of the Miami Beach Employees’ Retirement Plan shall have at least five (5) years of regular, full-time City employment before becoming eligible for retiree health benefits.

The proposed change to Ordinance 2006-3505 would allow employees who retire with the City, reject retiree health insurance, and thereafter are employed with organizations that provide employer-sponsored healthcare coverage, to elect to come back to the City’s Plan at a future date and obtain the applicable City funding toward their healthcare coverage.  The returning retiree must demonstrate that there were no gaps in coverage upon their return to the City’s Plan.  We looked at the group of new retirees for the calendar year of 2020.  There was a total of fifty-three (53) vested retirees that began their pension benefit in 2020; however, only 45% of them chose to enroll in the City’s healthcare Plan.  If we were to implement the proposed change to the Ordinance the remaining 55% of retirees who declined to enroll in the plan at the outset of their retirement would be eligible to reenroll in the future with the applicable City subsidy only if they are able to provide proof of continuous medical coverage for the entire period of time following their retirement date.  It is difficult to determine the actual fiscal impact of this proposed change, mainly because we do not know the reasons why employees who are retirement eligible age choose not to elect the City’s Plan. 

We engaged the City’s healthcare benefits consultant, Gallagher Benefits Services, Inc. (“GBS”), who has prepared a projected financial impact based on various scenarios.  When evaluating the data, GBS determined that currently a vast majority of employees retire prior to age 60.  The City has 200 actives between the ages of 55 and 59, but only 78 between 60 and 64.  That information supported GBS’s decision to use 55 and 58 as the "anchor" years for assumed retirement. 

The GBS analysis shown below is the projected impact of allowing retirees to leave the City’s health plan at retirement and return later and still receive the City’s subsidy.  The analysis includes the following key assumptions:

1.       Average cost and contributions based on most recent GASB 75 valuation

2.       Forty-five (45) eligible retirements per year

3.       Annual medical inflation of 5%

Assumed Average Ages Leaving/Returning to Plan

Summary of Assumed Elections at Retirement

 Projected Annual Impact to City:

Caveat:  These values are very sensitive to the assumptions used and even small changes in the assumptions will cause material changes in the results.  We are confident that the City would see lower costs in early years but take on more expense in later years.  Our best estimate is that the early savings will more than offset later expense.

Based on the analysis completed by GBS, we are comfortable in making an amendment to the current Ordinance No. 2006-3505. The following changes are recommended which will provide retired employees the flexibility to choose the best healthcare plan for themselves and their families as well as to provide the City with the cost savings associated with allowing retirees to opt out of the City’s healthcare Plan:

1.       Retired employees will be provided the opportunity to opt out of the City’s group health insurance plan and subsequently reenroll at a future date with the City’s contribution toward the cost of coverage only after submitting documented proof that demonstrates that they have been continuously enrolled by another group health plan without a lapse in coverage for the duration of time since they opted out.

2.       The above change should only be implemented to unclassified employees who retiree on or after the effective date of the amendment and should remain a subject of collective bargaining for any employees who are a part of a collective bargaining unit.

The Administration recommends the FERC to approve the proposed Ordinance amendment changes as noted above, and referring it to the full Commission for first and second reading.