Inter-Departmental Correspondence

Employee and Public Services



November 23, 2004


December 14, 2004



Honorable Board of Supervisors


Mary Welch, EPS Director

Paul Hackleman, Benefits Manager


Approve Waiving a RFP Process and Amending an Agreement with Aetna.



Approve a resolution waiving a RFP process and approving an amendment with Aetna for the provision of health benefits to County employees, retirees and their dependents for the period from January 1, 2005 through December 31, 2005.



Aetna represents an important alternative to Kaiser and Blue Shield. The Aetna network is less restrictive than Kaiser’s, since individual providers are based throughout the community rather than being affiliated with a specific facility, and it is less costly than the Blue Shield plan. Aetna provides coverage to approximately 1,400 employees and retirees under age 65.

A County Labor-Management-Retiree Committee conducted a Request for Proposal for HMO benefits in 2001. Aetna was selected in a competitive process that included HealthNet and PacifiCare, the only other two IPA-HMO plans available in California.



Two years ago, in negotiations with employee organizations, the County made important modifications to the co-pays in the Aetna plan in an effort to reduce long-term premium increases. Despite these changes, the Aetna premium increase for 2005 is 22%. The two primary reasons for this increase are unexpected catastrophic claims (similar to the Blue Shield experience) and their contracting agreements with individual providers instead of medical associations. Regarding catastrophic claims, a total of 14 individuals had atypically high expenses. Total medical catastrophic costs for these types of individuals increased by 47.7%. The average amount per individual increase by 58.3%. Regarding contracting, Aetna concedes that their individual (rather than association) contractual agreements are making it difficult to effectively control premium increases.

This year, the County and Aetna are collaborating on several strategies to address these issues. First, the County and Aetna will introduce a “Simple Steps” program which focuses on high risk individuals with multiple diseases (e.g. diabetes, cardiovascular disease). Although Aetna normally charges an additional amount for this program, they have agreed to offer it at no cost to the County in a mutual effort to control long term costs more effectively. We anticipate implementing this program in January, 2005. Additionally, Aetna is entering into new contractual agreements with hospitals and physician providers to reduce overall cost to employers.

Aetna is being recommended for continuation without a formal request for proposal process because they:

Offered the best proposal for coverage and cost in 2001 in response to a Request for Proposal process and

No new options have arisen which would represent less cost and less disruption of patient-physician relationships.


Vision Alignment

The contract with Aetna represents Vision Statement #20 which focuses on careful consideration of future impact and #21 incorporating the County’s vision and goals into delivery of services.


Fiscal Impact

The net County cost increase for 2004 for active employees and retirees under age 65 is $1,805,000. The budgeted expense for Aetna was 15%. The actual increase was 22%. The reasons for this difference are primarily attributed to the high catastrophic claims experience.