PORT OF SEATTLE

MEMORANDUM

DATE: May 30, 2011

SUBJECT: Request for Additional Authorization on the Towers Watson Benefits Consulting

Contract No. P-00316429

Amount of This Request: $320,000 Source of Funds: General Operating Funds

Total Contract Authorization: $1,130,000

ACTION REQUESTED:

Authorization for the Chief Executive Officer (CEO) to amend the benefits consulting contract with Towers

costing, or benefits communications strategy support, possibly related to a potential account-based health plan

offering.

SYNOPSIS:

with Towers Watson for an additional $320,000. The initial funding authorization, in January 2010 was

$810,000.

The first part of the resulting contract focused on the shift from fully-insured health plans to self-funded health

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The original funding authorization, however, did not fully account for work to be done under parts 2

and 3 of the contract, namely the costs of actuarial services needed for the Port’s Other Post-

Employment Benefits (OPEB) liability for retiree life insurance and Warehouse Pension Trust; and

other costs associated with optimal plan administration, such as the costs of compliance and planning

related to the Patient Protection and Affordable Care Act (“PPACA”), which was passed in March

based health plan offering. Authorization of additional funds will allow the Port to continue to achieve

the Port-sponsored health plans were self-insured or fully insured, and the additional funding will not

diminish savings resulting from the conversion of the Port-sponsored plans to self-insured status.

Benefits Consultant to provide consulting and brokerage support to the fully insured benefit plans.

Prior to 2010, the benefits consulting fees were paid through commissions earned by the Consultant on

the Port’s fully insured benefit plans.

The 2010 RFP was the first RFP issued for benefits consulting services with the current procurement

and contracting processes. Historically, the Port had been able to utilize commissions received by the

consultant in excess of the agreed to annual fee to support in depth research, analysis, costing,

for the benefits consulting contract that resulted from the January 2010 RFP, we did not recognize that

we would have continuing needs for additional research, analysis, costing, communication and

medical and dental plans, as well as fees to help administer the other benefit plans that remained fully

insured (i.e., Group Health medical coverage, life insurance, and disability insurance). The contract

that we negotiated with Towers Watson also included the actuarial support for the Warehouse Pension

Trust and the OPEB liability. The authorized amount of the contract, however, was not sufficient to

cover the transition to self-funding support, on-going benefits consulting support for the remaining

term of the contract, and actuarial support for the full potential term of the contract (five years) or any

additional work beyond the on-going support of the current programs.

We are not certain what consulting support we will need, or want, to have Towers Watson consultants

perform through the end of the current contract. We may need to have analytical work performed to

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we develop communication materials to support possibly changing benefit plans in the future. We may

also need to have additional actuarial work performed in support of the Warehouse Pension Trust.

Because future needs are not known, we need to have funding available through this contract to permit

needed work to be performed.

associated with PPACA planning, wellness program improvements, and planning for potential offering

of an account-based health plan. This work will further the Port’s goals of overall health benefits cost

containment by supporting the efforts already underway to encourage employees to lead healthy

deliver appropriate, evidence-based quality healthcare.

FINANCIAL IMPLICATIONS:

The authorized amount of the current contract is $810,000, and the maximum term is five years (two

years with three one-year extensions). If this authorization request is approved, and all requested funds

are allocated to potential work under the contract, the maximum contract value will increase to

$1,130,000. This is an increase of about 40%.

This cost increase, however, is consistent with the goal of containing health care costs by transitioning

to a self-funded plan, by – for example – helping the Port avoid significant tax burdens imposed by

PPACA, stabilizing or reducing employee health risk factors, and reducing overutilization of costly

health care services. The consulting support that will be available if the contract amendment is

1) Authorize additional funds for $320,000 to amend the existing contract with Towers Watson. This

is the recommended alternative.

2) Authorize funds for benefits consulting work in separate contracts from the Towers Watson

contract. Although pursuing separate contracts for one or more of these services may provide some of

the value of authorizing the additional funds for the existing contract, there is likely to be a higher

fixed start-up cost for a new consultant, and higher marginal costs associated with the need to have two

different consultants coordinate their services. Even if Towers were to be the winning bidder of a

separate contract, the procurement and administration process of another contract would add

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in-depth research and analysis to implement anything other than the basic switch to self-funding. This

alternative would essentially “leave money on the table” by not capitalizing on the full advantage of

having a self-funded plan – the ability to coordinate plan design components and wellness program

elements to incentivize healthy lifestyles, smart healthcare consumerism and delivery of quality care,

ultimately generating more significant reductions in health care costs. This is not the recommended

January 12, 2010: The Commission authorized the CEO to enter into a two year contract with a

benefits consulting firm, with the option to renew annually thereafter for three more years, for a total

authorized amount of $810,000.