ORDER N0.28713
2004 STOP LOSS INSURANCE POLICY
EMPLOYEE HEALTH BENEFITS PROGRAM
Came to be heard this the 12~' day of July 2004 with a motion made by Commissioner
Williams, Seconded by Commissioner Baldwin, the Court unanimously approved by a
vote of 4-0-0, the tendered stop loss insurance contract with Monumental Life, and
authorize the County Judge to sign the same.
~~7/"~3
COMMISSIONERS' COURT AGENDA REQUEST
PLEASE FURNISH ONE ORIGINAL AND NINE COPIES OF THIS
REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT.
r
MADE BY: Pat Tinley
OFFICE: County Jud~g~_.,~
MEETING DATE: July 12, 2004
TIME PREFERRED:
SUBJECT: (PLEASE BE SPECIFIC) Consider, discuss and take appropriate action on
2004 Stop Loss Insurance Policy Contract as part of employees Health Benefits Program.
EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON)
NAME OF PERSON ADDRESSING THE COURT: County Judge
ESTIMATED LENGTH OF PRESENTATION:
IF PERSONNEL MATTER -NAME OF EMPLOYEE:
Time for submitting this request for Court to assure that the matter is posted in
accordance with Title 5, Chapter 551 and 552, Government Code, is as follows:
Meeting scheduled for Mondays:
5:00 P.M. previous Tuesday.
THIS REQUEST RECEIVED BY:
THIS REQUEST RECEIVED ON:

All Agenda Requests will be screened by the County Judge's Office to determine if adequate
information has been prepared for the Court's formal consideration and action at time of Court
Meetings. Your cooperation will be appreciated and contribute towards you request being
addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners'
Court.
~~p~
MEMORANDUM
TO: Don Gray ~~.
i
FROM: Pat Tinley, Ken County Judge~~~~
DATE: May 21, 2004
~~~~
~C ~ C omm~Sti•oners
3~a b~.;.- ~tiCr~ie~
Cew.~-~, /fit y
SUBJECT: Kerr County Employee Benefits Program Stop Loss Insurance Policy
At the request of the Kerr County Commissioners' Court, you evaluated several Bids or
Proposals for the Kerr County Employee Health Benefits Program and reported to Kerr
County Commissioners' Court on such evaluation. After receiving such report and
evaluation, Kerr County Commissioner's Court voted to accept the final Proposal of
Employee Benefit Administrators (EBA).
Subsequent to the award, the County Judge executed the application for Stop Loss
Insurance, a copy of which is attached hereto, at the direction of the Commissioners'
Court on February 12, 2004, and upon confirmation by the County Treasurer, as
Employee Benefits Officer, that such application conformed to the final Bid and Award
made to EBA.
Recently, the proposed Stop Loss Insurance Policy, a copy of which is attached hereto,
was tendered by EBA to the Kerr County Commissioners' Court for approval.
A number of questions have arisen with respect to the proposed Stop Loss coverage.
Inasmuch as you provided the evaluation i~vith respect to the various proposals submitted,
the Commissioners' Court of Ken County has suggested that these questions be
submitted to you for response. If you are unable to answer any one or more of the
questions because of lack of qualifications, training or experience or feel that it is
inappropriate for you to respond because of prior association, conflict of interest or any
other reason, please so indicate as to each question to which you decline to give a
response and the reason or reasons for declination.
The areas of question or concern are as follows:
1. The final bid submitted by EBA seems to cleazly indicate that the Stop Loss Insurance
would be underwritten through Fidelity Security. Without prior explanation, EBA
submitted a Stop Loss application, and subsequently a Policy of Stop Loss Insurance,
underwritten through Monumental Life.
a. Is it proper for a bidder to bid one company and then obtain coverage
underwritten by another?
b. Is this practice permitted by State Boazd of Insurance Rules?
Zooaost tn-~,o
c. Is this standazd practice in the industry?
d. Absent a prior explanation and consent of the proposed Insured, is this
practice ethical?
e. Does this type of practice comply with applicable bidding laws and
procedures?
f. If lawful, is it ethical for a Commissioners' Court to participate in this type of
activity?
g. By participating in this type of activity, is the Commissioners' Court subject to
suit or other action by other vendors who submitted bids for the same
coverage issue?
2. A Representative from EBA has indicated that he was able to "get better rates from
Monumental Life" than those which Kerr County was to receive under the EBA final
Proposal which was accepted.
a) Is the foregoing a correct statement?
b) If so, specifically identify which rate or rates are better than those previously
accepted by Kerr County and whether Ken County received the benefit of
each such better rate.
c) Upon review of the tendered Monumental Life policy aze any rates greater or
other provisions less advantageous or otherwise detrimental to the interests of
Kerr County than those previously accepted by Ken County? If so, please
specifically identify each rate or other provision which is greater, less
advantageous or otherwise detrimental and the reason(s) for each.
3. The proposal which was accepted indicates that the annual aggregate deductible was
One Million One Hundred Seventy Seven Thousand Nine Hundred Sixty Nine
Dollars ($1,177,969.00.) The application submitted to Monumental indicates that
figure was increased to One Million Two Hundred Five Thousand Seven Hundred
Eighty Six Dollars ($1,205,786.00) and the policy as tendered increases that figure to
One Million Two Hundred Twenty Six Thousand Five Hundred Sixty Four Dollars
($1,226,564.00).
a) Are each of the increases as indicated due solely to the increased number of
participants in the plan? If not, please explain fully.
b) For contracting purposes, is Kerr County entitled to rely and insist upon the
inclusion of the smaller number in the policy?
4. The policy as tendered includes a provision entitled "Premium Rate and Aggregate
Deductible Factor Change" on page PREFAC-1.
a) Has that policy provision been approved by the State Boazd of Insurance?
b) Is that provision a standard provision in the industry?
c) Is that provision contained in policies obtained by knowledgeable
buyers/insureds?
20040511A-mtmo 2=
d) Is the inclusion of such a provision clearly disclosed in the final Bid and
Proposal submitted by EBA which was accepted by the Commissioners'
Court? If so, do each of the other final bids or proposals submitted for your
prior evaluation also contain such a provision?
For your assistance, I have also forwarded to you the Bid and Proposal materials as
submitted by EBA and which you considered in making your prior evaluation and
recommendations to the Commissioners' Court.
The Commissioners' Court of Kerr County is very anxious to get this matter resolved at
the eazliest possible time. Accordingly, I would appreciate your responses to these
inquiries being forwarded to me as soon as possible.
20040511A-memo 3
- a;~e o:: _
Kerr County JudgelCommissioners' Court
From: "Don Gray" <don@insconsultant.com> ';~-----_
To: "Pat Tinley" <kerrcocc@ktc.com> ~-~ ~I~T.E~
Cc: <kerrca@kerrca.org>
Sent: Tuesday, July Ofi, 2004 3:47 PM `(~'- ~~~ Q ~',)(~4
Attach: kern county questions about stop-loss policy.doC; EXHIBIT 1.xls ~
Subject: Stop-Loss Insurance Answers from Don Gray B~'. 1
Judge Tinley:
Attached is a final draft of my replies to your questions dated 5/21/04. I will review the report tomorrow one last
time before sending a hard copy. If requested, I can sent the hard copy via overnight delivery. Otherwise, I will
mail it.
Please call with any questions or suggestions. «,,.» «..,»
-'Don Gray
Gray & Company, LLC
2303 RR 620 S., #135, PMB 333
Austin, Texas 78734
phone: 512-261-0900
fax: 512-261-0901
cell: 512-496-3583
website: http://www.insconsultant.com
7/6/2004
REPLY TO MAY 21, 2004
MEMORANDUM FROM
KERR COUNTY JUDGE PAT TINLEY
"Final Draft"
Prepared by:
Don Gray, ARM
Gray & Company, LLC
2303 RR 620S, #135, PMB 333
Austin, Texas 78734
(512) 261-0900
Fax (512) 261-0901
E-Mail: Don@Insconsultant.com
July 6, 2004
2303 RR 620 S., #135, PMB 333
Austin, Texas 78734
512-261-0900
don@insconsultant.com
COMPANY, LLC
Memo
To: The Honorable Pat Tinley
Kerr County Judge
Fronx Don Gray, ARM
oar Julys, 2004
Re: Reply to your menw of May 21, 2004
Enclosed is a reply to the questions contained in your memorandum dated May 21, 2004. As you
know, it was my intent to provide you with a response in early June. However, a delay occurred
while the County Attorney's Office attempted to locate a revised quote from EBA that I later was
able to find on my computer (in the form of an email sent to me on December 18, 2003).
I have put much effort into answering the questions and providing pertinent background
information. The questions deal with a complex subject matter, so I have also tried to answer
them in a fashion that is easily readable and understood. I have included several Exhibits that
serve as references to many of the answers provided.
I was alarmed when I first learned that the coverage was bound with Monumental Life instead of
Fidelity Security. However, in the process of preparing this report I learned of information that, if
accurate, has calmed my initial concerns. I can assure that the concerns about the placement of
the stop-loss insurance policy that has occurred since the December 22, 2003 Court meeting
could have been averted, or at least brought to your attention much sooner, had I been involved
in monitoring the events that followed the December 22 Court meeting. My services are always
available to Kerr County, and most clients retain my assistance year-round to provide an
objective sounding-board and an independent review mechanism.
The following replies to your questions of May 21 are based on the following sources of
information:
• Material provided in May 2004 from you,
• Material provided in June 2004 from the County Attorney's office,
• An email dated December 18, 2003 from Mr. Ray Rothwell of EBA,
• Telephone conversations in June 2004 with Mr. Ray Rothwell,
• A telephone conversation with you on July 5, 2004.
As you directed, I have answered some questions as "unqualified to reply" when questions
required answers that were beyond by abilities.
The questions have been re-typed below and answered. Supporting information is provided in
Exhibits 1 through 7.
would welcome the opportunity to answer any questions about the material provided herein. The
topic is a complicated one, and the events that occurred between the County's initial receipt of
the November 12 proposal from EBA and the placement of coverage are also complicated and
could have been better communicated at the time they occurred.
Questions 8~ Replies
1. uestion; The final bid submitted by EBA seems to clearty indicate that Fidelity
Security would underwrite the Stop Loss Insurance. Without prior explanation,
EBA submitted a Stop Loss application, and subsequently a Policy of Stop Loss
Insurance, underwritten through Monumental Life.
a) Is it proper for a bidder to bid one company and then obtain coverage
underwritten by another?
Reply: I do not think that it is appropriate for a proposer to propose one company and
then place coverage with another company without the insured's knowledge. The reason
that the coverage was placed with Monumental Life in lieu of Fidelity Security is
addressed in the reply to question 2a.
b) Is this practice permitted by State Board of Insurance Rules?
Reply: Unqualified to reply.
c) Is this a standard practice in the industry?
Reply: 1 do not think that it is a standard industry practice for a proposer to propose one
company and then place coverage with another company without the insured's
knowledge. The reason that the coverage was placed with Monumental in lieu of Fidelity
Security is addressed in the reply to question 2a (i.e., EBA advises that the quote
approved by the Court on December 22, 2003 was a quote from Monumental Life that
had been mislabeled when quoted on December 18, 2003).
d) Absent a prior explanation and consent of the proposed insured, is this
practice ethical?
Reply: It is not ethical in my opinion. However, the reason that the coverage was placed
with Monumental in lieu of Fidelity Security is addressed in the reply to question 2a (i.e.,
EBA advises that the quote approved by the Court on December 22, 2003 was a quote
from Monumental Life that had been mislabeled when quoted on December 18, 2003).
e) Does this type of practice comply with applicable bidding laws and
procedures?
Reply.• Not to my knowledge, however I do not profess to be an expert on such laws.
f) If lawful, is it ethical for a Commisioners' Court to participate in this type of
activity?
Reply: Not to my knowledge, however I do not profess to be an expert on such Jaws.
g) By participating in this type of activity, is the Commisioners' Court subject
to suit or other action by other vendors who submitted bids for the same
coverage issue?
Reply: Unqualified to reply.
Page 1
2. uestion: A representative from EBA has indicated that he was able to "get better
rates from Monumental Life" than those which Kerr County was to receive under
the EBA final Proposal which was accepted.
a) Is this forgoing a correct statement?
Reply: According to Mr. Ray Rothwe!! of EBA, the comment quoted above was made in
reference to premium rates from Monumental that were submitted on December 18, 2003
prior to the December 22 meeting of the Commissioners Court. No premium rates were
changed following the Court meeting. Aggregate attachment factors were changed
following the December 22, 2004 meeting after the December 2003 loss data was
reviewed by the underwriter at Monumental, as discussed in the response to question 2c.
As respect the stop-loss insurance premium rates. please refer to Rows #5 through #9
under Columns B, C, D and E in the Exhibit 1. Column B features the premium rates and
monthly premium initially proposed by Fidelity Security and provided to Kerr County in a
bound proposal, which contained a cover letter dated 11/263 (portions of which are
provided in Exhibit 2). Column C features revised rates and monthly premium that were
subsequently submitted by EBA on December 18 during the "final & best offer" phase of
the proposals in which more than one proposer submitted revised proposals (Exhibit 3).
The rates in Column C were the rates that 1 presented in a spreadsheet to the
Commissioners Court on December 22 under a column titled "Fidelity Security" In the
process of preparing this reply, I learned from Ray RothweN at EBA that the quote which
provided these rates (Exhibit 3) should have been labeled as being quoted by
Monumental Life when emailed to me on December 18, 2003 and presented to the
County on December 22, 2003, as the rates were not quoted by Fidelity Security. Mr.
Bothwell quite readily admitted his mistake in failing, as he edited the template of a
previous quote, to change the heading on these rates to have reflected that They were
from Monumental Life. !was not aware that the rates provided in Column C were
intended to have been labeled as being from Monumental Life until June 2004. During
our discussion of the quotes at the Commissioners Court meeting on December 22,
2003, 1 do not know why Mr. Bothwell did not advise that the spreadsheet column labeled
"Fidelity Security" that was discussed in Court should have been labeled "Monumental
Life" if this comment had been made, much confusion would have been avoided.
Column D of Exhibit 1 reflects one of the two sets of premium rates and monthly premium
to be effective 1/1/04 that were contained in the application to Monumental signed by the
County on February 12, 2004. The rates provided in Column D were taken from the first
page of the 4-page application (Exhibit 4). These rates include commissions and match
the rates quoted by email on December 18, 2003 (Exhibit 3). These rates are applied to
the pre-1/1/04 census numbers contained in the application and shown in Exhibit 1 to
produce the monthly premium of $17, 780. The rates found on page two of the four-page
application were presented net of commission" to the insurer and are not used in
determining the cost charged to the County. The rates found on page two of the
application reflect the premium rates that EBA pays to the insurer from funds provided by
the County.
Column E of Exhibit 1 reflects premium rates and annual premium to be effective 1/1/04
that are charged to the County for the policy issued by Monumental. These premium
rates include commission, whereas the premium rates actually found in the stop-loss
insurance policy (Exhibit 5) are illustrated without commissions. The rates in Column E
are the same rates quoted on December 18th (Exhibit 3) and provided in Columns C and
D. These rates, when multiplied by the increased census frgures dated 1/1/04 as
determined by the County, produce the monthly premium of $18,062, which is found in
Page 2
Column E. The 1/1/04 census contained three additional persons as compared to the
previous census data reflected.
To answer the question, the premium rates and annual premiums reflected under
Columns D and E of Exhibit 1 are identical to the premium rates provided under Column
C, but they are considerably lower than the rates initially quoted (Column 8). The
increase of the monthly premium and annual premium in Column E is solely the result of
the additional 3 persons added to the census. When compared to EBA's initial quote
(Column 8), the reduced premium rates provided in Columns C and D benefit the County
by reducing the annual premium by $26,104. After considering the additional 3 persons in
the 1/1/04 census figures, the premium rates provided in Column E, when compared to
Column 8, result in an annual premium reduction of $22, 720.
b) If so, specifically identify which rates are better than those previously
accepted by Kerr County and whether Kerr County received the benefit of
each such better rate.
Reply: See the reply immediately above, which directs the reader to Exhibit 1 and points
out the reduced rates and premiums. The reduced rates listed in Columns C, D and E
were quoted on December 18, 2003 (Exhibit 3). These reduced rates are the rates that
should be charged to the County for the stop-loss insurance premium.
c) Upon review of the tendered Monumental Life policy are there any rates
greater or other provisions less advantageous or otherwise detrimental to
the interests of Kerr County other than previously accepted by Kerr
County? If so, please specifically identify each rate or other provision
which is greater, less advantageous or otherwise detrimental and the
reason(s) for such.
Reply: The aggregate attachment point factors represented in Columns D and E of
Exhibit 1 apply to Kerr County's "High'; "Medium" and "Low" benefrt levels. These factors
apply uniformly to each employee, regardless of the plan selected. In contrast, the
aggregate attachment point factors represented in Columns B and C vary by the plan
selected. Note that the aggregate attachment point factors in Columns D and E (rows #14
through #21, "Mid" and "Low" Plans) are greater than the corresponding aggregate
attachment point factors that were initially proposed by Fidelity Security (Column 8) and
by EBA's December 18"' proposal (Column C). Also note that the "High Plan" aggregate
attachment point factors in Columns D and E (rows #10 through #13) are less than the
corresponding aggregate attachment point factors that were initially proposed by Fidelity
Security (Column B) and by the December 18"' proposal (Column C).
The overall annual impact of the Monumental Life aggregate attachment point factors in
Column D being different than the aggregate factors reflected in Column C is that the
Column D factors produce an annual aggregate attachment point that is $27, 817 greater
than the annual aggregate attachment point provided in Column C which was quoted on
December 18th (row 22). 1t must be noted that the aggregate factors presented in
Columns D and E were calculated following the Commissioners Court meeting on
December 22, 2003, and are based on claim data that included the December 2003 loss
data (as per EBA). Quotes presented to the Court on December 22 were based on claim
data through the end of November 2003. Mr Ray Rothwell of EBA has advised that the
aggregate factors that were calculated by Monumental Life following the Commissioners
Court meeting of December 22 were presented to the County Treasurer. 1 have not
Page 3
verified whether the revised aggregate factors presented in Columns D and E were
provided to the County Treasurer and was not asked to review the revised factors when
the revisions were made.
The combined impact of the $26,104 reduction in the annual premium and the $27, 817
increase in the annual aggregate attachment point (Column D as compared to Column C,
row 22) is, in the worst case scenario, a loss of $1,713 to the County. However, the
County is assured of the $26,104 premium reduction, while the $27, 817 increase in the
attachment point only begins impacting the County if annual losses exceed $1,177, 969.
Past loss experience suggests that the chance of annual losses exceeding $1,177, 969
are remote. If losses do not exceed this threshold, the Monumental data in Column D
benefits the County by $26, 014 in terms of reduced premium as compared to the
premium data in Column C.
Also, note that the annual attachment point figures reflected in Column E (row 22)
compare to Column C in a similar fashion as Column D compares to Column C. The
difference between Columns D and E are solely the addition of 3 persons to the census
(one @ "employee-only" and two @ `employee/dependents'). This increase in persons
increased the premium by $3, 384 annually (Column E as compared to Column D) and
served to increase the attachment point by $20, 778 (Column E row 22 attachment point
as compared to Column D row 22 attachment point). The addition of the three persons is
the sole reason for the difference in the aggregate attachment point found in the policy
issued by Monumental Life as compared to the annual attachment point reflected in
Column D.
All other features of the Monumental policy compare favorably with the description of the
Fidelity Security quote as detailed in the original EBA quote. In reading Monumental's
policy, I did not notice any provisions that appeared to be out of the ordinary.
Monumental Life's A_ M. Best rating compares very favorably to Fidelity Security's rating.
While both enjoy favorable ratings, Monumental Life is rated A+/15, while Fidelity
Security is rated A /7. Monumental is a "stronger insurer" than Fidelity Security as
determined by A. M. Best ratings.
3. uestion: The proposal which was accepted indicates that the annual aggregate
deductible was One Million One Hundred Seventy Thousand Nine Hundred Sixty
Nine Dollars ($1,177,969.00). The application submitted to Monumental indicates
that the figure was increased One Million Two Hundred Five Thousand Seven
Hundred Eighty Six Dollars ($1,205,786.00) and the policy as tendered increases
that figure to One Million Two Hundred Twenty Six Thousand Five Hundred Sixty
Four Dollars ($1,226,564.00).
a) Are each of the increases as indicated due sole to the increased number
of participants in the plan? If not, please explain fully.
Realy: Only one of the increases is due solely to the increased number of participants.
Mr Ray Rothwell of EBA advises that the increase from $1,177, 969 to $1,205, 786
(Exhibit 1, row 22, Columns C and D) was based solely on the impact of the December
2003 loss data, as discussed above in the second paragraph of the reply to question 2c.
The increase from $1,205, 786 to $1,226,564 (Exhibit 1, row 22, Columns D and E) is due
solely to the addition of three persons to the 1/1/04 census figures, as discussed in the
fourth paragraph of the reply to question 2c.
Page 4
b) For contracting purposes, is Kerr County entitled to rely and insist upon
the inclusion of the smaller number in the policy?
Reply: I see no basis for the County to insist that the Monumental policy should reflect an
annual aggregate attachment point of $1,205,786 if the number of insureds on 1/1/04 is
accurate (i.e., 206 employee-only, 62 employee with dependents on 1/1/04).
Mr Ray Rothwell of EBA advises that the increase from $1,177,969 to $1,205,786
(Exhibit 1, Columns C and D) was based solely on the impact of the December 2003 loss
data, as discussed in the second paragraph of the reply to question 2c. The application
for stop-loss insurance contained a clause that reads "It is understood and agreed by the
undersigned that the Company will evaluate the undersigned's risk, and may require an
adjustment of rates, factors, and/or special limitations to accommodate for abnormal
risks". Clauses similar to this are routine in stop-loss insurance applications. The initial
proposal submitted by EBA during the RFP's final & best offer" phase included an
Assumption #2 on the underwriter's quote sheet (Exhibit 2, last page, titled "Cobalt, Inc. -
Stop Loss Quote'; as respects Fidelity Security) which states that rates and factors are
subject to revision until an updated aggregate loss report is accepted by the insurer.
Assumption #2 is a very standard condition to stop-loss quotes. The EBA quote
submitted on December 18th (Exhibit 3) did not include the underwriter's quote sheet or
any conditions. However, in the process of preparing this reply, EBA provided me with
the underwriter's quote sheet from Cobalt that provides the Monumental quote. It
includes Assumption 2 (see Exhibit 7). ! do not recall this quote sheet until June 2004 and
am not aware of whether it was provided to the County by EBA. !t is very likely that stop-
loss quotes provided to the County in the past contain similar conditions, as such
conditions are routine. Whether the County would have a strong position to argue that the
absence of the underwriter's quote sheet and its assumption 2 clause from the "final and
best offer" quote (Exhibit 3) should permit the lower annual attachment point is a question
that 1 am not qualified to address.
4. uestion: The policy as tendered includes a provision entitled "Premium Rate and
Aggregate Deductible Factor Change" on page PREFAC-1.
a) Has the policy provision been approved by the State Board of Insurance?
Reply: Not qualified to respond.
b) Is that provision a standard provision in the industry?
Reply: It is a common provision. Generally, the provision requirements vary from one
insurer to another. Some include this type of language in the application, some include it
in the policy, and some do both.
c) Is the provision contained in policies obtained by knowledgeable
buyers/insureds?
Reply.. Yes, it is a common provision.
d) Is the inclusion of such a provision clearly disclosed in the final Bid and
Proposal submitted by EBA which was accepted by the Commissioners'
Court? If so, do each of the other final bids or proposals submitted for your
prior evaluation also contain such a provision?
Page 5
Realy: Before answering, a bit of background information might be helpful to the reader.
RFP's prepared by Gray & Co., LLC typically require the proposer to provide a complete
copy of the proposed policy language as part of the proposal and also require the
proposer to outline, in the proposal, any provisions that would allow the insurer to change
the policy's coverage, rates and factors. The Kerr County RFP was prepared by Kerr
County staff. 1 do not have a copy of RFP as it was returned to Kerr County. I do not
recall whether the RFP required proposers to submit a complete copy of the proposed
stop loss insurance policy provisions or the provisions that permit the insurer to adjust
coverage, rates and factors. I definitely was not provided with a copy of the proposed
policy wording associated with the quote from Monumental. If provided with copies of the
other proposals for review at this time !would be pleased to determine to what extent
they include a copy of the proposed policy language or make mention of language similar
to the provisions in question which are contained in the policy issued by Monumental Life.
It is very common for astop-loss policy, or the application that is later attached fo the
policy, to include language that permits the insurer to adjust certain aspects of the policy
after it has been issued. Typically, the insurer is permitted to change the policy when any
of the following occur (varying by the particular insurer):
• A change in the plan benefits provided by the employer.
• A change in the terms of eligibility under the plan.
• A change in the employer's business that materially alters the insurer's risk.
• The addition or deletion of subsidiaries or affiliates covered, or to be covered, under
the plan.
• The relocation of the employer's place of business or of a subsidiary.
• Any increase or decrease in the number of persons insured, or eligible to be insured.
Often this change is described as a change of JO% or more of the number of
employees covered under the plan as computed to the ninth month of the prior
coverage period, or 15% change in any one month, or a change of 25% over three
consecutive months. Other variations are also found, depending on the insurer.
• A change in TPA's.
• Reimbursements for the last 2 months of the prior year's policy vary by 10% from the
monthly average of the first 10 months of reimbursements under the prior year's
policy.
The initial EBA Fidelity Security proposal contained cone-page underwriter's quote sheet
titled "Cobalt, Inc. -Stop Loss Quote" which stated that the TPA must be approved for
claims payment (Assumption #4, last page of Exhibit 2). This statement "somewhat';
although not directly, correlates to the item e) in the policy language in question, included
in Exhibit 5, page PREFAC-1. Items a), b), c), and d) of the policy language in question
(Exhibit 5, page PREFAC-1), which seem to be very reasonable in nature, are not
specifically addressed in the proposal submitted by EBA (see portions of the original
Fidelity Security proposal in Exhibit 2 and the proposal dated December 18, 2003 in
Exhibit 3).
To answer the question, the EBA quote did not clearly disclose this particular policy
language or many other aspects of the proposed policy language. The EBA quote, as
originally submitted, was limited to information typically found in proposals, such as:
• Premium rates
• Aggregate factors
• Covered plan benefits (medical/R~
• Specific stop-loss attachment points (options for $40, 000 and $50, 000)
• Claim administration fees (TPA, Utilization Management, COBRA, PPO)
• Aggregate liability limit
• Contract basis (12/12).
Page 6
The EBA quote did not contain the proposed policy language. The brevity of the proposal,
as is common, and the absence of policy language are likely true of the proposals
submitted by other proposers, but a review of those proposals would be required to
address the question. On December 22, 2003, J returned the proposal material that the
County had provided to me on December 15. Therefore, 1 cannot factually state at this
time whether the other proposals clearly indicated similar language without reviewing the
other proposals.
Miscellaneous
The County Attorney's office provided me with a copy of an EBA quote in June 2004
includes handwritten revisions to the aggregate factors typed within that quote. This
quote is provided in Exhibit 6.County Judge Tinley told me on July 5, 2004 that the
handwritten figures represent a revised quote from EBA that was reviewed by the Kerr
County Commissioners Court at a meeting that was held sometime prior to December 15
(the same meeting where it was decided to retain my services in reviewing the proposals,
as per Judge Tinley). I have not been able to tie the handwritten factors to any of the EBA
quotes 1 received from either the County or EBA. The handwritten factors are
considerably less than any others factors 1 reviewed in preparing this reply. I am at a
complete loss to explain the significance of those handwritten factors, and have no
knowledge as to who wrote them or what they represent. It is my assumption that they
are immaterial to the questions herein as they do not fie to any of the material previously
received or that 1 provided to the Court on December 22, 2003.
Row #
1
Notes
2 Covered Benefits (Specific)
3 Covered Benefits (Agg)
4 Specific SIR
5 Specific Stop-Loss Rate
(Employee)
s
Specific Stop-Loss Rate
(Emp & Dependent(s)
~ Aggregate Stop-Loss Rate
(Employee)
8
Stop-Loss Monthly Premium
Column A Column B
Expiring
Plan (111103
04)
Medical
Medical & RX
$40,000
57.4
124.21
0
$19,220
Fidelity
Security
(Rates &
Factors
Initially
Quoted, based
on 265, rates
include
commission)
Medical & RX
Medical & RX
$40,000
$52.67
EmplCh @
$122.15,
Emp/Sp @
$122.15,
EmpIF @
$122.15
6.9
$19,955
EXHIBIT 1
Column C
Fidelity
Security
(Proposal
Approved by
Kerr Co.
Comm. Court*,
See Footnote,
based on 265,
rates include
commission)
Medical & RX
Medical & RX
$40,000
46.35
107.49
6.9
$17,780
Column D
Monumental
Application
(Dated
2/12104, based
on 265, rates
include
commission)
Medical & RX
Medical & RX
$40,000
46.35
107.49
6,9
$17,780
Column E
Monumental
Policy
(Based on 268
from the 111104
census data
included in the
Policy, rates
include
commission)
Medical & RX
Medical & RX
$40,000
46.35
107,49
6.9
$18,062
9
Stop-Loss Annual Premium
Aggregate Claim Factors
for "Maximum" Claim
Levels (High Plan)
1o Employee Only
~ ~ Employee & Child(ren)
12 Employee & Spouse
93 Employee & Family
Aggregate Claim Factors
for "Maximum" Claim
Levels (Mid Plan)
14 Employee Only
15 Employee & Child(ren)
16 Employee & Spouse
~~ Employee & Family
Aggregate Claim Factors
for "Maximum" Claim
Levels (Low Plan)
1s Employee Only
19 Employee & Child(ren)
20 Employee & Spouse
21 Employee & Family
Annual Maximum Claims
$230,635 $239,460 $213,356 $213,356 $216,740
324.13	402.5	280.47	277.35	277.35
849.73	508.46	735.25	727.09	727.09
849,73	611	735.25	727.09	727.09
849,73	730.01	735.25	727.09	727.09
324.13	279	250.8	277.35	277,35
849,73	365	657,49	727.09	727,09
849.73	452	657.49	727.09	727.09
849,73	545	657,49	727.09	727,09
324,13	245.5	229.23	277.35	277.35
849.73	328.75	600.93	727.09	727.09
849.73	406.5	600.93	727.09	727.09
849.73	506.75	600.93	727.09	727.09
$1,409,165	$1,315,270	$1,177,969	$1,205,786	$1,226,564
165
164 184 163 15
Based On•~• 164 13 14 14
Employee Only (High Plan) 13 ~~ 14 11 11
EmpfChild (High Plan} 14 11
Empfgpouse (High Plan} 11 11
h Plan) 30 30
EmpiFamily (Hig 30 30 7 7
30 7 7 7
Employee Only (Mid Plan) 7 7 7 3
EmplChild (Mid Plan) 7 3 3
EmpfSpouse (Mid Plan) 3 3 11
EmpfFamily (Mid Plan) 11 11 2
11 11 2 2 2
Employee Only (Low Plan} 2 2 2 2 1
EmpfChild (Low Plan) 2 2 1 1
EmpfSpouse (Low Plan) 1 1
265 268
EmpfFamily (Low Plan) 265 265
265 Attorney's 01
Total the RFP's "final and best offer' phase. The County
~ EBA during b email on December 18 (Exhibit 2). ThE
*This column reflects rates that Weates on hem, but they were presented to Don Gray Y
ith these s resented to the Commisioners Courtin Duote~mnasm0u~h as
able to locate a quote w Gra & Co. that wa p
readsheet prepared by Y uote with these rats
s a ear on the sp & Co. learned from EBA that EBA accidenas I~yo yetaocated a q
rate Pp In June 2004, Gray
& Co. has not verified thaetnte er sets of rev
labeled Fidellity Security. tal and not by Fidelity Security. Inasmuch as the County h d to the Coun
Monumen resented to the County. Further, Gray users were prey
actually quoted by other prop
cannot verify that these rates were actually p
Co. during the period of December 15 to December 22 by
were emailed to Gray &