AGENDA CAPTION:
Title
Consider approval of Resolution 2026-127R, approving a contract with Aetna Life Insurance Company, for medical, pharmacy, and dental insurance administration in the amount of $384,154.00; authorizing the City Manager, or her designee, to execute the contract on behalf of the city; and declaring an effective date.
Body
Meeting date: August 5, 2026
Department: HR
Amount & Source of Funding
Funds Required: $307,323.20 City Cost; (shared cost City cost approx. 80% and employee contribution approx. 20%)
Account Number: 30030260 - 51040
Funds Available: Yes
Account Name: City Health Insurance Administration Fees (All Departments)
Fiscal Note:
Prior Council Action: June 21, 2016 - City Council approved a contract extension #216-172 for Medical, Pharmacy, and Dental Insurance Administration via Res 2024-123R.
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Background Information:
The City of San Marcos sponsors a partially self-funded employee benefits program and contracts with third-party administrators to provide medical, pharmacy, dental, flexible spending account (FSA), COBRA, retiree billing, employee assistance program (EAP), and wellness administration services.
Since January 1, 2017, UnitedHealthcare Services, Inc. (UHC) has served as the City's administrator following a competitive Request for Proposal (RFP) process. In anticipation of the current contract expiration on December 31, 2026, the City conducted a comprehensive RFP process, in accordance with City procurement policies to evaluate administration services for its employee benefits program.
The evaluation included a detailed review of administrative fees, provider network access, disruption, for both medical and pharmacy, pharmacy benefit management, clinical and wellness programs, customer service capabilities, implementation support, reporting and analytics, financial guarantees, and overall value to the City and its employees. Finalist presentations were conducted in June 2026, and proposals were evaluated with the assistance of the City's employee benefits consultant.
Following a comprehensive review, staff recommends awarding a contract to Aetna for a three-year initial term beginning January 1, 2027, through December 31, 2029. Under the proposed agreement, the following benefit administration services will transition to Aetna and affiliated partners:
• Medical Administration
• Pharmacy Benefit Administration
• Dental Administration
• Flexible Spending Account (FSA) Administration
• COBRA Administration
• Retiree Billing Administration
• Employee Assistance Program (EAP)
• Wellness Program Administration
Aetna's proposal provides the strongest overall combination of financial savings, member experience, clinical management capabilities, provider access, and long-term cost containment strategies while minimizing disruption to employees and retirees during implementation.
Key advantages of the proposed agreement include:
• More than $350,000 in implementation funding, administrative credits, and transition allowances that provide immediate value to the City's self-funded health plan and help offset transition-related costs.
• Three years of guaranteed administrative service fees with no increases through December 31, 2029, followed by capped annual increases of only 4% in years four through eight, providing long-term budget predictability and cost stability.
• Projected first-year savings of approximately $1.25 million compared to the City's current program and approximately $3.8 million in projected savings over the initial three-year contract term through a combination of reduced administrative fees, enhanced pharmacy pricing, rebates, and clinical cost-management programs.
• Minimal disruption for team members and dependents. Aetna demonstrated 100% disruption-free access for all inpatient providers currently utilized by City members, approximately 99% provider retention across outpatient and professional provider categories, and integrated administration of both medical and pharmacy benefits.
• Broad provider access throughout Central Texas and nationwide through Aetna's Choice POS II network, which includes more than 294,000 primary care physicians, 575,000 specialists, 6,300 hospitals, and over 475,000 behavioral health providers nationwide.
• Enhanced clinical management programs focused on diabetes management, oncology care, musculoskeletal conditions, maternity support, behavioral health services, specialty pharmacy management, chronic disease intervention, and high-cost claimant management.
• Integrated medical and pharmacy cost-management strategies designed to improve long-term plan sustainability, including specialty drug management, payment integrity programs, fraud and abuse prevention, transplant cost negotiation services, Centers of Excellence programs, and advanced utilization management initiatives.
• Enhanced member experience through dedicated concierge customer service, integrated digital tools, telehealth access, 24/7 nurse support, cost transparency resources, personalized care navigation, and mobile applications that empower employees and dependents to make informed healthcare decisions.
• Strong implementation support and performance guarantees tied to service delivery, claims administration, customer service responsiveness, and financial outcomes, providing accountability throughout the contract term.
• Advanced reporting, analytics, and population health management tools that will assist the City in identifying utilization trends, monitoring healthcare costs, supporting wellness initiatives, and improving long-term health outcomes for employees and retirees.
While any vendor transition involves some level of operational risk, Aetna’s implementation guarantees, transition funding, and extensive public-sector experience are expected to significantly mitigate these risks. The transition will enhance the overall team member experience, maintain continuity of care, and expand access to high-quality providers.
The proposed contract supports the City’s commitment to delivering competitive, high-quality team member benefits while responsibly managing healthcare costs and ensuring the long-term sustainability of the self-funded health plan.
Implementation will begin immediately upon approval, with open enrollment and transition activities occurring in fall 2026 to support a seamless effective date of January 1, 2027.
Council Committee, Board/Commission Action:
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Alternatives:
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Recommendation:
Staff recommends approving contract #2026-043 for Medical, Pharmacy, and Dental Insurance Administration through December 31, 2029.