Benefits Task Force Report to the President

Date: April 24, 2001

To: Terry Cooney

From: Benefits Task Force*

Subject: Recommendation

The Benefits Task Force has been deliberating since last December. Our deliberations have included:

• Identifying the principles underlying our current benefits programs
• Reviewing the principles underlying the benefits programs at other colleges and universities
• Reviewing what other colleges and universities have done in response to increased medical plan costs
• Learning about the group and individual medical plan marketplace
• Learning about the University’s benefits plan policies, practices, budgets and expenditures
• Learning about the benefits plan enrollment patterns at Puget Sound
• Constructing and analyzing a variety of funding scenarios
• Developing a survey for faculty and staff in collaboration with the Director of Institutional Research
• Reviewing survey results compiled by the DIR
• Conducting three open forums to discuss survey results and solicit perspectives and ideas from faculty and staff members

We have learned a great deal about Puget Sound benefits, about the health care marketplace, and about our colleagues’ wide-ranging circumstances and points of view. The one position on which we have reached consensus is that the matter of health insurance is both charged and complex and cannot be addressed in a piecemeal way or on a short-term basis. All indices suggest that we will be challenged by the increasing costs of medical and dental insurance plans for the foreseeable future.

The structure of the flexible benefits plan (and the life insurance and disability plans) clearly focuses on the individual faculty or staff member. Any decisions that the individual makes concerning family are not specifically funded by the University’s flexible benefits plan. The University provides a monthly allowance which faculty and staff members use for medical, dental, optional life, health care personal expense account, and/or dependent care personal expense account coverage, and which does not vary by family status. Faculty and staff members have the opportunity and responsibility to allocate allowance dollars and design flexible benefits plan coverage based on personal, family, and financial needs and priorities. Expenses that exceed allowance dollars are paid on a pre-tax basis, saving faculty and staff members a minimum of 23% (7.65% FICA tax and 15% federal income tax) of the cost.

Our recommendation is that the University maintain this policy of providing an allowance that is the same for each full-time faculty and staff member who enrolls in a University-sponsored medical plan and that we maintain the flexibility inherent in the current plan. However, we recommend one change in the structure of the flexible benefits plan--that is, that persons who waive enrollment in a University-sponsored medical plan receive an allowance that is 10% less than the budgeted allowance amount. The budgeted allowance amount for 2002 is $223 per month for full-time employees, which means that persons who waive coverage would receive a monthly allowance of $200.70. The difference (about $44,000 if the current number of persons who waive medical coverage is the same for 2002) would be placed in an account from which faculty and staff who need supplemental dollars to support family enrollment in a University-sponsored medical plan could apply to draw funds. We recommend that the eligibility for such supplements be based on family income (not just the faculty/staff member’s University salary) and on University-sponsored medical plan enrollment status. If this recommendation is approved, Human Resources will work with Hewitt Associates actuaries to define the parameters of a supplemental dollars matrix (family income on one axis and medical plan enrollment status on the other). Questions we will ask Hewitt to address include:

• How might a subsidy matrix be developed based on Hewitt’s informed understanding of the generally accepted reasonable percentage of family income used for medical insurance premiums?
• What is the family income distribution in Tacoma/Pierce County?
• Does Hewitt recommend that we plan to spend all of the dollars we expect to recover from the population who waive medical plan coverage?
• Or does Hewitt recommend that we plan to spend 90% of the funds, for example, and hold onto 10% in this pilot year to roll over to 2003 if pilot year experience suggests that we allocate more to the pool?

If the recommendation is approved, faculty and staff members who wish to do so will apply for available funds when enrolling for 2002 flexible benefits. Those applying for the supplements will be asked to sign a statement certifying that they meet the family income criterion, that they understand that their certification is subject to audit, and that they will notify Human Resources if their circumstances change during the year such that they no longer meet the criteria. Conversely, someone who meets the criteria mid-year (e.g., a partner loses employment and benefits) will be able to enroll family members and begin receiving the subsidy. We recognize that this proposal means that staff and faculty members will be providing the University with personal and confidential information. However, providing the information is voluntary—only those who want the subsidy will be asked to provide family income information. And the recipients of the information—Human Resources staff members—are currently charged with maintaining the confidentiality of information that is personal and confidential.

We make this recommendation for a number of reasons, including:

• The University requires medical coverage for each eligible faculty/staff member, either through a University-sponsored plan or through an outside plan (e.g., a partner’s employer’s plan, insurance available to retired military service personnel). The modification we are recommending supports those who purchase their family medical insurance coverage through the University. Through the 10% allowance reduction, those of us who can and do get medical insurance coverage elsewhere will help others of us (those with the greatest need) to purchase University-sponsored medical insurance coverage.
• The University community was most concerned last fall about the impact of the increased medical insurance plan premiums on less highly compensated staff and faculty members who cover their family members. This recommendation targets the concern but does not materially change the nature or underlying principles of the plan.
• In 1999, the last year for which we have data, 55% of the faculty and staff members who waived medical coverage forfeited personal expense account dollars (1999 Forfeitures Pie Chart). The range of forfeited dollars was from $2 to $2,260. The approximately $250 dollars in 2002 that those who waive medical coverage will not receive in the form of annualized allowance dollars, if this recommendation is approved, was forfeited by nearly 60 similarly-situated persons in 1999.
• In response to the Benefits Task Force survey statement, "The allowance should be lower for people who waive medical coverage," faculty and staff members who completed the survey (two-thirds of the benefits-eligible faculty and staff) were fairly equally divided (42% agreed, 48% disagreed). Because 42% agreed, we believe that the change we are recommending will be accepted (if not well received) if rationale for the change is communicated broadly and effectively. Survey results can be viewed at http://www.ups.edu/ir/BTFSurvey.htm .
• Those who waive medical plan coverage reduce the number of persons in our coverage pool, which means that the insurance risk is spread over a smaller number of people. This reality supports our recommendation that those who waive coverage receive fewer allowance dollars, not only because they have the opportunity for coverage through another source, but also because their decision increases the likelihood that one or more high-cost claimants may result in an experience-based increase in insurance premiums. Conversely, if the notion of a reduced allowance is unacceptable to someone who is currently waiving coverage, he/she may enroll in a medical plan, adding to the covered population and spreading the risk.
• This change reflects a common practice among group health plans. Our benefits consultant advises us that almost all employers provide a lower amount of flex credits for those who waive coverage.

We further recommend the following:

1. That the Budget Task Force in fall 2001 and beyond attempt to fund the flexible benefits allowance such that it will cover the full cost of medical plan enrollment in the less/least expensive medical plan for an individual full-time faculty or staff member;
2. That the University continue to participate actively in the group of WAICU institutions considering the possibility of a consortium for purchasing medical insurance plans;
3. That the University continue to elicit group-specific information from our medical insurance carriers in order to determine what we as a group and as individuals might do to control medical plan cost increases;
4. That the University continue to investigate group and individual medical and dental plan design and insurance carrier options (including lower premiums or rebates for persons who practice behaviors that contribute to good health) that might result in lower costs for some or all faculty and staff members*; and
5. That the University communicate regularly with faculty and staff using a variety of media regarding medical and dental plan trends, "best practices" for health care consumers, and "best practices" for Puget Sound faculty and staff members using the benefits plan available to us.
   
   * Our ideal would be for the University to be able to offer, for example, three medical plans—a true health maintenance organization (HMO) plan; a preferred provider (PPO) plan with a choice of providers, but with incentives for University staff and faculty members to use providers who have contracted with the carrier to charge for services according to an agreed-upon schedule; and an indemnity plan with a high deductible (e.g., $1,000) for those who are comfortable self-insuring for routine medical expenses; and

We will be happy to answer any questions you may have regarding our deliberations.

*Benefits Task Force Members:

Sandy Audabin

Linda Claycamp

Liz Collins

Linda Critchlow-Tostevin

Linda Everson

Rosa Beth Gibson

Karen Goldstein

Diane Kelley

Bruce Mann

Ross Singleton