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					University of Colorado
 Special Benefits Study

       Final Report


        prepared by
    Leif Associates, Inc.

     January 20, 1999
University of Colorado
Special Benefits Study

TABLE OF CONTE NTS

CONSULTANT’S INTRODUCTORY COMMENTS ...................................................................1

SUMMARY OF CONSULTANT’S RECOMMENDATIONS ........................................................2

BACKGROUND INFORMATION.............................................................................................6
  SCOPE OF THE S TUDY ............................................................................................................6
  STUDY METHODOLOGY ...........................................................................................................6
  THE V ISION AND VALUES S TATEMENTS .....................................................................................7
THE DESIGN OF THE BENEFITS PLANS FOR 2000 ..............................................................9
  THE ISSUE IS C HOICE.............................................................................................................9
  THE UNIVERSITY ’S CURRENT B ENEFITS PLANS ..........................................................................9
  PROBLEMS WITH THE C URRENT B ENEFITS PLANS .....................................................................11
  PEER U NIVERSITY CHOICES ..................................................................................................11
  CONSENSUS R ECOMMENDATION ............................................................................................12
  D ISCUSSION OF THE P ROPOSED A PPROACH ............................................................................12
  OTHER P OSSIBLE A PPROACHES ............................................................................................14
  CONSULTANT’S R ECOMMENDATIONS ......................................................................................15
THE US E OF THE UNIV ERSITY’S INTERNAL MEDI CAL P ROVIDERS .................................17
  THE ISSUES ARE ACCESS, COST, AND TRUST...........................................................................17
  THE UNIVERSITY ’S CURRENT USE OF I NTERNAL MEDICAL PROVIDERS .........................................17
  PROBLEMS WITH THE C URRENT USE OF INTERNAL MEDICAL PROVIDERS ......................................18
  PEER U NIVERSITY USE OF INTERNAL PROVIDERS .....................................................................18
  CONSENSUS R ECOMMENDATION ............................................................................................19
  D ISCUSSION OF THE P ROPOSED A PPROACH ............................................................................19
  OTHER P OSSIBLE A PPROACHES ............................................................................................20
  CONSULTANT’S R ECOMMENDATIONS ......................................................................................21
THE ROLE OF EMPLOYEES IN THE BENEFITS PLANNING PROCESS ...............................22
  THE ISSUE IS E MPLOYEE INPUT..............................................................................................22
  THE UNIVERSITY ’S CURRENT A PPROACH ................................................................................22
  PROBLEMS WITH THE C URRENT A PPROACH .............................................................................22
  PEER U NIVERSITY APPROACHES ............................................................................................23
  CONSENSUS R ECOMMENDATION ............................................................................................24
  D ISCUSSION OF P ROPOSED A PPROACH ..................................................................................24
  OTHER P OSSIBLE A PPROACHES ............................................................................................25
  CONSULTANT’S R ECOMMENDATIONS ......................................................................................26
DIFFERENTIATION BETW EEN FACULTY AND STAFF IN BENEFITS CHOICES AND
EMPLOYER CONTRIBUTIO NS ............................................................................................27
  THE UNIVERSITY ’S FACULTY AND STAFF B ENEFIT CHOICE S TRATEGY ..........................................27
  PROBLEMS WITH THE FACULTY AND STAFF B ENEFIT C HOICE STRATEGY .......................................28
  THE UNIVERSITY ’S FACULTY AND STAFF E MPLOY ER CONTRIBUTION S TRATEGY ............................28
  PROBLEMS WITH THE FACULTY AND STAFF E MPLOYER CONTRIBUTION STRATEGY .........................28
  PEER U NIVERSITY CONTRIBUTION STRATEGIES ........................................................................30
  CONSENSUS R ECOMMENDATION ............................................................................................30


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  D ISCUSSION OF THE P ROPOSED A PPROACH ............................................................................31
  OTHER P OSSIBLE A PPROACHES ............................................................................................32
  CONSULTANT’S R ECOMMENDATIONS ......................................................................................32
THE FUNDI NG OF THE UNIVERSITY’S HEALTH BENEFITS PLANS ...................................34
  THE ISSUE IS R ISK ...............................................................................................................34
  R EGULATORY ISSUES ...........................................................................................................35
  THE UNIVERSITY ’S CURRENT F UNDING A PPROACH ...................................................................36
  UNIQUE INTERNAL PROVIDER AND AFFILIATE ISSUES .................................................................37
  FUNDING A PPROACHES OF P EER U NIVERSITIES AND OTHER LARGE E MPLOY ERS ...........................37
  CONSULTANT’S R ECOMMENDATIONS ......................................................................................38
THE INTERNAL BENEFITS MANAGEMENT STRUCTURE ...................................................40
  THE ISSUE IS TRUST ............................................................................................................40
  THE CURRENT CU B ENEFITS MANAGEMENT STRUCTURE...........................................................41
  THE CONSOLIDATED S ERVICE C ENTER ...................................................................................42
  PROBLEMS WITH THE C URRENT INTERNAL MANAGEMENT STRUCTURE .........................................43
  PEER U NIVERSITY AND CORPORATE INTERNAL MANAGEMENT STRUCTURES .................................44
  POSSIBLE A PPROACHES FOR INTERNAL MANAGEMENT STRUCTURE ............................................45
  CONSULTANT’S R ECOMMENDATIONS ......................................................................................45
OTHER RELEV ANT BENEFIT ISSUES AND RECOMMENDATIONS .....................................49
  SURVIVING S POUSES ...........................................................................................................49
  CHIROPRACTIC B ENEFITS .....................................................................................................49
  FLEXIBLE B ENEFITS CAFETERIA PLAN.....................................................................................49
  INTEREST ON THE R ESERV ES ................................................................................................49
APPENDIX A – SUGGESTED BENEFITS STRUCTURES .....................................................50

APPENDIX B – GLOSS ARY OF TERMS ...............................................................................52




 Final Report 1/20/99                                            ii                                          Leif Associates, Inc.
Consultant’s Introductory Comments

This report and the recommendations contained h erein represent the culmination of three months
of intense study focused on identifying a strategy for the University of Colorado for the design and
implementation of a new employee health benefits program for 2000 and beyond. The specific
issues dealt with in the study cover a wide range of topics, including plan design, managed care
models, employer cont ributions, funding, internal management, and employee relations.

The University’s current employee benefits program has been heavily criticized for a number of
reasons, all of which are interrelated. We believe there is no single right approach to immediately
resolve all of the difficult issues related to the program. We have attempt ed to develop a set of
recommendations that will be an important first step in moving the program onto solid ground. It
is important to recognize that the issues examined in this study cannot be viewed separately, but
must be considered as a whole. The recommendations we have made are interdependent, and if
implemented only in part will have less chance of success.

It became increasingly apparent during the course of our work that the overriding issue
influencing all other issues is the level of the University’s employer contribution for medical
coverage. Because the University’s contribution has not been increased since 1994, employees
have seen their share of health plan costs go up dramatically. As a result, employees have
become more vocal in their complaints about the way the program has been run, since all of the
increased cost has been passed on to them. They have challenged University Administration to
be accountable for decisions that have had an impact on the cost of the program, specifically
these:

   The decision to use the University’s internal medical providers as the sole providers for the
    University’s health benefits plans, without having gone through a competitive bidding process
    or requiring appropriate provider access
   The decision to reduce health care benefits to offs et increasing cost, without seeking
    adequate input from employees
   The decision to link employer contributions for faculty and exempt staff to the state mandated
    employer contribution for state classified employees, even though the law does not require
    that link
   The decision to not credit the health care fund with the int erest it has earned
   The decision in past years to use pricing strategies that resulted in the need for a current
    rebuilding of the res erves through increased premiums

These issues became very public when the University’s Int ernal Audit Department released their
report in June 1998. The purpose of our study was not to validat e or dispute the findings of the
Internal Audit Report, but rather to explore the University’s alternatives for moving into the future
with a well run healt h benefits program that meets the needs of its employees. With that purpose
in mind, our study considered the audit findings as important background information to assist in
the formulation of future strategies, along with many other sources of relevant information. We
did not attempt to recreate historical financial information or past decisions, except as needed to
help us understand the unique issues related to the University environment. While we believe it
is important to remember the mistakes of the past in order not to repeat them, we focused our
efforts on designing a positive approach for the future.

We do believe, however, that certain health benefits decisions made in the past have had a
significant impact on employee morale and mutual trust within the University community. It cannot
be ignored that the value to employees of the University’s employee health benefits program has
eroded significantly since 1994. Many of our comments and recommendations reflect what we
believe to be a critical need to rebuild trust and to increase the actual and perceived value of the
University of Colorado’s employee health benefits program.



Final Report 1/20/99                              1                             Leif Associates, Inc.
Summary of Consultant’s Recommendations

Leif Associates, Inc. has completed its final study of the University of Colorado’s health benefits
program. This summary provides an abbreviated description of each of the final
recommendations. We encourage a full reading of the report in order to gain an understanding of
the basis for the rec ommendations and the implications of their implementation.


Benefits Design for 2000

    1.   Implement new healt h benefits plan designs for 2000 that include one HMO and one
         POS managed care plan, each offered by three different provider networks. Also offer
         one PPO plan design.

    2.   Choose the networks through a competitive bidding process.

    3.   Choose the networks in such a way as to ensure adequate access to high quality health
         care in Denver, Boulder, and Colorado Springs.

    4.   Introduce a lower cost dent al plan with either a limited network of dentists or a reduced
         benefit level to be offered along wit h a dental PPO similar to the plan currently offered.

    5.   Use current SelectCare and Gold plan designs as a starting point for the design of the
         HMO and POS plans. Make minor changes to reflect benefits commonly found in fully
         insured HMO and POS plan designs.

    6.   Significantly revise the PPO plan design from the current catastrophic plan to a plan
         design with more meaningful benefits that can be used by faculty on sabbatical and
         employees with children in college in other states. The PPO plan should use a large
         national net work.

    7.   Price the plans accurately to reflect the expected medical and administrative costs of
         each plan. A void creating subsidies bet ween them.

The Use of Internal Providers

    8.   Include UA Net in a competitive network selection process for 2000.

    9.   Use UA Net in the employee health benefit plans in one of two ways: (1) as one of the
         three separate networks; or (2) as a component, along wit h other providers, of at least
         one of the selected health plans’ network. Decide bet ween (1) and (2) after the proposals
         have been reviewed.

   10. Utilize UANet as one of the three networks if it is demonstrated that their services and
       costs are comparable to those offered by other net works in the marketplace.

   11. Establish a Request for Proposal development team as soon as possible to develop the
       proposal strategy, develop the selection criteria, define internal provider comparability,
       and create the RFP. Include benefit and healt h care professionals, as well as facult y and
       staff representatives on the team. Strictly avoid any conflict of interest on the part of
       internal providers in determining the team composition.




Final Report 1/20/99                               2                             Leif Associates, Inc.
  12. Choose the three networks in such a way as to ensure the broadest choice of physicians
      and hospitals between the three networks in combination.

The Role of Employees in Benefits Planning

  13. Form a new employ ee advisory group to replace the Benefits Oversight Committee and
      the Benefits Financial Review Committee, to be known as the University Benefits
      Advisory Board (UBAB).

  14. Charge UBAB with the responsibility of providing strategic input to the President and
      University Administration on benefits policy issues. Final benefit decision making will be
      the responsibility of the President and Board of Regents, based on the advice of the
      Director of Employee Benefits and UBAB.

  15. Establish UBAB with a composition of four faculty members appoint ed by the system -
      wide Faculty Council, two staff members appoint ed by the system-wide Staff Council, and
      one at -large member appointed by the President.

  16. Charge UBAB with the responsibility of representing the needs and interests of all
      employees, not just the special interests of their own constituent group.

  17. Establish a process for UBAB that includes the selection of a chairperson, an annual
      determination of priority benefit policy issues, voting on key benefit policy issues when
      the groups feels it is necessary, and staggered three year terms.

  18. Require UBAB to establish and adhere to a conflict of interest policy.

  19. Charge the Director of Employee Benefits with the res ponsibility of developing a formal
      mechanism for securing input from health plan customers who are not represented by
      UBAB, such as retirees and affiliates.

Differentiation between Faculty and Staff

  20. Work with other Colorado public higher educational institutions to seek an increase in the
      state’s contribution for classified staff health benefits.

  21. Continue to support the state’s policy of allowing classified staff to participate in the
      University’s health benefit plans.

  22. Develop a collaborative relationship with the state’s Employee Benefits Unit to allow
      proactive assessment of pot ential adverse selection and enrollment migration due to
      anticipated changes in benefits or premium levels of the state or CU health pl ans.

  23. Set the employer contribution for faculty and exempt staff for 2000 based on a total
      compens ation study of peer universities. If necessary to accomplish this purpose,
      implement different contributions for faculty and exempt staff than for classified staff.

  24. Charge UBAB with selecting no more than six peer universities for the total compensation
      study, determined in conjunction with University Administration and after consultation with
      other University groups who study peer university compensation. B ase the selection of
      peer universities on recruitment and retention objectives.

  25. Charge the Director of Employee Benefits with responsibility for the completion of the
      peer university study by mid-1999, assisted as necessary by external consultants, and in
      coordination with UBAB.




Final Report 1/20/99                             3                              Leif Associates, Inc.
  26. If the peer university study cannot be completed by mid -1999, set the 2000 cont ribution
      levels for faculty and exempt staff at 90% of the cost of employee coverage plus 50% of
      the cost of dependent coverage bas ed on the lowest cos t HMO plan.

  27. Perform the peer university study total compensation study on a periodic basis, at least
      every three years.

  28. Adjust the faculty and exempt staff contribution each year to maintain a consistent
      percentage of total cost, unless the peer university study shows that the contributions
      should be set at a different level.

Funding the Plans For 2000

  29. Fully insure the HMO and POS plans, with a possible exception for UA Net.

  30. Work with UANet to confirm the legality of their acceptance of risk for the Uni versity’s
      employee health plans.

  31. If legality is confirmed, work with UANet to develop a risk transfer strategy that minimizes
      or eliminates the financial risk to plan participants. Develop a collaborative approach for
      handling administration and non-medical/surgical benefits.

  32. If a satisfactory risk transfer and administrative strategy can be established, encourage
      UANet to submit a proposal to demonstrate the comparability of their costs and services
      with other health plans.

  33. If all other conditions are met and comparability is successfully demonstrated, select
      UANet as one of the three networks to offer the HMO and POS plans in 2000.

  34. If UANet cannot legally accept risk or is unwilling to do so, or if a collaborative
      arrangement satisfactory to both parties cannot be developed, give preference to fully
      insured health plans that include University Hospital and University Physicians in their
      provider networks. Select at least one network that includes them.

  35. Plan to self-fund the new PPO plan, but also secure fully insured bids to assess the
      financial advantages of self-funding.

  36. Secure stop loss coverage for the self-funded PPO plan.

  37. Plan to fully insure the two dental plans, but also secure self-funded bids.

  38. Confirm the legality of allowing University affiliates to continue to purchase the
      University’s employee benefit plans under the proposed funding structure.

Internal Management

  39. Move quickly to establish a new benefits department. Establish a new position known as
      the Director of Employee Benefits, to be responsible for all aspects of customer relations,
      contracting, and financial analysis of the University’s benefits plans. This position will
      report to the President, with an indirect reporting relationship to the Director of the
      Cons olidated Service Center.

  40. Establish a Benefits Customer Relations Manager position to report to the Director of
      Employee Benefits. The Benefits Customer Relations Manager should be responsible for
      all written and verbal communications regarding the benefits plans.




Final Report 1/20/99                            4                              Leif Associates, Inc.
  41. Establish a Managed Care Ombudsman position to report to the Benefits Customer
      Relations Manager. The Managed Care Ombudsman would assist employees and their
      dependents in dealing with issues relat ed to managed care. The Ombudsman will serve
      as a knowledgeable intermediary between the patient and the managed care plan or
      physician.

  42. Establish several Benefits Counselor positions to report to the Benefits Customer
      Relations Manager. The Benefits Counselors should have a strong campus presence,
      and be on cam pus often to deal with benefits issues requiring one-on-one or group
      presentation forms of communication.

  43. Establish a Benefits Contracts Manager position to be responsible for conducting
      competitive bidding processes, negotiating managed care and ot her insurance contracts,
      developing and implementing performance standards, conducting performance audits,
      and negotiating renewal contracts. One or more contract specialists should support this
      position.

  44. Establish a Benefits Finance Manager position to be res ponsible for monitoring and
      tracking the financial condition of the health plans, setting reserve levels wit h the
      assistance of external consulting actuaries, recommending premium rat e levels,
      conducting peer university total compensation studies, developing internal benefits
      financial reporting packages, and monit oring contractual vendor reporting requirements.
      The Benefits Finance Manager should have an indirect reporting relationship to the Vice
      President of Budget and Finance, who will provide oversight regarding the financial
      condition of the benefits program. Accountant, res earch analyst, and data analyst
      positions should support the Benefits Finance Manager.

  45. Use external consultants and employee benefits legal counsel to assist with reserve
      setting, rate setting, contract analysis, benefit interpretations, communications review,
      and ot her activities requiring external professional expertise.

  46. Accept both internal and external applications for all positions within the new benefits
      department.

Other Relevant Issues

  47. Perform an actuarial study of the cost of providing an employer contribution for surviving
      spouses and dependent children of deceased active and retired faculty members.
      Present to the President and Board of Regents for consideration.

  48. Provide a limited in-network benefit for chiropractic coverage in the HMO and POS plans
      of all three networks.




Final Report 1/20/99                            5                             Leif Associates, Inc.
Background Information

In June 1998, the University of Colorado’s Int ernal Audit Department released the findings of an
internal audit of the University’s self-funded health benefits plans. President John Buechner had
requested the audit in response to growing concern within the University community regarding the
structure and management of the plans.

The Audit Report not ed deficiencies in the University’s management of the plans, resulting in
operating deficits, low overall satisfaction and quality of care ratings, significant participant
premium increases, and a substantial migration of participants out of the self -insured plans. In
order to effectively mitigate the risk of incurring further losses or premium increases, the Audit
Report recommended a strategy of improving the University’s management efforts and/or
decreasing the complexity of the health benefits program. The recommended course of action
was to move quickly to a fully insured plan strategy, to free the University from the complexity and
risk of self-insuring the plans.

In response to the audit recommendations, President Buechner announced his intention to retain
the servic es of an outside cons ultant to assist the University in examining the implications of the
available alternatives. These alternatives were believed to include the use of a fully insured
funding strategy, enhancing the internal expertise for the ongoing ma nagement of the self-insured
funding strategy, or hiring a third party to provide plan management services. The goal was to
complete the study and implement a new approach for the plan year beginning January 1, 2000.

Scope of the Study

In September 1998, the University of Colorado engaged the services of Leif Associates, Inc. to
perform the special study of the University’s employee benefits programs. Specifically, Leif
Associates was given the assignment to provide guidance and facilitate decision making
regarding the following issues:

   The design of the benefits plans for the year 2000;
   The use of the University’s internal medical providers in the health benefits plans;
   The role of employee participation in managing the University’s benefits programs;
   Differentiation in benefits levels bet ween faculty and staff; and,
   The University’s employer contribution level for faculty and for staff.

Leif Associates also was asked to provide specific recommendations regarding the following
additional issues:

   The internal management structure for the administration of the University’s benefits
    programs; and,
   The funding of the University’s medical, dental, mental health and prescription drug plans.

Study Methodology

Leif Associates has based its recommendations on in formation gathered in the following ways:

   Review of internal documents provided by the University
   Attendance at meetings of the Human Resource Policy Group
   Attendance at meetings of the Benefits Oversight Committee and the Benefits Financial
    Review Committee


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   Interviews with benefits management staff, committee members, internal audit staff, the
    Segal Company, and other contacts within the University
   Personal attendance and a review of employee comments from open forums
   Review of comments from employees submitted in written form received via fax, mail, and e -
    mail
   Review of peer university documents and survey respons es

We understand that the definition of “Peer University” is not one that is commonly agreed upon
within the University community. We attempted to secure information from a range of
universities, especially those that are public institutions, have multiple campuses, have medical
schools, and are members of the Association of American Universities. However, for comparison
purposes, we als o included other Colorado higher educational institutions and a few privat e
universities as well.

In the course of our study, we relied on the Vision and Value Statements developed by the
Benefits Oversight Committee and the Benefits Financial Review Committee in March 1998.
These statements were validated by the groups early in the project, and provided guidance
regarding the University’s objectives in providing benefits for employees. The Statements can be
found below.

The results of our study are documented in this report. The report includes an explanation of
each of the issues, possible approaches for addressing them, peer university approaches, the
advantages and disadvantages of each approach, documentation of agreements that have been
reached on some of the issues, an acknowledgment of internal disagreements, and Leif
Associates’ recommendations.

The Vision and Values Statements

The Benefits Oversight Committee and the Benefits Financial Review Committee agreed on the
following benefits vision and value statements in Marc h 1998:

    Vision Statement

    The University of Colorado will offer competitive health benefits for the purpose of recruiting
    excellent fac ulty and staff and preserving the health and financial security of employees,
    retirees, and their dependents.

    Value Statements and Implementation Criteria

    The University of Colorado will:

    1.   Offer all benefit-eligible pers ons the opportunity to participate in:
         a. A variety of benefit program choices and options,
         b. Healt h plans that provide coverage, benefits, and services that meet the health care
             needs of benefit-eligible persons and meet the standards of comparable employers,
         c. Access to a variety of health care products, networks, providers, and facilities,
         d. A variety of health care choices and options providing a range of costs to meet
             personal needs, and
         e. Healt h care plans that meet or exceed available industry standards for quality,
             performance, and employee satisfaction of services in a manner that utilizes financial
             principles deemed prudent for the management of University benefit programs and,
             where appropriat e, incorporate strategies to reduc e the financial risk for the benefit of
             the University and its benefit-eligible persons.




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   2.   Continue to have an organized structure and process to recognize, analyze, inform, and
        request recommendations from repres entatives of the governance groups of each
        campus, affiliate organizations participating in CU benefit programs, and campus and
        system administration personnel.

   3.   Utilize its internal resources and expertise for health benefit plan services when it is
        demonstrated that their services and costs are comparable with those services offered in
        the marketplace bas ed on accepted business and financial principles and as procured on
        an open competitive basis.

   4.   Provide efficient and cost effective operation and administration of its benefit programs
        utilizing standard business management and organizational principles appropriate to the
        needs of its benefit-eligible persons and the administration and management needs of
        the health plans.




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The Design of the Benefits Plans for 2000

The Issue Is Choice

Employees of the University of Colorado have expressed a desire for more choice in their
employee health benefits plans. Choice means different things to different employees. It may
mean a choice bet ween different types of plan designs, different styles of managed care, different
providers, or different cost levels. Some employees seek plans with lower out -of-pocket costs,
while others would like to lower their monthly premium and have higher out -of-pocket costs at the
time of a health care encounter. Some like their current choice of providers, while others do not.

The Vision and Values Statements recognize the employees’ desire for choice in the following
words:

  “The University of Colorado will offer all benefit-eligible persons the opportunity to participate in:

        a. A variety of benefit program choices and options,
        b. Healt h plans that provide coverage, benefits, and services that meet the health care
           needs of benefit-eligible persons and meet the standards of comparable employers,
        c. Access to a variety of health care products, networks, providers, and facilities,
        d. A variety of health care choices and options providing a range of cost to meet personal
           needs”

The University’s Current Benefits Plans

In 1999, the University of Colorado offers four health care plans to employees. In general, the
benefits provided by the plans are as follows:

 Plan              Managed      Network               In-Network                 Out-of-Network
                     Care                               Benefits                    Benefits
 CU                 HMO          UANet      $10 office visit copay          Emergency care
 SelectCare                                 $200 hospital copay             $100 ER copay
                                            $100 ER copay                   35% Rx coinsurance
                                            20% Rx coinsurance
 Kaiser              HMO         Kaiser     $10 office visit copay          Emergency care
                                            $100 hospital copay             $50 ER copay
                                            $10 ER copay
                                            $5 Rx copay
 CU Gold             POS         UANet      $15 office visit copay          $400 deductible
                                            $300 hospital copay             40% coinsurance
                                            $150 ER copay                   $4,000 out-of-pocket max
                                            20% Rx coinsurance              35% Rx coinsurance
 CU                  PPO         UANet      $3,000 deductible               $3,000 deductible
 Catastrophic                               20% coinsurance                 40% coinsurance
                                            $10,000 out-of-pocket max       $10,000 out-of-pocket max

The CU dental plan is a dental PPO plan using the Delta Dental network. It is provided at no cost
to employees and with an additional charge for dependents.

University employees who are state classified employees also have access to four plans offered
by the state of Colorado. In general, the benefits provided by these plans are as follows:




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Plan         Managed          Network                  In-Network              Out-of-Network
               Care                                      Benefits                 Benefits
Exclusive     HMO              BCBS          $10 ($5 preventive) office    Emergency and urgent
Path                                             visit copay                 care
                                             $200 hospital copay
                                             $75 ER copay
                                             $10 generic, $15 brand Rx
                                                 copays
Combined       POS             BCBS          $10 office visit copay
Path                                         $250 ($750 family)            $500 ($1,500 family)
                                                 deductible                    deductible
                                             90% coinsurance               70% coinsurance
                                             $1,250 ($3,750 family) out-   $2,500 ($7,500 family) out-
                                                 of-pocket max                 of-pocket max
                                             $10 generic, $15 brand Rx     Only in-network cost of Rx
                                                 copays                        is covered
Basic Path     PPO             BCBS          $15 office visit copay
                                             $500 ($1,000 family)          $1,000 ($2,000 family)
                                                 deductible                    deductible
                                             80% coinsurance               60% coinsurance
                                             $2,000 ($4,000 family) out-   $4,000 ($8,000 family) out-
                                                 of-pocket max                 of-pocket max
                                             $10 generic, $15 brand Rx     Only in-network cost of Rx
                                                 copays                        is covered
HMO            HMO             Kaiser        $10 ($5 preventive) office    Emergency and urgent
                             PacifiCare          visit copay                   care
                              QualMed        $200 hospital copay
                           Rocky Mountain    $100 ER copay
                           San Luis Valley   $10 generic, $15 brand Rx
                                                 copays

The state has a dental PPO plan that uses the United Dental Care network. State classified
employees who choose the state’s plans receive dental coverage through the state’s dental plan
at no cost for the employee and with a premium for dependents.

We estimate that approximately 37% of CU’s benefit-eligible employ ees are state classified
employees, and therefore eligible for both the CU plans and the state plans. In 1998, it appears
that approximately 35% of CU’s state classified employees chose CU’s plans, 49% chose the
state plans, and the other 16% waived coverage.

In total, combining faculty and staff, approximately 15% of eligible employees waived coverage in
1998. The plan most frequently chosen was SelectCare, chosen by 32% of benefit -eligible
employees. Another 19% chose CU Gold, and only 3% chose CU Catastrophic. The CU Kaiser
plan was chosen by 11% of employ ees. The rest of the employees chose state plans, with Kaiser
being by far the most popular state option.

Low-income employees (less than $25,000 salary) were more likely to waive coverage (27%)
than any other income category. The most popular plans chosen by this income group were CU
SelectCare (22%) and the state Kaiser plan (21%). These employees represent about 24% of
the University’s benefit-eligible employees.

High-income employees (more than $100,000 salary) were the least likely to waive coverage
(7.4%). The most popular plans chosen by this income group were CU Gold (54%) and CU
SelectCare (29%). These employees represent about 7% of the University’s benefit -eligible
employees.



Final Report 1/20/99                           10                              Leif Associates, Inc.
Problems with the Current Benefits Plans

For faculty and exempt staff of the University, the plan offerings represent a range of choices of
plan designs and managed care types. However, they provide limited managed care network
choice, specifically in Boulder. In addition, employees do not believe t hat the plans have copays,
deductibles, and covered services that are comparable to other universities or to the private
sector.

The plan offerings also are not viewed as having an appropriate range of cost choices, especially
for families. The problem of cost will be discussed lat er in this report, in the section regarding
employer contributions.

The issue of choice is also important to state classified employees of the University. However,
since the state classified employees have access to the stat e plans as well as the CU plans, their
level of choic e is considerably greater than that of faculty and exempt staff employees. This
tends to dampen the impact of the net work limitations in the CU plans for these employees.

Peer University Choices

In the course of our study, we examined the benefits structures of many other universities. The
following table depicts the benefits choices of some of them. It is import ant to note that managed
care net works are primarily available in metropolitan areas, and differ significantly from one
geographic area to another. The level of managed care choic e offered by these universities, or
any large multi-site employer, is influenced by the geographic location of its employ ees.


 University                                        Managed Care Network Choices
 Colorado State University        PacifiCare, BCBS, Rocky Mountain HMO, Prudential

 Florida State University         BCBS of Florida, AvMed, Capital Health Plan, Healthplan Southeast

 University of California         BluePremier, Health Net, Kaiser, PacifiCare, Western Health
                                  Ad vantage, Prudential, UC Care

 University of Wisconsin          21 HMOs, too numerous to list

 University of North Carolina     BCBS, Doctors Health Plan, Kaiser, Maxicare, Optimum Choice,
                                  Prudential, QualChoice, The Wellness Plan, United HealthCare,
                                  WellPath

 University of Texas              Texas True Choice, Prudential, Humana

 Indiana University               Ma xicare, Anthem, M-Plan, IUHP, Partners, AHDS, PCN

 University of Oregon             Kaiser, ODS, PacifiCare, QualMed, BCBS

 University of Illinois           QCHP, American HMO, Community Health Plan, Group Health Plan,
                                  Health Alliance, HMO Illinois, Humana, John Deere Health Care,
                                  Ma xicare, NYLCare, OSF, PersonalCare, Prudential

 University of Missouri           Humana, GHP, United HealthCare, University Hospital/Physicians

 University of Nebraska           BCBS, Health Plans of Lincoln, United HealthCare

 Northwestern University          BCBS, Prudential, Humana, HMO Illinois, United HealthCare




Final Report 1/20/99                             11                              Leif Associates, Inc.
Consensus Recommendation

The Benefits Oversight Committee, the Benefits Financial Review Committee, and Leif
Associates worked together to develop a recommendation for a new approach for the design of
health benefits for 2000. The recommended approach focuses primarily on improving choice for
University employees. The key components of the recommended plan designs are these:

     A Health Maintenance Organization (HMO) plan will be offered by each of three different
      HMO networks. Each of the three HMOs will be required to offer the same plan design, and
      will compete with each other based on price, network, and quality. They will be chosen
      through a competitive bidding process and selected in such a way as to ensure adequate
      access to high quality health care in Denver, Boulder, and Colorado Springs. At least one of
      the HMOs will have a large national net work.

     A Point of Service (POS ) plan will also be offered by the eac h of the three HMOs. All three
      companies will be required to offer the same plan design.

     A PPO plan using a large national provider network will be available.

     Two dental plans will be offered. One will have a limited network of dentists (a dental HMO
      plan). The other will allow a greater choice of dentists (a dental PPO plan) similar to the plan
      currently available to University employees.

The proposed benefits structure presumes that there will be a compet itive bidding proc ess. The
issue of competitive bidding will be discussed further in a later section of this report. The
proposed benefits structure might look somet hing like this:


                        Managed                                  In-Network        Out-of-Network
    Plan                  Care             Network                 Benefits           Benefits
    Medical Plan #1      HMO         Network A, Network B,         Not yet         Emergency and
                                        and Network C            determined         urgent care

    Medical Plan #2       POS        Network A, Network B,         Not yet        Not yet determined
                                        and Network C            determined

    Medical Plan #3       PPO              Network C               Not yet        Not yet determined
                                                                 determined

    Dental Plan #1        HMO              Network D               Not yet         Emergency and
                                                                 determined         urgent care

    Dental Plan #2        PPO              Network E               Not yet        Not yet determined
                                                                 determined


Specific details regarding copayments, deductibles, and covered benefits have not yet been
determined. However, a suggested approach is included in Appendix A of this report.

Discussion of the Proposed Approach

The proposed benefits structure has several features that make it more attractive than the current
structure. The most important of these is improved provider choice. The second is that the new
structure should foster a competitive environment that will result in better net works and lower
cost. The third is that it should provide a range of cost choice.




Final Report 1/20/99                               12                             Leif Associates, Inc.
The level of provider choice available under the proposed structure will be dependent upon on the
results of a competitive bidding process and the selection criteria used by the selection
committee. In theory, it should be possible to select three competing networks that in
combination will provide access to nearly all of the providers and facilities that University of
Colorado employees would like to use. While one of the networks might be strong in Colorado
Springs and weak in Boulder, anot her might be strong in Boulder and weak in Colorado Springs.
In combination, University employees will have access to strong net works in all locations.

Under the new approach, the competing networks will have more inc entive to provide adequate
provider choice and attractive pricing. Say, for ex ample, that the three networks selected through
competitive bidding were Kaiser, PacifiCare, and UA Net. Each of these three would offer the
same HMO product (say a $10 office visit copay plan). They would eac h develop the premium
rate for their own product. The differences in price between the plans would be reflected in the
employee’s monthly premium. Employ ees would choose bet ween the three health plans each
year at open enrollment. They would choose the plan that best meets their needs, based on
network, monthly premium, and other more subjective criteria such as service and quality. This
should result in a very favorable competitive environment, because the bidders will be
encouraged to have adequate networks in Boulder, Colorado Springs, and Denver, and to have
attractive rates. To the extent that the health plans can have the best network and the lowest
cost, they will get the most enrollment of University employees, which is likely to be their goal for
participating in the program.

Offering three networks will allow the University to continue to offer both of the current net works,
Kaiser and UA Net, (if they present competitive bids) in addition to a third large national network.
This should result in little disruption to employ ees who are content to use one of the two existing
network choices, but will allow those that are dissatisfied with the current situation to have an
additional network choice.

The use of three different networks for the HMO and POS plans should have the secondary effect
of encouraging each of them to be aware of the competitive pressures from the others in terms of
network access, cost, quality of care, and quality of service. With three net works involved, this
competitive pressure will be present not just at the time of initial net work selection, but also each
year at open enrollment time.

With the recommended approach, employees will have a choice of seven different combinations
of medical plan design, managed care type, managed care network, and premium level,
compared to the current four choices. The range of cost of the plans will be dependent on two
factors: the detailed plan designs for the HMO, POS, and PPO plans, and the results of the
competitive bidding process. It should be possible to develop detailed plan designs that will res ult
in a fairly wide range of cost across the plan designs. Within a plan design, the cost range will
depend on the competitive bidding process.

The addition of a second dental option will also allow additional choice for employees. The
current dent al plan design is fairly generous by comparison to other commercially available dental
plans. Since the University pays the entire cost of the dental plan for employees but hasn’t
changed its total contribution for medical and dental benefits since 1994, the rising cost of the
dental plan has forced the University’s contribution for medical coverage to go down. The
advantage of adding a second dental option is that, whether the University’s contribution level
changes or not, employees will have a choice about spending their own cont ribution on medical
benefits or dental benefits. The current situation forces a generous dental program on employees
whet her they want it or not, and they pay for it through a reduced employer contribution for
medical coverage.

The following table displays the current and recommended approaches, using 1999 costs and
estimated reduced benefit dent al plan costs for single coverage. This table demonstrates how the
introduction of a lower cost dental plan could result in a higher employer cont ribution for medical



Final Report 1/20/99                              13                             Leif Associates, Inc.
coverage and freedom of choice for employees in selecting their dental coverage. Dent al
coverage is more import ant to some employees than others, and those who wish to continue their
current plan would have a cost neutral effect with the recommended approach. Those employees
who are willing to have a lower value dental plan would be able to use the cost difference to apply
toward the cost of their medical coverage.


                                                       Total Monthly    Employer        Employee
 Scenario               Sample 1999 Plans                  Cost        Cont ribution   Cont ribution
 Current Approach       CU Gold                          $ 214. 35      $ 122. 35        $ 92.00

                        Dent al PPO                      $ 22.00        $ 22.00          $   0.00

                        Combined CU Gold and             $ 236. 35      $ 144. 35        $ 92.00
                        Dent al PPO

 Recommended            CU Gold                          $ 214. 35      $ 128.35         $ 86.00
 Approach
                        Dent al PPO                      $ 22.00        $ 16.00          $ 6.00

                        Lower cost dent al plan          $ 16.00        $ 16.00          $ 0.00
                        (estimated)

                        Combined CU Gold and            $ 236.35        $ 144.35         $ 92.00
                        Dent al PPO

                        Combined CU Gold and            $ 230.35        $ 144.35         $ 86.00
                        lower cost dental plan




Other Possible Approaches

There are many different approaches that could be used for the benefits structure for 2000.
Some of the approaches and their advantages and disadvantages are described below.

More Plan Designs. Instead of having only one HMO plan design, one POS plan design, and
one PPO plan design, there could be more choices of plan design. This would allow a broader
range of cost choice to meet personal needs. The disadvantage of this approach is that a larger
number of choices could be confusing to employees and diffic ult to communicate. If there were
two levels of HMO coverage rat her than just one, the number of combinations of plan design and
network would go from seven to ten. If there were also two levels of POS co verage and two
levels of PPO coverage, the number of choices would increase to fourteen.

More Network Choice s. Instead of using three network choices, there could be more. There
are many Colorado HMOs that have networks in Denver, Boulder, and Colorado Springs. It is
clear from the peer university study that some universities use this approach. The disadvantage
is that as the number of health plans offered increases, the attractiveness of participation
diminishes for the health plans because of decreased enrollment potential. The result would be
less aggressive pricing.

Fewer Network Choices. Instead of using three net works, the choice could be limited to one or
two net works. This might result in more aggressive pricing during the competitive bidding
process. However, there are several disadvantages to choosing only one health plan. First, it
would be imperative for the selected health plan to have outstanding net works in Denver,



Final Report 1/20/99                              14                             Leif Associates, Inc.
Boulder, and Colorado S prings. This might be possible but would cert ainly limit the number of
qualified bidders. Second, in the subsequent years of the contract, a single health plan has little
incentive to improve the provider net work, to improve customer service, or to control cost
increases. A single health plan has a captive membership and no competition until the next
carrier selection process, which may be three to five years in the fut ure. When more than one
health plan is offered, the companies compete for membership every year at open enrollment
time. Offering two health plans could resolve the competition problem, if the two were chosen
carefully and either of them were adequate to meet the needs of employees for provider access
and affordability.

Consultant’s Recommendations

   We concur with the consensus rec ommendation of the Benefits Oversight Committee and the
    Benefits Financial Review Committee. We believe the model described is an excellent one
    and will result in improved employee satisfaction and reduced cost.

    We believe an acceptable alternative woul d be to offer two HMO plan designs rather than
    one. The downside of this would be to have too many choices, which could be confusing to
    employees. However, given the current level of dissatisfaction, too many choices may be
    better than too few. An intermediate approach would be to implement the consensus
    recommendation for seven choices in 2000, and implement additional plan design choices if
    a cafeteria plan approac h is implement ed in 2001 or later.

    We believe it would also be acceptable to offer a different type of low cost dental plan rather
    than the dental HMO plan that has been suggested. For example, a dental plan covering
    only preventive and diagnostic services might also provide an acceptable low cost option to
    the current PPO plan.

   While the committees did not have time to discuss detailed plan designs, we have made our
    own recommendations. Our suggested plan designs can be found in Appendix A. These
    suggested plan designs can be used as a starting point for further discussion of the detailed
    plan designs prior to a competitive bidding process.

   We have suggested HMO and POS plan designs that are similar to the current SelectCare
    and Gold plan designs, but incorporate cert ain changes to better reflect benefits currently
    found in fully insured HMO and POS products. The changes are primarily in the area of
    prescription drug benefits, biologically based mental illness care, and chiropractic care.

   The POS plan design should have a significant limitation of out -of-network benefits in order to
    encourage in-net work usage as much as possible and therefore limit the total cost of the POS
    plan. If the network is adequate, there should be little need for out -of-network usage, but its
    availability will provide an increased level of freedom of choice ove r the HMO plan designs.

   The PPO plan design should be significantly revised from the current catastrophic plan. The
    CU Catastrophic plan has very low participation and is not a viable option for most
    employees. Less than 3% of the employees are currently enrolled in the CU Catastrophic
    plan. Low-income (less than $25,000 income) employees do not choose the plan any more
    frequently than employees with over $100,000 in income, even though the coverage is free
    for employees. We believe this is because the deductibles are too high and the benefits are
    not viewed as meaningful. We recommend that a new PPO plan design be developed to
    replace the CU Catastrophic plan. This plan should use a large national net work.
    Deductibles should be fairly high, but significantly lower than the CU Catastrophic plan.
    E ven with high levels of cost sharing, we believe this plan will be expensive becaus e
    management of utilization will be limited. It will, however, allow more freedom of choice for
    employees with children in college in other states and for faculty on sabbatical.



Final Report 1/20/99                             15                             Leif Associates, Inc.
   The network selection process should be focused on selecting three networks that together
    will provide adequate provider access in Boulder, Colorado Springs, and Denver. Provider
    overlap should be avoided, if possible. Network selection should res ult in the greatest
    number of different providers as is possible for the three networks combined. For example,
    one network might have Boulder Community Hospital while anot her has A vista. One network
    might have Memorial Hospital while another has Penrose.

   The three HMO plans, the three POS plans, and the PPO plan should each be priced to
    accurately reflect the medical and administrative costs of providing the plan. Subsidies
    should be avoided. This will encourage each employee to select the plan that best meets his
    or her needs, in terms of cost, provider choice, and quality. Smaller net works should result in
    lower costs. More choice or special circumstanc es within a plan may translate into higher
    costs. Some employees may value this choice and be willing to pay more for it.




Final Report 1/20/99                             16                            Leif Associates, Inc.
The Use of the University’s Internal Medical Providers


The Issues are Access, Cost, and Trust

From the typical employer’s perspective, the introduction of managed care plans into an
employee benefit program is intended to accomplish a number of goals. One goal is to contain
cost increases in the health plans. This is accomplished through accessing a managed care
network’s negotiated provider reimbursement levels and the managed care plan’s expertise in
managing the utilization of health care services. Another goal is to improve the health of
employees by focusing on preventive care while eliminating unnecessary or ineffective medical
procedures and services.

Purchasers and patients usually judge a managed care plan by three criteria: cost, access, and
quality. Cost tends to be the most important criteria for most purchasers. Access, defined as
physician choice and proximity, tends to be secondary but also vitally important. Quality is also
very important, although its definition is primarily subjective. The meas ures used to define
managed care quality are complex and inconsistent. They range all the way from the
appropriateness of the technical process of delivering health care and the resulting health
outcomes, to the patient’s satisfaction with the length of time required to get an appointment.

Academic medical cent ers, such as the University of Colorado Healt h Sciences Center, have
unique issues related to providing managed care net works. These types of institutions must fund
their combined missions of education, research, and clinical care. In markets such as Colorado’s
Front Range, where there is intense market competition, an academic medical cent er is
challenged to provide clinical care at a competitive price and develop a greater focus on primary
care. While a slightly higher cost might be acceptable if accompanied by improved access to the
highest quality specialty and hospit al care, purchasers are not likely to be willing to pay a lot more
if they feel their contributions are funding education and research rather than their own medical
care.

The Vision and Values Statements created by the Benefits Oversight Committee in March 1998
say this about the use of internal providers in the health benefit plans:

    “The University of Colorado will… Utilize its internal resources and expertise for healt h
    benefit plan services when it is demonstrated that their services and costs are comparable
    with those services offered in the market place based on accepted business and financial
    principles and as procured on an open competitive basis.”

The University’s Current Use of Internal Medical Providers

In this report, the term “internal medical providers” refers to Universit y Hospital, University
Physicians (together known as UA Net) and University Mental Health Services (UMHS). The
University uses these providers in its employee health benefit plans in the following ways:

       Plan                  Network
       CU SelectCare         UANet and UMHS are the only providers
       CU Gold               UANet and UMHS are the only network providers; participants may
                             go out of network with a $400 deductible
       CU Catastrophic       UANet and UMHS are the only network providers; participants may
                             go out of network with a $3,000 deductible
       Kaiser                University Hospital is part of the Kaiser network, and University
                             Physicians are used for specialist referrals



Final Report 1/20/99                              17                              Leif Associates, Inc.
Problems with the Current Use of Internal Medical Providers

The University of Colorado’s use of internal medical providers in the employee health benefit
plans has been judged harshly by many of the University’s employees. There are a number of
specific problems.

    Acce ss and choice. Employees, especially in Boulder, feel they don’t have appropriate
     access to or choice of providers. Some employees at the Health Sciences Center also
     express concerns about confidentiality and privacy because they must receive healt h care
     services from their colleagues.

    Cost. Because a competitive bidding process was not used to select UA Net and UMHS, the
     participants are unsure if they are paying a competitive price.

    Funding. Because UA Net is not licensed as an insurance company, the plans must be self-
     funded, thus leaving the benefits program and its participants to bear the risk.

    Admini stration. Since UANet does not have its own means of claim administration and
     utilization management, the University must also contract with an administrator to perform
     these services.

    Trust. Plan participants are suspicious about the motivation behind the University’s decision
     to use the internal medical providers. This suspicion is compounded by the fact that the
     University has not raised its employer contribution since 1994, and all of the inc reas ed cost of
     the plans has been passed on to the employees. They believe their contributions may be
     funding something other than their healt h care.

Peer University Use of Internal Providers

In the course of our study, we examined the use of internal providers by other universities with
medical facilities, including thos e in the following table.

                             Types of Health    Use Internal
University                    Plans Offered      Providers?                      How Used?
University of Illinois      14 HMOs                 Yes        In addition to other providers, but only if
                            3 POSs                             they are affiliated with hospitals
                            1 PPO                              contracted by the HMOs
University of Missouri      3 HMOs                  Yes        Two of the POS plans have the highest
                            2 POSs                             level of benefits for use of internal
                                                               providers; another network also included
                                                               in those plans
University of Nebraska      2 HMOs                  Yes        In addition to other providers, but only if
                            1 PPO                              they are affiliated with hospitals
                                                               contracted by the HMOs
University of North         10 HMOs                 Yes        In addition to other providers, but only if
Carolina                    1 indemnity                        they are affiliated with hospitals
                                                               contracted by the HMOs
University of Wisconsin     21 HMOs                 Yes        In addition to other providers, but only if
                            2 indemnity                        they are affiliated with hospitals
                                                               contracted by the HMOs
Northwestern University     4 HMOs                  Yes        In addition to other providers, but only if
                            1 PPO                              they are affiliated with hospitals
                                                               contracted by the HMOs




Final Report 1/20/99                              18                                Leif Associates, Inc.
Consensus Recommendation

The Human Res ources Policy Group and Leif Associates worked together to develop a
recommendation for a policy for the use of the University’s internal medical providers in the health
benefits plans. The policy focuses on improving access to high quality providers and ensuring
competitive costs. The key components of the recommended policy are as follows:

For the plan year beginning January 1, 2000, the University will secure proposals from a number
of qualified healt h plan provi ders, including internal providers. Net work selections will be based
on the ability of proposers to:

   Provide appropriate network access and provider choice
   Demonstrate a track record of delivering high quality care and satisfied customers
   Limit the University’s financial risk, and
   Deliver care and administrative services at a competitive cost.

The University will utilize its internal providers if it is demonstrated that their services and costs
are comparable to those offered by other networks in the market place. A fter a thorough
evaluation of cost, network access, provider choice, quality of care, customer satisfaction,
financial risk, and administrative issues, the University will determine how best to utilize its
internal providers in the health plans.

The results of this evaluation will be shared wit hin the University as appropriate in order to
demonstrate the fairness of the decision making process, but will be handled within the
constraints required to protect the confidentiality of proprietary inf ormation provided by the
proposers.

Discussion of the Proposed Approach

The proposed approach has several features that, in combination with the proposed benefit plan
and funding structures, should produce a better result than the current approach. Securi ng
proposals from a number of qualified healt h plans, including the University’s internal providers,
will allow the University to select the three health plans that best meet the needs of the health
plan participants in all geographic locations.

The consensus recommendation implies the continued use of the University’s internal providers
in the benefit plans, but leaves open the method by which they will be us ed. There are three
ways in which they could be us ed: (1) as one of the three networks selected; (2) as a
component, along with other providers, in at least one of the net works selected; or, (3) as a
required component, along with other providers, in all three of the net works selected.

The recommended approach challenges UA Net to demonstrate that its network, cost
effectiveness, servic es, and quality are equal or superior to other health plans. It is anticipated
that UANet will want to stand on its own as one of the three health plans. The alternative of being
included as part of another health plan’s network is not as desirable, bec ause it opens UANet up
to possible adverse selection if they are used only for specialty care and the most serious hospital
cases.

A carefully conducted Request for Proposals process is essential to the success of thi s
recommendation. The strat egy, the RFP document, and the network selection criteria must be
carefully thought out. The network selection criteria outlined in the consensus recommendation
present a starting point only. They will require extensive furt her definition.



Final Report 1/20/99                               19                               Leif Associates, Inc.
With a plan design structure that anticipates using three different networks in all locations, the
issues of cost and size of network become somewhat less important. Employees will have
improved choice of providers in all locations and will be able to make their own decisions about
cost versus choice. If the physician of their choice is in a more expensive plan, they may be
willing to pay the extra cost. They will also have the option to choose a lower cost plan and see a
different physician. The three competing plans, including UA Net if chosen, will have the freedom
to determine their own strategies, balancing the composition of their net work against cost, in
order to maximize or strategically manage their own enrollment. Therefore, havi ng the lowest
cost or the largest network should not be considered determining factors in the University’s
network selection process.

It should be understood that the internal providers may or may not choose to submit a proposal,
and that the structure of the RFP process will greatly impact their ability to respond. The RFP
should be developed in such a way as to not, either int entionally or unintentionally, preclude their
participation. The measures of comparability must be clearly defined and communicat ed.

Other Possible Approaches

There are other approaches that could be used in dealing with the internal provider issue. Some
of the different approaches and their advant ages and disadvantages are described below.

Decide in advance to use UANet as one of the three networks. This approach would simplify
the RFP process considerably. Given that there will be three health plan choices, if UA Net is not
comparable in cost, network, quality, or services, employees would have the freedom to choos e
one of the ot her plans. However, the University would lose the opportunity to challenge UANet to
demonstrate their capabilities and be measured against other health plans. With this approach, if
UANet is clearly not comparable, employees would really only have tw o choices, rather than
three.

Decide in advance to use UANet only a s a component of at least one of the three networks.
This approac h would also simplify the RFP process considerably. It would, however, prevent
UANet from having the opportunity to dem onstrate that they can provide cost effective care on
their own.

Decide in advance to require all three networks to include the UANet providers in their
networks. This approach would guarantee that all employees would have at least some access
to UANet providers and facilities. It would not, however, result in the best financial res ult for the
University’s health plans, since UANet would have no incentive to provide competitive fees to the
other networks.

Let the RFP proce ss determine if UANet will be used at all. This approach would hold UANet
to the highest standards and provide an absolutely level playing field for all health plans
submitting proposals. However, there is a serious downside to this approach. The University
would have to be willing to accept the consequences of excluding its internal providers from the
employee health plans. The implications are serious: (1) forced disruption of patient/provider
relationships; (2) negative employee reaction from those who wish to continue to see UA Net
providers; and, (3) negative public perception of the University’s decision not to use its own
providers.

These alternative approaches all assume that three different networks will be chosen. We do not
believe that use of only one network, or even two, is a viable option for the University at this time,
given the unique nat ure of the internal provider issue and the geographic locations of employees.




Final Report 1/20/99                              20                             Leif Associates, Inc.
Consultant’s Recommendations

   We concur with the consensus rec ommendation to include UA Net in a compet itive selection
    process for 2000.

   We recommend that the University use UANet in the employee health plans in one of two
    ways: (1) as a separate network; or (2) as a component of at least one other health plan’s
    network. The decision between (1) and (2) should not be made until the proposals have
    been received and thoroughly reviewed. We do not recommend requiring all of the net works
    chosen to include the internal providers in their net works.

   We recommend that the University use UANet as one of the thre e separate networks if it is
    demonstrated that their services and costs are comparable to those offered by other
    networks in the market place.

   We recommend that a Request for Proposal development team be established as soon as
    possible to determine the proposal process, develop the selection criteria, define internal
    provider comparability, and create the Request for Proposal documents. The team should
    include knowledgeable benefits and health care professionals as well as fac ulty and staff
    representatives. However, conflict of interest on the part of the internal providers should be
    strictly avoided.

   We recommend that the three networks be chosen in such a way as to ensure the broadest
    choice of physicians and hospitals. This does not imply that each of the three networks
    chosen must have a large net work or that the three should have the lowest costs. It implies
    that, in combination, the three net works should allow access to a large number of providers.
    The networks should be chosen in such a way that overlap between the net works is limited,
    in order to maximize cost savings.




Final Report 1/20/99                             21                            Leif Associates, Inc.
The Role of Employees in the Benefits Planning Process


The Issue is Employee Input

The University uses an organized structure and process of involving faculty and staff in the
benefits planning process because shared governance is a goal of the University. Benefits are
an important factor in the recruitment and retention of employ ees, which is critical to the fulfillment
of the University’s mission. The input of faculty and staff provides valuable insight in determining
strategic benefit issues.

The Vision and Values Statements created by the Benefits Oversight Committee in March 1998
say this about the role of employees in the benefits planning proc ess.

    “The University of Colorado will… Continue to have an organized structure and process to
    recognize, analyze, inform, and request recommendations from representatives of the
    governance groups of each campus, affiliate organizations participating in CU benefit
    programs, and campus and system administration personnel. ”

The University’s Current Approach

The University currently has several employee groups that work with administrative staff on
benefits related issues. One is the Benefits Oversight Committee (BOC) and another is t he
Benefits Financial Review Committee (BFRC). These two groups have been combined to form a
group called the Retreat Group.

The composition of the BOC includes twenty-six members. The membership is comprised of 4
campus faculty representatives, 4 campus staff represent atives, 4 administration representatives,
4 campus benefit officers, 4 affiliate represent atives, 2 retiree representatives, 1 faculty personnel
representative, 1 staff council representative, 1 external benefits consultant, and 1 represe ntative
from the Silver and Gold Record.

The composition of the BFRC includes eighteen members. The membership is comprised of 5
administration represent atives, 4 campus representatives, 3 affiliate representatives, 1 fac ulty
representative, 1 staff representative, and 4 campus benefit officers.

There is some overlap in membership between the two groups. The composition of the combined
Retreat Group includes thirty-five members. The group typically meets once a month to discuss
health benefits related issues.

Two other employee groups also dealing with benefits issues are the Human Resources Policy
Group (HRP G) and the Faculty Personnel Committee. These groups deal with broader benefit
and human resource policy issues rather than focusing primarily on health benefit issues.

Problems with the Current Approach

Members of the current Retreat Group are not pleased with the group’s role or effectiveness.
They cite the following issues as problematic:

   The role of the group is unclear. They are not sure i f they are intended to be an advisory
    group or a decision making group. At the present time, they don’t believe they are either.




Final Report 1/20/99                               22                             Leif Associates, Inc.
     The group feels they are not effective in influencing decision making. They feel their
      recommendations are ignored or their input is not asked for in a timely enough manner to
      allow them to provide any real input.

     The group is too large. It is not possible with a group of thirty -five members to have
      meaningful discussions and reach consensus on recommendations.

     The group has too many administrators. This does not allow the voices of faculty and staff
      representatives to be heard.

     The group has too many internal providers, who tend to dominat e conversations and
      influence decisions to their advantage.

     The group has too few faculty members. Faculty members make up the majority of the
      health plans’ membership, so they feel they should be better represented.

     The group is not objective. Too many of the representatives come to the table to try to
      influence decisions about their own specific issues rather than to discuss the broader benefit
      issues that affect all University employ ees. This causes discussions to become too
      emotional to be productive.

 We have also observed a few other problems with the current structure. Many of the participants
 lack an adequat e knowledge of benefits to allow them to provide meaningful input into decision
 making on detailed operational and financial benefit issues. Since the employee representatives
 have full-time jobs doing something other than benefits administration, they cannot devote muc h
 time to benefits issues. Meeting once a month for a few hours is inadequate for them to learn the
 issues and be involved at the level of detail they seem to desire. However, some employees still
 feel that the decision making authority should rest with them, rather than with Administration.
 Also, the group has no recognized leadership. We believe this has resulted in the group being
 unable to focus their efforts in meaningful ways and react effectively when problems have arisen.

 Peer University Approaches

 Other universities also deal with the issue of employee involvement in the benefits planning
 process. Our study of peer universities revealed the following approaches.

University            Employee Involvement in                          Who Makes Decisions?
                      Benefit Planning Process
University of         Only through committees for supplemental         Governing state agencies
Illinois              plans (life, LTD, 403(b)); they function in an
                      advisory capacity and submit
                      recommendations to university administration
University of North   None                                             Board of Trustees of NC Teachers and
Carolina                                                               State Employees, a legislative oversight
                                                                       committee, and the state health plan;
                                                                       health benefits are legislated
University of         None                                             State’s Group Insurance Board
Wisconsin
Northwestern          Individual employee comments are                 President, Provost, Sr. VP for Business
University            incorporated in the planning process as well     and Finance, AVP of Budget and
                      as discussions with the faculty and staff        Planning, and Director of Benefits
                      representative groups
Colorado State        Representative process of University Benefits    A collaborative/consultative process
University            Committee; members appointed by Faculty
                      Council and Admin Professional Staff Council




 Final Report 1/20/99                                  23                               Leif Associates, Inc.
Consensus Recommendation

The Human Res ources Policy Group and Leif Associates worked together to develop a
recommendation for a new role for representatives from faculty and staff governance groups in
the benefits planning process. The new role focuses on reinforcing the importance of securing
input from the customers of the employee benefits plans, because that input is crucial in ensuring
that the benefits plans meet present and future employee needs. The key components of the
recommended approach are as follows:

   A new benefits advisory group will be formed to replace the existing Benefits Oversight
    Committee and Benefits Financial Review Committee. It will be known as the University
    Benefits Advisory Board (UBAB).

   The role of UBAB will be to provide strategic advice to the President and Universit y
    Administration on benefits policy issues and to repres ent the interests and needs of all
    participants. UBAB members will do this by developing recommendations to the President
    and Benefits Administration for benefits policy, reviewing the operational an d financial status
    of the benefits programs, and communicating key issues and constraints to plan participants.

   The group will have seven members, as follows:
    -  Three faculty members, appointed by the system-wide Faculty Council
    -  Three staff members appointed by the system-wide Staff Council
    -  One at-large member, appointed by the President
    -  The Director of the Employee B enefits Department will serve as an ex officio member.

   The group will develop and adhere to a conflict of interest policy in order to ensure that
    recommendations fairly represent the needs and interests of plan participants.

Discussion of Proposed Approach

There are several elements of the proposed approach that are critical in resolving the current
problems with employee involvement in the benefits planning process. Foremost among them is
that the members of UBAB and the University Benefits Department must work together to build
common trust through a process of open communication and a spirit of cooperation.

The group must be smaller than the current thirty-five members. In order to accomplish the
smaller size, it is not possible for all constituent groups to have their own represent atives. In
order to relieve concerns about constituent group representation, the Human Resources Policy
Group believes that the individual members of UBAB should accept responsibility for the interests
of all employees of the University, rather than just their own campus or employee group. UBAB
members should be expected to put aside individual agendas and seek to work toward the
common good.

The University Benefits Department staff will also be expected to take the role and responsibilities
of UBAB very seriously. The staff’s role, in working with UBAB, will be to seek the group’s input
and advic e relat ed to plan design, managed care networks, rate setting, and other benefit policy
matters. The University Benefits Department staff will be expected to listen to and follow up on
the group’s recommendations and requests for information, and educate the repres entatives on
key benefit design and finance issues. The staff must respect the group’s need for timely,
accurate, and understandable information, and give appropriate consideration to the group’s
recommendations.

UBAB will be an advisory group, not a decisio n making body. Because the fiduciary responsibility
for any self-funded portion of the benefits program lies with the President and Board of Regents,
final decision making authority must reside with them. Fiduciaries are broadly defined as those


Final Report 1/20/99                             24                             Leif Associates, Inc.
who exercise control or discretion in managing plan assets and those who have discretionary
authority in administering the plan. In fulfilling their responsibilities, fiduciaries are expected to act
in the exclusive interest of plan participants and beneficiaries , manage the plan’s assets to
minimize the risk of large losses, and act in accordance with documents that govern the plan.

UBAB will interact primarily with the Director of Employee Benefits, but will have the ability and
responsibility to interact directly with the President if the group feels it is necessary in order to
ensure that their recommendations are given appropriate consideration.

The process for fulfilling the purpose of UBAB should include:

   The selection of a chairperson. The chairperson will facilitate meetings, coordinate
    meeting agendas with the Director of Employee Benefits, and act as a spokesperson for the
    group and therefore for the interests of all employees. The role of the chairperson is
    important because this person will provide leadership for the group. Without a leader, the
    group could become fragmented and ineffective. Dependenc e on the Director of Employee
    Benefits to establish agendas and facilitate meetings lessens the ability of the group to be
    proactive in representing employee needs and interests.

   An annual determination of priority benefit policy issue s. The annual identification of
    key policy issues will form the basis for meeting agendas for the upcoming year, and allow
    the group to be focused on the most important issues in a timely and proactive way. This
    process might also identify and prioritize the key areas in which the UBAB members feel they
    would like to increas e their benefits knowledge during the upcoming year.

   Voting on key benefit policy issues. Voting should not be necessary on all issues, but
    could occur if the group feels it is necessary. Since UBAB will be an advisory group rather
    than a decision making group, the results of the group’s vote will have an impact but will not
    determine benefit policy. The results of a vote may, however, influence the content of formal
    recommendations on key benefit issues presented to the President and Board of Regents.

   The development of a conflict of interest policy. A conflict of interest policy is essential
    for the effective interaction of the group. Any group member that stands to gain personally or
    professionally from the actions of the group in any particular situation should be required to
    refrain from participating in the discussion of that topic. The conflict of interest policy should
    be drafted as one of the group’s first activities.

   Staggered three-year terms (with an initial phase-in). Because of the importance of
    UBAB’s role and the need for benefits knowledge, a three-year term approach should be
    used. This will ensure continuity from year to year and contribute to an increased level of
    understanding of benefits issues among the members. The initial fac ulty and staff
    representatives should be appointed for one -, two-, and three-year terms. All appointees
    thereafter should have three-year terms.

Other Possible Approaches

The proposed composition of UBAB has been controversial. A number of alternative approaches
have been discussed.

Greater representation for faculty than for staff. Faculty currently accounts for 80% of the
enrollment in the University’s health benefit plans. Classified staff employees have the additional
opportunity to choose the state’s benefit plans, while the faculty do not. Therefore, it can be
argued that faculty shoul d have greater representation on UBAB. The disadvantage of this
approach is that it detracts from efforts to raise the level of responsibility of UBAB members to
represent the common good rat her than limited constituent interests.



Final Report 1/20/99                               25                               Leif Associates, Inc.
Equal representation for all campuse s. Some feel that the four University campuses have
such diverse needs that it is imperative that each campus be represented on UBAB. The major
disadvant age of this approach is that the size of the group must be great er in order to include
both faculty and staff represent atives from each campus. Again, this approach detracts from
efforts to raise the level of responsibility of UBAB members to represent the common good rather
than limited constituent interests.

Consultant’s Recommendations

   We concur with the consensus rec ommendation to form a new employee advisory group,
    known as the University Benefits Advis ory Board (UBAB) to replace the Benefits Oversight
    Committee (BOC) and the Benefits Financial Review Committee (BFRC). The Human
    Resources Policy Group and the Faculty Personnel Committee will not be affected by the
    formation of UBAB.

   We concur with the consensus rec ommendation that the group’s role be to provide strategic
    input to the President and University Administration on benefits policy issues. Final benefit
    decision making will be the responsibility of the President and Board of Regents, based on
    the advice of the Director of Employee Benefits and UBAB.

   We believe that the consensus recommendation for the composition of UBAB is ultimately the
    best approac h, with three faculty, three staff, and one at-large member. However, the level of
    employee reaction to this composition has led us to believe that the employee community
    may not be ready for non-constituent based UBAB representation. In recognition of this, Leif
    Associates recommends instead a UBAB composition of four fac ulty appointed by the
    system-wide Faculty Council, two staff appointed by the system-wide Staff Council, and one
    at-large member appointed by the President. We understand that this will be viewed
    negatively by classified staff employees. However, we believe that the classified staff’s ability
    to choose either the University’s plans or the state’s plans is an advantage that far outweighs
    the disadvantage of not having equal UBAB represent ation. Our recommendation recognizes
    the greater faculty participation in the CU plans as well as the greater importanc e of the plans
    to faculty since they lack other choices.

   In spite of our revised recommendation for the comp osition of UBAB, we agree with the
    consensus recommendation that UBAB members each be charged with the res ponsibility of
    representing the needs and interests of all employ ees, not just the special interests of their
    own constituent group.

   While there has been considerable discussion of the need for a requirement of CU plan
    participation in order to be a UBAB member, we do not believe this is necessary or desirable.
    The input of employ ees who have chosen not to participat e could be very helpful.

   We recommend establis hing a proc ess for UBAB that includes the selection of a chairperson,
    annual determination of priority benefit policy issues, voting on key benefit policy issues when
    the groups feels it is necessary, and staggered three year terms.

   We strongly recommend the development of and adherence to a conflict of interest policy for
    UBAB members.

   We recommend that the Director of Employee Benefits be charged with the responsibility of
    developing a formal mechanism for securing input from customers of the health benefit plans
    who are not represented through UBAB. Depending on the at -large appointment of the
    President, this might include retirees and affiliate employees. The process for securing input
    might include periodic written surveys, annual focus groups, or the formation of other
    advis ory groups similar to UBAB.



Final Report 1/20/99                             26                             Leif Associates, Inc.
Differentiation between Faculty and Staff in Benefits Choices
and Employer Contributions

This section of the report deals with two distinct but related issues: (1) the appropriateness of
classified staff continuing to have a choice between the University’s health benefit plans and the
state’s health benefit plans; and (2) the appropriateness of having separate employer
contributions for faculty and classified staff employees.

The University’s Faculty and Staff Benefit Choice Strategy

University of Colorado’s benefit-eligible state classified employees are allowed to choose
between the University’s health benefit plans and state health benefits plans. The University’s
faculty and exempt staff employees have access only to the University’s health benefits plans.
This policy has been established as a result of interpretations of state law. There are three
separate legal questions involved:

1.   Can the University prohibit state classified employees from participating in the state plans by
     requiring them to participate in the CU health benefit plans?

     We believe the answer to this question is no, based on the State Employees Group Benefits
     Act §24-50-601 through §24-50-615 C. R.S.

2.   Can the state prohibit state classified employees from participating in the CU plans and
     require them to participate in the state health benefit plans?

     This issue is dealt with in §24-50-615 C.R.S. which states:

         “Any other provision of law to the cont rary notwithstanding, the director shall continue, as
         a benefits option, the existing group life and health benefits of any person employed by a
         state agency if such person has been or will be brought or assimilated into the state
         personnel system on or aft er January 1, 1972, until such time as similar benefits offered
         by the director to state employees pursuant to this part 6 are equivalent in benefit and
         economic cost to the benefits held by said person.”

     The University’s non-academic employ ees were brought into th e state system in 1972. At
     that time the University’s health benefits were more generous than the state’s health benefits,
     so the employees were allowed to continue to participate in the University’s plans. This
     eligibility policy has never been changed, because it does not appear that the equivalency of
     the state health benefits to the University’s health benefits has ever been documented.
     However, we believe that it could be. In that case, state classified employees would no
     longer be eligible for the CU health plans.

3.   Can the University’s faculty and exempt staff participate in the state plans?

     According to the University’s legal counsel, the ans wer to this question is no, based on the
     state constitution.




Final Report 1/20/99                              27                             Leif Associates, Inc.
Problems with the Faculty and Staff Benefit Choice Strategy

The University’s state classified employees favor the current strategy, because it allows them
greater choic e of benefit plans. However, the ability of state classified employees to choose
between the state plans and the University’s plans does present opportunities for adverse
selection and instability in the plans.

Adverse selection results when a person selects plan options that are more favorable to them and
more costly to the plan. An example of adverse selection might result if the CU plans covered
chiropractic benefits and the state plans did not. State classified employees who know they will
probably use chiropractic benefits would be more likely to choose the CU plans. This would
result in a higher per employee cost for chiropractic benefits because a disproportionat e share of
CU’s state classified employees would be using the benefits.

Instability in the plans results when participation is not predictable from year to year. As the
University and the state make annual changes in benefits and premium levels, CU’s state
classified employees move back and forth. Because the University and the state make these
decisions independently, it is not easy to predict enrollment in the University’s plans from one
year to the next, especially in years when either CU or the state makes major changes in benefit
design or premiums.

The University’s Faculty and Staff Employer Contribution Strategy

The state’s employer contribution for state classified employees is set by law in §24-50-609
C.R.S. The law currently states:

    “Effective January 1, 1994, the state of Colorado shall contribute an amount necessary to pay
    one hundred forty-eight dollars and fifteen cents per month per single employee, one hundred
    eighty-four dollars and twenty-nine cents per month per employee with one covered
    dependent, and two hundred fifty-eight dollars and twenty-nine cents per month per
    employee with two or more covered dependents for each employee enrolled in group benefit
    plans which include enrollment in medical benefits.”

The University’s policy has been to contribute the state mandated contribution for faculty and
exempt staff employees as well as state classified employees.

The law does not appear to prohibit the University from providing a great er contribution for faculty
and exempt staff than for classified staff.

Problems with the Faculty and Staff Employer Contribution Strategy

There are two major problems with the current faculty and staff employer contribution strategy.

   Because the state’s contribution has not changed since 1994, all increas es in the cost of the
    medical plans since that time have been passed on to the employees. This has resulted in a
    reduction in the value of the health plans as an employee benefit.

   Because the University’s contribution for faculty and exempt staff is linked to the University’s
    contribution for classified staff, faculty and exempt staff have seen the same loss in the value
    of their health benefits. This has resulted in a loss of competitive benefit position with other
    academic institutions for faculty and ex empt staff employees.




Final Report 1/20/99                             28                             Leif Associates, Inc.
The 1999 CU and state employee and employ er monthly contributions for medical and employee
only dent al coverage are shown in the following table. The monthly employee cost does not
reflect the additional cost for optional dependent dental coverage.

                             Coverage       Monthly   Monthly    Monthly
          Plan               Category       EE Cost   ER Cost   Total Cost   ER Percent
          CU Catastrophic    EE             $ 0.00    $144.35     $144.35      100%
                             EE + 1         $ 12.00   $180.49     $192.49       94%
                             EE + 2+        $ 15.00   $254.49     $269.49       94%
          CU SelectCare      EE             $ 47.00   $144.35     $191.35       75%
                             EE + 1         $161.00   $180.49     $341.49       53%
                             EE + 2+        $224.00   $254.49     $478.49       53%
          CU Gold            EE             $115.00   $144.35     $259.35       56%
                             EE + 1         $274.00   $180.49     $454.49       40%
                             EE + 2+        $343.00   $254.49     $597.49       43%
          CU Kaiser          EE             $ 51.00   $144.35     $195.35       74%
                             EE + 1         $177.00   $180.49     $357.49       50%
                             EE + 2+        $247.00   $254.49     $501.49       51%
          State Basic        EE             $ 16.48   $146.15     $162.63       90%
                             EE + 1         $ 97.66   $182.29     $279.95       65%
                             EE + 2+        $133.54   $256.29     $389.83       66%
          State Exclusive    EE             $ 56.84   $146.15     $202.99       72%
                             EE + 1         $176.32   $182.29     $358.61       51%
                             EE + 2+        $248.12   $256.29     $504.41       51%
          State Kaiser       EE             $ 19.78   $146.15     $165.93       88%
                             EE + 1         $114.14   $182.29     $296.43       61%
                             EE + 2+        $192.40   $256.29     $448.69       57%

A similar chart for 1994 is shown bel ow.

                             Coverage
          Plan               Category       EE Cost   ER Cost   Total Cost   ER Percent
          CU Basic           EE             $ 7.00    $146.15     $153.15       95%
                             EE + 1         $ 60.00   $182.29     $242.29       75%
                             EE + 2+        $ 75.00   $256.29     $331.29       77%
          CU Plus            EE             $ 15.00   $146.15     $161.15       91%
                             EE + 1         $128.00   $182.29     $310.29       59%
                             EE + 2+        $156.00   $256.29     $412.29       62%
          CU HMO             EE             $ 36.00   $146.15     $182.15       80%
          Colorado           EE + 1         $165.00   $182.29     $347.29       52%
                             EE + 2+        $240.00   $256.29     $496.29       52%
          CU Kaiser          EE             $ 18.00   $146.15     $164.15       89%
                             EE + 1         $130.00   $182.29     $312.29       58%
                             EE + 2+        $188.00   $256.29     $444.29       58%
          State Basic        EE             $ 25.00   $146.15     $171.15       85%
                             EE + 1         $ 75.00   $182.29     $257.29       71%
                             EE + 2+        $125.00   $254.29     $381.29       67%
          State Exclusive    EE             $ 20.00   $146.15     $166.15       88%
                             EE + 1         $ 70.00   $182.29     $252.29       72%
                             EE + 2+        $120.00   $254.29     $376.29       68%
          State Kaiser       EE             $ 7.30    $146.15     $153.45       95%
                             EE + 1         $105.36   $182.29     $287.65       63%
                             EE + 2+        $151.04   $254.29     $407.33       63%




Final Report 1/20/99                            29                           Leif Associates, Inc.
  Peer University Contribution Strategies

  We examined the 1998 cont ribution strategies of other universities to determine the current level
  of comparability. The following table shows CU’s 1998 employer contribution for medic al and
  dental benefits compared to other universities.

University                1998 Employer                Employer Contribution          Faculty/Staff Differences
                           Contribution                        Strategy
University of    $144.60 single                     Tied to state contribution      Faculty only eligible for CU
Colorado         $180.74 EE + 1                     for classified staff; medical   plans; classified staff eligible
                 $254.74 EE + 2+                    and dental                      for CU or state plans
Colorado State   Varies by pay level and            Cafeteria Plan. Covers          Classified staff are not
University       retirement plan; if not in PERA,   medical, dental, vision, life   eligible for the faculty
                 2.7% of average pay plus 2.5%      insurance, LTD                  program; they can participate
                 of individual’s pay; if in PERA,                                   only in the state plans
                 2.7% of average pay plus .7%
                 of individual’s pay
University of    All but $15 to $27.50 single       Employee contribution           Plans are state-sponsored;
Illinois         All but $20 to $115 EE + 1         based on income;                faculty and staff are eligible
                 All but $34 to $145 EE + Fam       dependent cost depends          for the same plans
                                                    on the plan chosen
Indiana          $139.25 single                     An additional subsidy is        None
University       $292.70 EE + Sp                    provided for non exempt
                 $239.47 EE + Ch                    employees with base
                 $320.43 EE + Fam                   salary below $19,469
University of    $149.86 single                     Cafeteria plan. Includes        None
Nebraska         $235.58 EE + 1                     medical, dental, LTD, life
                 $286.70 EE + 2+                    insurance
University of    Academic employees                 Cafeteria plan. Includes        Benefits the same but
Oregon           $423 per month                     medical, dental, STD, LTD,      contributions different for
                                                    life insurance                  academic and classified non-
                 Classified non-bargained staff                                     bargained staff
                 $287 single
                 $348 EE + Sp
                 $317 EE + Ch
                 $386 EE + Fam
University of    $193.84 single                     Up to 100% of employee          None
Texas            $303.93 EE + Sp                    medical and dental; 80% of
                 $267.55 EE + Ch                    dependent medical; 0% of
                 $377.64 EE + Fam                   dependent dental
University of    $144.60 regardless of family       Set by state legislature as     None
North Carolina   size                               a flat amount; currently
                                                    equal to 100% of employee
                                                    rate for state PPO plan


  Consensus Recommendation

  The Human Res ources Policy Group and Leif Associates worked together to develop a
  recommendation related to differentiation in employer cont ributions and benefits choices between
  faculty and staff. The recommendation foc uses on ensuring that the benefits available for faculty
  and staff are competitive with peer academic institutions and/or relevant competitive labor
  markets. The key components of the recommendation are as follows:




  Final Report 1/20/99                                30                                 Leif Associates, Inc.
   The University will work together with other public higher educational institutions in Colorado
    in seeking from the legislature an increase in the state’s contribution to health benefits plans
    for classified employees.

   Classified staff will continue to have a choice of both CU health plans and state health plans if
    that choice can be provided wit hout jeopardizing the stability of the CU health plans.

   The University will set its employer contribution for health benefits plans for faculty and
    exempt staff at a level that, together wit h other elements of compens ation, results in a total
    compens ation package that is competitive with peer academic institutions. If necessary to
    accomplish this purpose, the University will implement employer contributions that are
    different for faculty and exempt staff than for classified staff.

   The recommended employer contribution strategy for fac ulty and exempt staff will be adopt ed
    for medical and dental benefits for 2000, with the understanding that it will be modified if a
    cafeteria plan is introduced in 2001 or later.

   The University’s medical and dent al contribution for 2000 will take into consideration that
    these benefits are an important piec e of an employee’s total compensation, but must be
    evaluated in the cont ext of competitive differences in salaries, retirement, and other benefits.

   A limited number of peer universities will be chosen by UBAB as benchmark universities, and
    an in-depth analysis of their compensation, retirement plans, and benefits will be performed
    in order to determine the University’s target faculty and exempt staff employer benefits
    contribution as it relates to the total compensation package.

   A periodic study will be performed using the benchmark universities to determine future
    changes in the contribution level.

Discussion of the Proposed Approach

The consensus recommendation attempts to be sensitive to the needs of both state classified
employees and faculty/exempt staff employees.

For state classified employees, the employ er contribution is fixed by law, and the University is
constrained in its ability to increase the contribution. An increase must be approved by the state
legislature for all state employees, not just the University’s state employees. However, the
University can and should take an active role in seeking approval for such an increase from the
legislature.

The University cannot prohibit state classified employees from enrolling in the state’s health
benefit plans. It does appear that the state could prohibit the enrollment of stat e classified
employees in the CU health plans if the equivalency of benefits and economic cost of the state
plans was demonstrated. However, the state has not taken such action. Therefore, the
consensus recommendation is to continue to support the state’s policy of allowing state classified
employees to participat e in the CU plans. The financial impact of this access should be
monitored in order to determine if adverse selection or excessive employee migration jeopardizes
the stability of CU’s plans.

The proposed unlinking of the faculty/exempt staff contribution from the classified staff
contribution is controversial, but appropriate. The state’s annual survey of benefit programs
measures the benefit contribution levels made by employers primarily in the Denver metropolitan
and front range areas of the state. This information is provided to the state legislature for use in
setting the state’s contribution level. The labor market for faculty and exempt staff is different




Final Report 1/20/99                              31                              Leif Associates, Inc.
from that of classified staff, and it is appropriat e that benefit contribution levels reflect that
differenc e.

It should be understood that the recommendation to unlink the contribution levels does not imply
that the employer contribution for faculty will always be higher than the cont ribution for classified
staff. It only implies that it will be different.

The recommendation for basing the contribution for faculty and exempt staff on the res ults of a
total compensation study should not be int erpreted as a tactic for delaying the implementation of
increased employer contributions. Such a study in itself, although complex, can be completed in
a few months. We anticipate that the difficulty will arise from identifying which peer institutions to
use as the benchmark universities.

We believe that the peer university study will show that an increase in the benefit contribution is
indicated in order to be competitive with ot her universities. An increase in benefit compens ation
may, of course, necessitate a decrease in expenditures in other areas.

Other Possible Approaches

There are several other approaches that could be used to deal with the issues of benefit choice
and cont ribution levels bet ween faculty and staff.

Exclude classified staff from CU health plans. This would stabilize the enrollment in the CU
plans, but would eliminate approximat ely 1,500 active classified staff from the current enrollment
of about 8,400 active employees. However, the decision to exclude state classified staff from CU
health plans would have to be made by the state personnel director.

Increase the employer contribution for faculty/exempt staff without a total compensation
study. The contribution level could be set at a percent of total cost or at a fixed dollar level. This
would be a simpler approac h than the one recommended, but would not provide the information
necessary to measure the competitive level of benefit compensation in relation to the total
compens ation package.

Consultant’s Recommendations

   We concur with the consensus rec ommendation that the University should work together with
    other public higher educational institutions in Colorado to seek an increase in the contribution
    for classified employees’ health benefits from the state legislature.

   We concur with the consensus rec ommendati on that the University should continue to
    support the state’s policy of allowing classified staff to participate in the University’s health
    benefits plans.

   We recommend that the Director of Employee Benefits develop a collaborative relationship
    with the state’s Employee Benefits Unit staff to allow proactive assessment of potential
    adverse selection and enrollment migration of state classified employees due to benefit and
    pricing decisions of either the University or the state.

   We recommend that the University set its 2000 employer contribution for health benefits
    plans for faculty and exempt staff at a level that, together with other elements of
    compens ation, results in a total compensation package that is competitive with peer
    academic institutions. If necessary to accomplish this purpos e, the University should
    implement employer contributions that are different for faculty and exempt staff than for
    classified staff.




Final Report 1/20/99                                 32                               Leif Associates, Inc.
   We recommend that the peer universities, no more than six, be selected by UBAB in
    conjunction with University Administration and after consultation with others within the
    University community who are involved in peer university compensation studies. The
    selection of peer universities should be bas ed on recruitment and ret ention objectives.

   We recommend that the Director of Employee Benefits be held responsible for the completion
    of the peer university study by mid-1999, assisted as necessary by external consult ants, and
    in coordination with UBAB.

   If the selection of peer universities and completion of the study cannot be accomplished by
    mid-1999, we recommend setting the 2000 contribution level for faculty/exempt staff at 90%
    of the cost for employee coverage plus 50% of the cost for dependent coverage based on the
    lowest cost HMO plan. We believe this to be a reasonable replication of the value of the
    University’s contribution in 1994. If this formula had been implement ed for 1999, based on
    CU SelectCare costs, it would have resulted in a 14% increase in the University’s contribution
    for employees and an 18% increase in the cont ribution for families.

   We recommend that the peer university total compensation study be done on a periodic
    basis, at least every three years.

   We recommend that the employer contribution for faculty and exempt staff be adjusted each
    year to maint ain a consistent percentage of total cost, unless the peer university study shows
    that the contributions should be set at a different level.




Final Report 1/20/99                             33                             Leif Associates, Inc.
The Funding of the University’s Health Benefits Plans


The Issue is Risk

The amount of risk accepted by large employers in providing employee health care benefits has
lessened as managed care has become the predominant form of health care delivery in
employee benefit plans. It was not uncommon ten years ago to find large employers primarily
self-funding their health benefits. This is no longer the case. Recent changes in the types of
benefit plans offered to employees and the health care delivery system itself have resulted in a
movement toward fully insured plans.
In an indemnity or PPO plan, the typical employer-provided healt h benefit plan of ten years ago,
neither the future cost nor the utilization of medical care was predictable. Costs were rising but
could be reduced through negotiated discounts. Participants were channeled to lower cost
providers through benefit design incentives. Utilization management efforts were focus ed on
precertification of hospital stays and shifting patients toward outpatient care. This type of plan is
still used today, but on a limited basis. It is typically used only in employer situations where the
geographic distribution of employees includes locations where HMO plans are not available, or as
an additional plan option with high cost sharing. This is because HMO plans are typically
considerably less costly than indemnity or PPO plans.
For indemnity and PPO plans, the advantages to a large employer of self -funding us ually
outweigh the disadvantages.


    Advantages                                      Disadvantages
     The employer is able to control the            The employer accepts the risk for
       flow of cash, and benefits from the              claim fluctuation due to large claims,
       investment income on reserves.                   rising costs, or higher than expected
     The employer can determine through                utilization.
       group-specific reporting where high           The employer must develop the
       costs and utilization occur.                     internal expertise to monitor and
     Employers that are a "good risk" can              manage the plan.
       achieve significant savings over a fully      Employers that are a “bad risk” can
       insured arrangement.                             have higher costs than in a fully
     The employer has control over plan                insured arrangement.
       design and is not constrained by state        The employer will be pressured to
       mandated benefits or ins urance                  make benefit exceptions in certain
       company plan designs.                            situations.
     The employer will not have to pay the
       premium taxes required in a fully
       insured plan.
     The employer will not have to pay
       insurance company risk charges or
       profit margins.

While self-funding of indemnity and PPO plans has continued to be advantageous for large
employers, the growth of HMO coverage has resulted in fewer employees being covered by self -
funded plans. HMO plans are typically not self-funded, for a number of reasons. The primary
reason is that shifting risk to the provider community results in a more efficient delivery of care
than can be accomplished through self-funded plans. This shifting of risk results from the use of
provider reimbursement methodologies such as capitation and other sophisticated and constantly



Final Report 1/20/99                              34                            Leif Associates, Inc.
evolving risk sharing approaches. However, Colorado insurance law severely limits an employer’s
ability to self-fund HMO plans. The use of risk shifting in self-funded plans is prohibited in
Colorado unless the provider entity is licensed.


Regulatory Issues

There are two major regulatory issues that affect the University’s strategy for funding its
employee health benefit plans. The first is the prohibition of risk shifting in self -funded plans. The
second is the prohibition of group purchasing without being licensed as a purchasing cooperative.


Prohibition of Ri sk Shifting in Self-Funded Plans without Licensure as an Insurance
Carrier
The Colorado Division of Insurance (DOI) regulat es insurance companies and HMOs. Colorado
Insuranc e Regulation 2-1-9 states:
    “In 1994, the Colorado General Assembly passed HB 94-1193, which authorized the
    Commissioner through regulation to set forth standards and requirements specific to
    “licensed provider networks” (i.e., provider networks engaged in the business of insurance)
    concerning their solvency and operational capacity or the performance of services consistent
    with the extent of risk being accepted by the licensed provider network.”
    “Under current law, any person who provides a broad array of health care services to
    enrollees, either directly or through contractual a rrangements, on a fixed prepayment basis, is
    defined as a health maintenance organization (HMO). Provider net works desiring to provide
    only a limited health service, in-patient hospital services, or home health care, and only
    assume the level of risk commensurate with the provision of these limited benefits, shall be
    licensed as limited service licensed provider networks pursuant to standards and
    requirements established by this regulation.”
    “A provider network whose only risk assumption or risk sharing arrangements for the delivery
    of health care services are with licensed carriers who ret ain full legal liability to the covered
    person for all benefits shall not be considered to be transacting the business of insurance if
    the provider network certifies to the Commissioner that it is not engaged in the business of
    insurance. The provider net work may be paid on a capitated basis and such capitated
    arrangement bet ween licensed carrier(s) and provider network(s) may include a provision
    that limits the servic es to be provided. ”
In the certification required in the preceding paragraph, the provider network must certify that it is
entering into capitated or other risk sharing contracts only with carriers, and/or is subcontracting
on a capitated or risk sharing basis only with provider net works that submitted the same
certification, and is not directly entering into such agreements with cons umers (including
individuals, groups, or employers).
DOI Regulation 2-1-9 defines "risk assumption" or "risk sharing" as:
    "…A transaction whereby the chance of loss, including the expenses for the delivery of
    service, with respect to the health care of a person is transferred to or shared with another
    entity (e.g., carrier, including a limited service licensed provider network), in return for a
    consideration. Examples include, but are not limited to, full or partial capitation agreements,
    withholds, risk corridors, and indemnity agreements. For the purpos es of this regulation, fee-
    for-service, per diem payments, diagnostic-related group payment agreements, and
    employee assistance programs are not considered to be risk assumption or risk sharing
    arrangements."
The Colorado Division of Insurance believes that these regulations are necessary to ensure
consumers have the solvency and consumer protections afforded by the insurance laws.



Final Report 1/20/99                              35                             Leif Associates, Inc.
At the current time, most Colorado provider groups, including University Hospital, University
Physicians, and University Mental Health Services, are not licensed by the DOI. There are
currently nineteen licensed HMOs and seven limited service licensed provider networks in
Colorado.


Prohibition of Group Purcha sing without Licensure as a Health Care Coverage
Cooperative
Colorado also has laws related to group purchasing of insurance plans. According to the
Colorado Department of Health Care Policy and Financing’s Rule OPPI -96-1, Section IV:
    “Any pers on or entity intending to operate or hold itself out as a cooperative after January 1,
    1994, must first apply for and receive a Certificat e of Aut hority from the director prior to
    securing health care coverage for its members… An entity shall be considered to be
    operating or holding itself out as a cooperative if it: (1) negotiates with multiple carriers for, or
    secures from multiple carriers, one or more sets of choic es in regard to health care coverage
    plans, prices, health care quality or accessibility conditions, or services on behalf of multiple
    employers or individuals, and that offers such sets of choices from such multiple carriers to
    multiple employers or individuals; and, (2) conducts such negotiation wit h multiple carriers on
    behalf of multiple employers as a group, rather than as individual employers.”
    “Employers purc hasing health care coverage for their individual employees shall not be
    considered to be operating or holding themselves out as a cooperative.”
The purchasing cooperative law applies to fully insured plans. It is because of this law that the
University cannot join toget her with other large Colorado employers for purposes of joint
purchasing, unless a purchasing cooperative entity is formed, licensed, and offers coverage to all
employers in Colorado.
The existence of this law calls into question the continued participation of the University’s
affiliates in the University’s health benefit plans, if the University begins to offer more than one
fully insured plan.


The University’s Current Funding Approach

The University of Colorado currently uses a primary strategy of self -funding its medical and dental
plans. The risk is limited in several ways: (1) a fully insured Kaiser HMO plan is offered to
employees as an alternative to the self-funded plans; (2) the University purchases individual stop
loss coverage for claims over $500,000 and aggregate stop loss coverage covering aggregate
claims in excess of 125% of expected claims from Great-West Life Insurance Company; (3) the
University fully insures transplant benefits; and, (4) the University pays a capitation rate for
mental health services.

The University’s self-funded medical plans use the UANet provider network, which includes
University Hospital, University Physicians, Inc., and their subcontractors. The University’s 1998
contract with UP I for the SelectCare plans includes a fee schedule and a risk sharing
arrangement with a withhold and risk corridor. In 1999, this type of risk arrangement also will be
used for the Gold plan. The University’s 1998 contract with University Hospital includes payment
on a DRG basis for inpatient servic es, a percent of billed charges for outpatient services, and
case rates for transplants.

The mental health benefits are “self-funded”, using the University Mental Health Services
network, which for 1999 will accept a fixed capitation rate with no risk to the employee benefit
program. The pharmacy benefits are self-funded using the PCS network with a discount off
average wholesale price. Dental benefits are self-funded, using Delta Dental’s network.




Final Report 1/20/99                               36                              Leif Associates, Inc.
Unique Internal Provider and Affiliate Issues

The University of Colorado faces several unique issues in determini ng the appropriate funding
approach for the new benefit plans for 2000.

   As noted above, University Hospital, University Physicians, and University Mental Health
    Services are not licensed by the Division of Insurance, although there are some risk shifting
    elements in their contracts with the University. It has been the University’s position that
    because the internal providers are offering a risk shifting arrangement within the University
    system, the state insurance laws do not apply. If that is true, it s eems to follow that if the
    University’s benefit plans shift risk to the internal providers but they are unable to financially
    withstand that risk, it ultimately must be borne by the University system as a whole. In other
    words, the shifting of risk to the internal providers does not relieve the University of the risk,
    but only moves it around within the system. Where it ends up is of critical importance.

   Because UA Net is not a licensed insurance company or HMO and does not typically operate
    as one, there are certain functions that it has not typically performed. These include claim
    administration, communications, the management of pharmacy benefits, and the
    management of medical benefits secured outside of their own network. A fully insured
    licensed HMO, as a part of its normal business, provides all of these services. Therefore, the
    inclusion of UA Net as one of the three net works chosen to provide the HMO and POS plans
    would necessitate a special arrangement. The special arrangement could take a number of
    forms, ranging from making these functions a requirement for UA Net’s participation, to having
    the University contract separat ely for them outside of the UA Net contract.

   One of the arguments for maintaining a self-funded plan and not offering it side-by-side with
    fully insured plans has been that the risk pool must be large in order to maximize its
    purchasing power and avoid adverse selection. The UA Net has expressed conc erns that
    coexisting with other fully insured plans will result in adverse selection to them. This may in
    fact happen, if the costs, services, and utilization management provided by UANet are not
    consistent with the other plans offered. However, it should not happen if those elements are
    comparable to or better than the competing plans.

   The size of the risk pool has also been used as an argument for allowing the University’s
    affiliates (University Hospital, University Physicians, Cause, the University Federal Credit
    Union, University Press, and University Technology Corporation) to pa rticipate in the
    University’s employee health plans. The participation of the University affiliates in the
    program does make the risk pool bigger, but it does not necessarily help the University
    maximize its purchasing power. The affiliates that employ health care workers make the pool
    less attractive because health care workers are considered by most insurance carriers to be
    a worse risk than typical university employ ees.

   Depending on the funding structure of the benefit plans in 2000, and a legal inte rpretation of
    the employer relationship between the University and its affiliates, it may not be possible to
    allow the affiliat es to continue to participate in the University’s employee health benefit plans.

Funding Approaches of Peer Universities and Other Large Employers

In the course of our study, we examined the funding approaches used by a number of other
universities. The following table shows the res ults of our research.




Final Report 1/20/99                              37                              Leif Associates, Inc.
              University           Types of Plans Offered           Funding Approach
    CSU                                3 HMO plans          HMO and POS plans are fully insured;
                                       2 POS plans              PPO plans are self-funded
                                       2 PPO plans

    University of Illinois             14 HMO plans                 All plans fully insured
                                        3 POS plans
                                        1 PPO plan

    University of Missouri             3 HMO plans                HMO plans fully insured;
                                       2 POS plans                 POS plans self-funded

    University of North Carolina       10 HMO plans              All HMO plans fully insured;
                                      1 indemnity plan          Indemnity plan is self-funded

    University of Wisconsin           21 HMO plans                  All plans fully insured
                                     2 indemnity plans



We also interviewed a number of Colorado’s large employers, including the state of Colorado, to
determine how they currently fund their employee health benefit plans. The state of Colorado self-
funds its Exclusive Path, Basic Path, and Combined Path, in which approximately 19,000
employees participate. The state’s 5 HMOs are fully insured, and cover approximately 10,000
employees. Most large employers are similar to the state and to the universities in the table
above, in that they offer a combination of fully insured HMOs and POS plans, and self-funded
PPO plans. Some employers have moved to totally fully insured arrangements. In order to comply
with state insurance law, Colorado providers are generally reimburs ed on a fee-for-service basis
under the self-funded plans. We also interviewed health plans, consultants, and third party
administrators regarding innovative funding approaches that are or can be used in self-funded
plans. There is general agreement that Colorado regulations limit the use of innovative provider
reimbursement methodologies in self-funded health plans.


Consultant’s Recommendations

   The University should fully insure the new HMO and POS plans to be offered in 2000, in
    order to maximize the University’s access to cost effective provider reimbursement
    methodologies, with a possible exception for the University’s internal providers since they are
    not a licensed insurance company.

   The University should work wit h its internal providers to confirm the legality of University
    Hospital, University Physicians, and University Mental Healt h Services accepting risk under
    self-funded HMO and POS benefit plans offered by the University to its employees. This
    legal review should include the University’s legal counsel and the Colorado Division of
    Insuranc e.

   If UANet can legally accept financial risk and is willing to do so, the University should work
    with them to det ermine an appropriate internal risk trans fer strategy that minimizes or
    eliminates the financial risk to the participants in the health plan. If such a strategy can be
    developed, the University should work further with UANet to develop a collaborative approach
    for handling administrative duties and non-medical/surgical benefits, such as pharmacy
    benefits and out-of-area or out-of-net work care. If satisfactory arrangements can be arrived
    at, UANet should be encouraged to submit a proposal to demonstrate that their costs and




Final Report 1/20/99                              38                              Leif Associates, Inc.
    services are comparable to other health plans. If comparability is successfully demonstrated,
    UANet should be selected as one of the three networks to offer the HM O and POS plans.

   If the internal providers cannot legally accept risk or are unwilling to do so, or if a
    collaborative arrangement satisfactory to both parties cannot be developed, the University
    should not agree to self-fund UA Net HMO and POS products. Instead, the University should
    give preference in the RFP process to fully insured health plans that include University
    Hospital and University Physicians in their provider networks in a meaningful way, and select
    at least one network that includes them. This will ens ure that University employees continue
    to have access to these providers, while limiting the participants’ financial risk.

   The University should plan to self-fund the new PPO plan, but should also secure fully
    insured bids in order to assess the financial advantages of self-funding.

   Stop loss coverage with limits of no greater than $100,000 per individual and 125% of
    expected claims should be purchased for the self-funded PPO plan.

   The University should plan to fully insure the two dental pl ans for 2000, but should also
    secure self-funded bids for comparison purposes. Purchasing insurance will allow access to
    the most cost effective dental reimbursement methodologies and pot ential multiple year rate
    guarantees.

   The University should confirm the legality of allowing University affiliates to purchase the
    University’s employee benefit plans if more than one fully insured health plan is offered,
    through its own legal counsel and the Colorado Division of Insurance.




Final Report 1/20/99                             39                             Leif Associates, Inc.
The Internal Benefits Management Structure


The Issue is Trust

Employee benefits programs have become increasingly complex since managed care plans
became a prominent feature of the typical employ ee benefits package. While managed care
plans have had a major stabilizing impact on the cost of health care for most employers, they
present a variety of challenges to plan sponsors. The plan designs for typical managed care
plans tend to be relatively simple, while nearly everything else about them is complex. Managed
care plans are subject to the combined complexities of being driven by provider reimbursement
methodologies that vary from city to city, market pressures influenced by large national for -profit
managed care companies, an insurance industry going through major consolidation and
restructuring, a strong anti-managed care consumer movement leading to increased intervention
by state and federal regulators, and a national debate on what constitutes quality health care.
The managed care environment is constantly changing, as health care providers, insurance
carriers, employers, state and federal agencies, and consumers all attempt to influence the way
health care dollars are spent.

As more of the risk for the cost of health care moves away from employers and insurance carri ers
toward the providers of care, the role of the employer in health benefits management is
undergoing profound change. For the typical self-funded large employer health plan of the mid -
1990’s, the employer’s role was to manage the rising cost of health c are benefits through plan
design, negotiat ed fee schedules, and utilization controls. As we near the end of the 1990’s,
nearly 75% of covered employees nationwide are in managed care plans. Employers must now
shift their focus from attempting to squeeze the fat out of health care to making sure that the right
level of care is provided by the right type of medical professional at the right time to result in
optimal health outcomes for employees and stable costs for those who pay the bill.

In order to properly manage an employer’s health benefits plans, today’s employee benefits
professional must keep up with and understand the rapidly changing managed care landscape,
be proficient at negotiating complex contracts, know how to communicate difficult managed care
concepts to employees, recognize the importance of performance standards and quality of care
indicators, be an advoc ate for employees who don’t understand managed care and don’t know
how to deal with it, and seek the right balance bet ween health care cost and health care quality.

Like other employers, the University of Colorado has gradually moved its employee health
benefits plans into managed care over the last five years. This change has not come without
pain. Employees have seen erosion in benefits levels, a loss of provider choice, a limitation in
access to providers, and new rules to follow that often seem to make no sense. Unfort unat ely,
employees have also seen rapidly increasing costs, since all of the increased cost has been
passed on to them since 1994.

The June 1998 Internal Audit Report noted deficiencies in the University’s management of the
plans, resulting in operating deficits, low overall satisfaction and quality of care ratings, significant
participant premium increases, and a substantial migration of participants out of the self-insured
plans. Many employees have lost trust in the University’s ability to manage their health care
plans, and feel that change in the internal management structure must occur.

This section of our report details our recommendations for modernizing and strengthening the
University’s internal benefits management structure.




Final Report 1/20/99                               40                               Leif Associates, Inc.
The Current CU Benefits Management Structure

The current internal benefits management structure is decentralized, using a combinatio n of a
very small central benefits administration department and benefits personnel on each of the four
campuses.

The centralized Benefits Department reports to the Vice President of Administration, and is made
up of only two employees, the Benefits Manager and an Administrative Assistant. The current
role of the Benefits Manager is to provide guidance and coordination for the campus Benefits
Officers, handle complaints and appeals, monitor the financial status of the self-funded plans,
develop rates for the self-funded plans, negotiate vendor contracts, and disseminate key
information to the Benefits Offic ers and the Benefits Oversight Committee. The Benefits Manager
uses the services of an external consultant, The Segal Company, to perform various benefits
functions, such as reviewing contracts, negotiating renewals, interacting with vendors, performing
financial projections, and ans wering complianc e questions.

The Benefits Officers on each campus report to the Human Resources Directors on each
campus. The Human Resources Directors report to campus Vice Chancellors. The Benefits
Officers may or may not supervise other benefits personnel, depending on the size and needs of
each particular campus.

The current role of the Benefits Officers is to participate in plan design decisions, participat e in
writing and editing benefits publications, conduct meetings and special events related to
publicizing the benefits program, conduct orientation sessions for new employees, provide one -
on-one benefits counseling sessions, assist employees in res olving benefits problems, and
receive and process benefits enrollments and changes.

The following organizational chart depicts the current internal benefits management structure.


                                                    Board of Regents


                                                       President


                        VP of Administration                                            Chancellors
                                                                                  Boulder, Denver, CS, HSC

  Benefit Oversight Committee
                                                                                      Vice Chancellors
Benefit Finance Review Committee
                                                                                  Boulder, Denver, CS, HSC

                          Benefit Manager
                                                     HR Director            HR Director              HR Director        HR Director
                                                      Boulder                 Denver                     CS                HSC
             External Consultants      Admin Asst
                                                    Benefit Officer          4 HR Generalists      Benefit Officer     Benefit Officer
                                                       Boulder                   Denver                 CS                 HSC


                                                     4 Benefit Counselors                                                Benefit Specialist

                                                          Data Entry                                                      Office Manager

                                                       Office Manager                                                       Admin Asst

                                                       3 Support Staff




Final Report 1/20/99                                          41                                             Leif Associates, Inc.
The Consolidated Service Center

As part of the University’s Administrative Streamlining Project (ASP), a Task Force within the
University has developed a proposal for a Consolidat ed Service Cent er to provide cent ralized
payroll and benefits services for all campuses.

According to the report of the Task Force dated September 4, 1998, “The Consolidated Service
Cent er (CSC) will provide “one-stop” information and a support center where employees can
have questions ans wered and talk to a representative using Interactive Voice Response (IV R),
Web, kiosk, on-line access, and a staffed help line. The benefits administration will maintain
records and information in a central, accessible database where users will have the capability to
model, forecast, and create ad-hoc reports. Policies and procedures will be consistently applied
across all campuses. Most importantly, customer satisfaction will be improved as customers will
be allowed to review and update personal and plan information using state of the art technology.”

The Consolidated Service Center, as proposed in the Task Force report, would be organized as
shown in the chart below. This sample organizational chart is obviously incomplete, and is
presented here only to provide a general overview of the proposed Cons olidated Service Center
structure.

                                            Board of Regents



                                                   President



                                          VP of Administration



                                               Director
                                      Consolidated Service Center



                                 Assistant Director        Assistant Director
                                      Payroll                  Benefits



                                   Payroll Staff             Benefits Staff




The Task Force report suggests staffing for the Payroll and Benefits Organization should include
a plan administrator, a policy analyst, a performance analyst, six compliance/reporting staff, three
office support staff, twelve generalists, eight benefits specialists, seven payroll specialists, six
training/education staff, and two information support staff. Including the director and two
assistant directors, the total staffing equals fifty full-time employees.

According to the Task Force report, the Consolidated Service Center will perform the following
services:

   Provide customer service; offer multi-lingual support; and operat e and maintain a 24 -hour
    help line

   Develop and deliver training; install and test upgrades to the system; and make benefits plan
    and regulatory changes to the system

   Procure benefits from vendors; establish benefits policies; determine benefits eligibility;
    define benefits philosophy and strategy; negotiate contracts with insurance vendors; perform
    market analysis to ensure competitive pricing; develop, conduct, and analyze performance



Final Report 1/20/99                                  42                        Leif Associates, Inc.
    measures (e.g., customer satisfaction); and manage vendors, contracts, and extension
    offices’ performance

   Ensure compliance, reports and payments to external agencies; perform reconciliation of
    University accounts to system and vendor rec ords; maint ain currency of plan documents in
    hard copy and on the Web; report taxes; make vendor payments; grant and maintain security
    authorizations

The Task Force report states that each campus will have a Memorandum of Understanding with
the Consolidated Service Cent er, to define services, service standards, funding, governanc e and
operational roles.

The Task Force report suggests three possible optio ns relat ed to the continued existence of
benefits offices on each campus. One is to maintain the campus benefits offices. The second is
to discontinue the campus benefits offices. The third option, which is recommended in the Task
Force report, is to phase out the campus offices or have the campuses pay for the service.

The Task Force report outlines a payroll/benefits transition timeline that includes hiring a director
before March 1, 1999, having the rest of the staff hired by July 1, 1999, and fully implementing
the Service Center by November 1, 1999.

Problems with the Current Internal Management Structure

In addition to the lack of trust expressed by employees in the benefits administration process and
decision making, we have observed a number of troublesome issues related to the current
benefits management structure. They are as follows:

   The decentralized nature of the current structure, combined with a cumbers ome employee
    governance process, results in a lack of accountability for benefits decis ions. With three
    separate entities (the central benefits office, the campus benefits offices, and the Benefits
    Oversight Committee) involved, it becomes easy for each entity to blame each other when
    things go wrong.

   The current internal management structure does not incorporate a process for adequate
    financial oversight.

   The decentralized nature of the current structure leads to a lack of consistency in benefits
    procedures and policies bet ween the campuses.

   Because of the lack of a consistent reporting structure, neither the central benefits office nor
    the Benefits Officers on each campus believe they are able to effectively impact day -to-day
    decisions regarding policies and procedures.

   The very small size of the cent ral benefits staff has not allowed t he University to build its
    benefits management expertise and knowledge as health benefits have become more
    complex with the growth of managed care.

   Because of the very small size of the cent ral benefits staff, functions that are best performed
    centrally, such as the development and maintenance of communications media, have
    become part of the responsibilities of the campus Benefits Officers.

   Because of the very small size of the cent ral benefits staff, external cons ultants have been
    used to perform services that could probably be performed more cost effectively internally.




Final Report 1/20/99                               43                              Leif Associates, Inc.
      The current structure has not allowed for appropriate communications and education on
       benefits issues, specifically managed care issues. It also does not provide adequate
       assistance to employees to help them navigate the managed care system.

The Consolidated Service Center concept addresses some of the weaknesses of the current
structure. Accountability for benefits will be focused in one organizational department.
Consistency in benefits policies and procedures bet ween campuses should no longer be a
problem, as long as the administration of thes e policies and procedures is consistently applied.
There should be no question regarding who is responsible for various benefits functions, and the
elimination of duplication and more effective use of technology should result in cost savings to the
University.

However, the Consolidated Service Center does not resolve all of the current problems, and may
create at least one new problem. The existence of the Center does not automatically ensure
appropriate financial oversight or proper staffing for the benefits functions. The proposal also
contemplates the immediate or gradual movement away from a benefits staff presence on each
campus. This is viewed negatively by many employees, who regard personal contact as
essential because of the highly pers onal and sometimes emotional nature of benefits -relat ed
events.

Peer University and Corporate Internal Management Structures

In the course of our work, we examined the benefits management structures used by large
employers and other universities. We found that the University’s current decentralized approach
is not unique among university communities. The following table displays the internal benefit s
structures used by a number of other multi-campus public universities.

            University                  Benefits Management Structure            Total # of          Reports To
                                                                               Benefits Staff
    University of Illinois      Benefits department on each of the campuses       3 central        VP of Business
                                reports to campus HR function; campus HR            plus            and Finance
    21,600 employees            units report to central HR unit.              23 on campuses
    3 campuses
    Indiana University          Central staff at main campus                        12                VP of
                                                                                                   Administration
    17,000 employees
    8 campuses
    University of Missouri      Central staff at main campus plus campus         20 central        VP for Human
                                benefits representatives on each campus             plus            Resources
    16,330 employees                                                             2 to 4 per
    5 campuses                                                                    campus
    University of Nebraska      Benefits managers on each campus                      5           VP for Business
                                                                                                   and Finance
    10,850 employees
    5 campuses
    University of N. Carolina   Central staff at Chapel Hill plus benefits      2 central plus     VP of Finance
                                departments at each campus                    unknow n number
    31,523 employees                                                           on 16 campuses
    16 campuses
    University of Texas         Central staff in Austin                             12             Vice Chancellor
                                                                                                    for Business
    32,000 employees                                                                                    Affairs
    15 campuses

In addition to other universities, we studied published survey dat a from large employers and
found the following statistics:

      Based on a survey of 900 companies with 1,000 to 10, 000 employees performed in 1998, the
       average number of benefits staff members (including administrative support personnel) is one
       for every 285 employees. The leanest-staffed companies had one staff member per 420



Final Report 1/20/99                                           44                             Leif Associates, Inc.
    employees. The fullest-staffed companies had one staff member per 250 employees. The
    survey was conducted by Guideline Research Corporation for Benefits Access, Inc.

   As would be expected, the size of the benefits department is directly related to the size of the
    company, according to Charles D. Spencer & Associates’ 1997 benefits managers’ survey of
    238 companies with at least 100 employees, representing 1. 6 million employees. While
    companies with fewer than 1,000 employees averaged a benefits staff of 2.7 full -time
    equivalent employees, the largest companies (62 companies wit h 5,000 or more employees)
    had an average staff size of 12. 2 full -time equivalent employees.


Possible Approaches for Internal Management Structure

The University of Colorado has two general options for changing the internal mana gement of its
benefits program. The current approach of maintaining a small centralized benefits department,
decentralized benefits services, and the heavy use of external consultants has not produced the
best results. The implementation of a different approach is called for, regardless of the benefits
plan funding approach. The two general options are these:

   Strengthen internal expertise. Internal management is appropriat e for organizations with only
    a few plans, vendors, and unique population groups, and who have a concentrat ed
    population. Employers who are not going through mergers or acquisitions, are willing to
    invest in personnel and internal systems capabilities, and who have a strong history and
    cultural need to develop long-term employment relationships are much more likely to manage
    their benefit programs internally. The major advantage of this approach is control. The
    disadvant ages include the need to hire and retain qualified staff and compet e for internal
    investment.

   Use outside expertise to manage the program. External management is appropriate for
    organizations that have many plans, vendors, population groups and locations. Also,
    organizations that are involved in fast paced change through acquisitions or divestitures are
    much less likely to be inclined to invest internally in benefits personnel and systems. The
    major advant age of using outside benefits expertise is the ability to focus resources and
    investments in other areas. The disadvantage is a loss of control and heavy reliance on
    external vendors who may not be able to meet the employer’s expectations. Outsourcing the
    management of the program cannot eliminate all need for internal benefits staff, becaus e
    there are still import ant internal responsibilities related to benefit and vendor management
    and employee interaction.

Consultant’s Recommendations

We believe the University of Colorado fits the profile of an organization that should manage its
benefits program internally. The plans are fairly simple and use a limited number of vendors.
The employee population has only a few unique population groups (faculty, staff, active, retired),
and the population is geographically concentrated (Denver, Boulder, Colorado Springs). The
culture of the organization supports staying close to employees and building long-term
employment relationships. This culture is demonstrated by the University’s strong employee
governance focus.

Specific to the benefits program, the University’s culture has recently been demonstrated by
strong negative reaction from the campuses to the centralization of benefits staff, and demands
by faculty to have more control over benefits decisions.

In fact, we believe that the current internal management approac h does not work well because it
is structured more like an externally managed benefits program than an internally managed one,


Final Report 1/20/99                             45                             Leif Associates, Inc.
and this does not fit the organization’s culture. Because of its very small centralized benefits
department, the University outsources many important benefits administrative functions , either to
the campus Benefit Officers, to Great-West Life, to The Segal Company, or to its managed care
contractors. This has led to a loss of accountability, a loss of control, a loss of enrollment, and
many unsatisfied customers.

We believe the best approach for the University is to build internal core benefits management
expertise, rat her than to outsource the benefits responsibility. In order to improve the
management of the University’s benefits plans, we recommend that the following actions be
taken.

      The University should move quickly to strengthen its internal benefits management expertise
       by hiring appropriat e personnel to manage and staff a new benefits department, responsible
       for health, life, disability, pension, and other related benefits.

      We recommend that the new benefits department be generally structured as shown below.
       The shaded boxes indicate the key benefits department functions/positions described in the
       recommendations that follow. The organizational chart is intentionally incomplete. It does
       not include such necessary functions as administrative support, data entry, and systems
       maintenance. The Consolidated Service Cent er report suggests a possible sharing of these
       functions between Payroll and Benefits. We concur that this would be a cost efficient
       approach. We have int entionally not provided a count of the actual number of positions,
       since we did not perform a complete analysis of the new department’s work flow and
       procedures. Instead, we focused our efforts on identifying what we believe to be the critical
       functions that a well managed and efficient benefits department will perform in the next five
       years.


                                                                                     Board of Regents


                                                           {Advisory}                    President
                          University Benefits
                         Advisory Board (UBAB)*
                                                                                      Vice President                Vice President
                                                                                      Administration              Budget and Finance
              External Consultants

                                                                                         Director
                                                                                Consolidated Service Center
      Employee Benefits
       Legal Counsel
                                                      Director
                                                  Employee Benefits*


                   Manager                            Manager                            Manager
         Benefits Customer Relations              Benefits Contracts                  Benefits Finance


               Communications Specialist                 Managed Care                        Accountant
                                                       Contract Specialists

               Managed Care Ombudsman                  Dental/Life/Disability             Research Analyst
                                                       Contract Specialists

                   Benefit Counselors                    Retirement Plan                     Data Analyst
                                                        Contract Specialist


    * The Director of Employee Benefits acts as staff to UBAB.




Final Report 1/20/99                                             46                                     Leif Associates, Inc.
   We recommend that the person who heads up the new benefits department have the title
    Director of Employee Benefits. A director level position is likely to be necessary in order to
    attract applicants with the dept h of expertise required for such an important position. The
    Director of Employee Benefits will have direct responsibility for the management of a program
    with expenditures of over $40 million per year. In the interest of rebuilding trust, the Director
    of Employee Benefits should report directly to the President and have an indirect reporting
    relationship to the Director of the Consolid ated Servic e Center. The Director of Employee
    Benefits should be responsible for working with the University Benefits Advisory Board
    (UBAB) in the development of benefits policy, as well as supervising the customer relations,
    contract management, and benefits finance functions. It will be critical for the person who fills
    this position to have in-depth technical benefits knowledge, be well respected within the
    University community, and be able to maintain a positive working relationship with UBAB,
    managed care cont ractors, and the internal customers of the employee benefits program.

   A Benefits Customer Relations Manager position should be established, reporting to the
    Director of Employee Benefits. We recommend that this position be responsible for all
    benefits communications, both written and verbal, as well as other benefits customer
    relations functions. The Benefits Customer Relations Manager’s staff will be made up of a
    communications specialist, a managed care ombudsman, and a number of benefits
    counselors.

   A Communications Specialist should report to the Benefits Customer Relations Manager and
    be responsible for developing and distributing written benefits communications, including
    annual enrollment materials, customer satisfaction surveys, managed care educational
    materials, a benefits newsletter, a benefits Web site, new employee orientation mat erials,
    UBAB educational materials, and so forth.

   We recommend the establishment of a Managed Care Ombudsman position to report to the
    Benefits Customer Relations Manager. The responsibility of the Managed Care Ombudsman
    will be to serve as a knowledgeable intermediary between a health benefits customer and the
    managed care plan when problems related to care arise, such as difficulties with referrals,
    delays in getting appointments, changes in network physicians, inappropriate care, or denial
    of services. The Ombudsman will take on the managed care hassles for employees and their
    families, and act as an advocat e for high quality cost effective care. The O mbudsman will
    also help educat e employees about their managed care plans, since disputes often arise
    because of a lack of understanding of managed care procedures and benefits plan
    requirements and limitations. The Ombudsman will also provide valuable ins ight in the
    monitoring of health plan performance standards, and be involved in health plan selection
    and cont ract negotiations. We recommend starting with one Ombudsman position, but
    believe this role is so important that it may be nec essary to add addit ional positions in the
    future.

   We recommend that the Benefits Counselor positions also report to the Customer Service
    Manager. The role of the Benefits Counselors will be to assist employees with non-managed
    care related benefits issues, conduct orientation sessions for new employees, provide one-
    on-one benefits counseling sessions and group training sessions, assist employees in
    resolving administrative benefits problems, provide retirement counseling, conduct open
    enrollment meetings, and so forth. We are not making a recommendation about the specific
    number of Benefits Counselor positions because we believe the requirements will evolve over
    time, once the Consolidated Servic e Center is operational and employees learn to handle
    routine benefits matters (such as address changes, family status changes, enrollment )
    through electronic media. We do feel strongly that the Benefits Counselor positions, although
    reporting to the Consolidated Service Center rather than the campus Human Resources
    departments, should maint ain a strong campus identity. We suggest assigning at least one
    Benefits Counselor to each campus, and having that Benefits Counselor on campus for a


Final Report 1/20/99                             47                             Leif Associates, Inc.
    designated number of days each week, based on the size of the campus and the time of
    year.

   We recommend the establishment of a Benefits Cont racts Manager position that will report to
    the Director of Employee Benefits. The Benefits Contracts Manager will be responsible for
    conducting competitive bidding proc esses, as well as developing, monitoring, and enforcing
    specific vendor performanc e standards. The Benefits Contracts Manager will also be
    responsible for negotiating managed care and other insurance and administrative contracts,
    negotiating renewals, and conducting periodic performance audits.

   Several Cont ract Specialist positions will report to the Benefits Cont racts Manager position.
    The number of Contract Specialist positions will be dependent on the number of contracts the
    University is engaged in. Under the proposed plan designs for 20 00, there will be three HMO
    and POS contracts, one PPO contract, two dental contracts, and possibly contracts for claim
    administration, pharmacy benefits, and stop loss coverage. There will also be contracts for
    life insurance, short-term and long-term disability coverage, Section 125 health care and
    dependent care reimbursement accounts, and investment companies for the CU Retirement
    Plans and tax-deferred investment programs.

   We strongly recommend the establishment of a Benefits Finance Manager position that will
    report to the Director of Employee Benefits. If the benefit plans have self -funded
    components, this very important position will be responsible for monitoring the financial
    condition of the healt h plans, establishing appropriate reserve levels , and making
    recommendations regarding the establishment of rate levels. Whether the plans are self-
    funded or fully insured, the Benefits Finance Manager will be responsible for conducting
    periodic peer university total compensation studies, recommending competitive and
    financially viable employer contribution levels for faculty and exempt staff, and conducting
    data analysis studies as needed in order to support benefits plan design and cont ract related
    strategic decisions. The Benefits Finance Manager will be held accountable for thes e
    functions through an indirect reporting relationship to the Vice President of Budget and
    Finance, who will provide financial oversight for the benefits program. The Benefits Finance
    Manager will develop a standard internal benefits finance reporting package, which will be
    presented monthly to the Vice President of Budget and Finance, the Vice President of
    Administration, and the University Benefits Advisory Board (UBAB). The Benefits Finance
    Manager will also work with the Benefits Contracts Manager and Contract Specialists to
    design minimum reporting standards to be included in vendor contracts. We also recommend
    that Accountant, Research Analyst, and Data Analyst positions support the Benefits Financ e
    Manager.

   We recommend that the new benefits department have access to External Consultants and
    Benefits Legal Counsel when issues arise that require additional expertise. Specifically, the
    Benefits Finance Manager should work with consulting actuaries to establish reserve le vels
    and set rates. The Benefits Contracts Manager should work with Benefits Legal Couns el to
    review contracts and make benefit interpretations. The Benefits Customer Service Manager
    should work with Benefits Legal Couns el to review communic ations materi als.

   We recommend that the University accept both internal and external applications for all
    positions within the new benefits department.




Final Report 1/20/99                            48                            Leif Associates, Inc.
Other Relevant Benefit Issues and Recommendations

A number of other relevant benefit issues came up durin g the course of the study and deserve
comment. Because they were not specifically part of our assignment, we did not fully develop
these issues, and provide only brief comments here.

Surviving Spouses

The issue of providing an employer contribution to as sist with the coverage of health benefits for
the surviving spouses and dependent children of active and retired faculty members is an
important one, especially for the University’s retired faculty.

We recommend that an actuarial study of the cost of providing such a contribution be performed.
The actuary should work with the Retired Faculty Association to develop eligibility criteria and a
range of possible levels of cont ribution. The actuarial study should use those criteria to develop
future cost projections, based on the potential incidence of death among active and retired
faculty. The results should be presented to the President and Board of Regents for their
consideration.

Chiropractic Benefits

There has been a considerable amount of employee diss atisfaction related to the removal of
chiropractic benefits from the CU health plans. A recent study by the federal Agency for Health
Policy and Research reports that 80% of American workers have health coverage that includes at
least part of the cost of chiropractic care.

We recommend that the 2000 HMO and POS plan designs provide a limited in-net work benefit for
chiropractic coverage in all three networks. Most HMOs offer this benefit and manage it under
capitation agreements that are successful in cont rolling cost. However, chiropractic care should
not be covered out of network, because of the absence of cost and utilization controls.

Flexible Benefits Cafeteria Plan

The scope of our study did not include an examination of the possibility of implementing a flexible
benefits cafeteria plan approach for 2000. While this type of program has many desirable
features, the implications for administrative systems and communications are major, and as a
result the University has determined that such a program cannot be implemented until at least
January 1, 2001.

Interest on the Reserves

Crediting the CU health benefit plan reserve fund with its own investment earnings has been a
widely discussed topic. This issue was not addressed in our study because it was being handled
separately.

A draft proposal for a revised interest earnings distribution for benefits accounts is being
developed by the Vice President of Administration in coordination with the Vice President for
Budget and Finance, Budget Officer, and University Treasurer and will be presented to the
President in early December 1998.




Final Report 1/20/99                             49                             Leif Associates, Inc.
           Appendix A – Suggested Benefits Structures

Medical                            HMO Plan                                       POS Plan                               PPO Plan
Benefits                  In-Network    Out-of-Network             In-Network          Out-of-Network        In-Network       Out-of-Network
Annual Deductible       None            None                    None                   $500 Individual     $500 Individual    $1,000 Individual
                                                                                       $1,500 Family       $1,500 Family      $3,000 Family
Annual Out-of-          None                    None            None                   $2,000 Individual   $2,000 Individual $4,000 Individual
Pocket Maximum                                                                         $6,000 Family       $6,000 Family      $12,000 Family
Lifetime Maximum        None                    None            None                   $1 million          $1 million         $1 million
Routine Office Vis it   $10 copay per           Not a covered   $15 copay per          60%                 80%                60%
                        visit                   benefit         visit
Preventive Care         $5 copay per            Not a covered   $10 copay per          60%, up to $200     80%, up to $200     60%, up to $200
                        visit                   benefit         visit                  per year            per year            per year
Maternity Care          $10 copay per           Not a covered   $15 copay per          60%                 80%                 60%
                        visit; $200 copay       benefit         visit; $300 copay
                        per admission                           per admission
Chiropractic            $10 copay per           Not a covered   $15 copay per          Not a covered       Not a covered       Not a covered
Treatment               visit, 20 visit limit   benefit         visit, 20 visit limit  benefit             benefit             benefit
Prescription Drug       $10 copay               Not a covered   $15 copay              Not a covered       $15 copay           Not a covered
                        generic                 benefit         generic                benefit             generic             benefit
                        $15 copay brand                         $20 copay brand                            $20 copay brand
                        name                                    name                                       name
Inpatient Hospital      $200 copay per          Not a covered   $300 copay per         60%                 80%                 60%
                        admission               benefit         admission
Outpatient Hospital /   $50 copay               Not a covered   $75 copay              60%                 80%                 60%
Ambulatory Surgery                              benefit
Lab and X-Ray           Covered in full         Not a covered   Covered in full      60%                   80%                 60%
                                                benefit
Emergency Care          $75 copay,              $75 copay,      $75 copay,           $75 copay,            80%                 60%
                        waiv ed if              waiv ed if      waiv ed if           waiv ed if
                        admitted                admitted        admitted             admitted
Urgent Care             $25 copay per           $25 copay per   $25 copay per        $25 copay per         80%                 60%
                        visit                   visit           visit                visit
Ambulance               $50 copay per           Not a covered   $50 copay per        60%                   80%                 60%
                        trip                    benefit         trip
Biologically Based      Same as any             Not a covered   Same as any          Same as any           Same as any         Same as any
Mental Illness Care     other physical          benefit         other physical       other physical        other physical      other physical
                        illness                                 illness              illness               illness             illness
Other Mental Illness    50% up to 45            Not a covered   50% up to 45         50% up to 45          50% up to 45        50% up to 45
Inpatient               days or 90              benefit         days or 90           days or 90            days or 90          days or 90
                        partial days                            partial days         partial days          partial days        partial days
Other Mental Illness    50% up to 20            Not a covered   50% up to 20         50% up to             50% up to           50% up to
Outpatient              visits or $1,500        benefit         visits or $1,500     $1,500 per year       $1,500 per year     $1,500 per year
                        per year                                per year
Substance Abuse         50% for                 Not a covered   50% for              50% for acute         50% for acute       50% for acute
                        diagnosis,              benefit         diagnosis,           detox only,           detox only,         detox only,
                        medical                                 medical              maximum of 5          maximum of 5        maximum of 5
                        treatment, and                          treatment, and       days per epis ode     days per epis ode   days per epis ode
                        referral services                       referral services    and 2 per life        and 2 per life      and 2 per life
Physical,               $10 per visit, 30       Not a covered   $15 per visit, 30    60%, for              80%, for            60%, for
Occupational,           visits per year,        benefit         visits per year,     conditions            conditions          conditions
Speech Therapy          for conditions                          for conditions       subject to            subject to          subject to
                        subject to                              subject to           improvement           improvement         improvement
                        improvement                             improvement          only                  only                only
                        only                                    only
Durable Medical         No copay, up to         Not a covered   No copay, up to      60%                   80%                 60%
Equipment               $1,500 per year         benefit         $1,500 per year
Home Health Care        No copay, up to         Not a covered   No copay, up to      60% up to 60          80% up to 60        60% up to 60
                        60 visits per year      benefit         60 visits per year   visits per year       visits per year     visits per year
Hospice Care            No copay, up to         Not a covered   No copay, up to      60% up to 60          80% up to 60        60% up to 60
                        60 visits per year      benefit         60 visits per year   visits per year       visits per year     visits per year
Skilled Nursing         No copay, 100           Not a covered   No copay, 100        Not a covered         Not a covered       Not a covered
Facility                days per year           benefit         days per year        benefit               benefit             benefit
Vision Exams            $10 copay, 1            Not a covered   $15 copay, 1         Not a covered         Not a covered       Not a covered
                        visit per year          benefit         visit per year       benefit               benefit             benefit



           Final Report 1/20/99                                      50                                     Leif Associates, Inc.
       Dental                          PrePaid Dental Plan               Preferred Provider Plan
       Benefits                   In-Network      Out-of-Network      In-Network      Out-of-Network
       Annual Deductible        None             None              $50, does not      $75, does not
                                                                   apply to           apply to
                                                                   diagnostic and     diagnostic and
                                                                   preventiv e        preventiv e
       Diagnostic and           100% after $5    Not a covered     100%               100%
       Preventive               copay            benefit
       Restorative (fillings)   $15 to $30       Not a covered     80%               60%
                                copayment        benefit
                                depending on
                                procedure
       Endodontics (root        $15 to $100      Not a covered     70%               50%
       canals)                  copayment        benefit
                                depending on
                                procedure
       Periodontics (gum        $50 to $100      Not a covered     70%               50%
       treatment)               copayment,       benefit
                                depending on
                                procedure
       Oral Surgery             $20 to $100      Not a covered     70%               50%
       (extractions)            copayment        benefit
                                depending on
                                procedure
       Crow ns and Bridges      $100 to $250     Not a covered     50%               40%
                                copayment,       benefit
                                depending on
                                procedure
       Prosthodontics           $200 to $300     Not a covered     50%               40%
                                copayment,       benefit
                                depending on
                                procedure
       Orthodontics             $1,500           Not a covered     50%, up to        40%, up to
       (Children under 19)      copayment        benefit           $1,500 lifetime   $1,000 lifetime
                                                                   max               max
       Emergency Services       Covered with     Covered up to     Covered with      Covered with
                                appropriate      $50 per year      appropriate       appropriate
                                copays                             coinsurance       coinsurance
       Annual Maximum           None             None              $1,250            $1,250




Final Report 1/20/99                                 51                               Leif Associates, Inc.
Appendix B – Glossary of Terms


Acce ss
A health plan member's ability to obtain medical care, determined by components such as the
availability of medical services and their acceptability to the member, the location of health care
providers and facilities, transportation, hours of operation and cost of care.

Adverse selection
The disproportionate enrollment of high -risk (or low-risk) individuals within a given population into
one or more health plans that are most advantageous for those individuals.

Capitation
A predetermined fixed amount paid to providers in return for the provision of a specified set of
health services. The rate is established per person enrolled in the capitated health plan.

Case rate
A reimbursement model used by hospitals to establish a flat rate per admission based an
assumed average length of stay per admission. Unique rates may be set or grouped by diagnosis
type or categories of medical/surgical, obstetrical, critical care, cardiac, etc.

Coinsurance
A cost sharing agreement specified in a health insurance policy between the ins ured and the
insurance carrier stipulating the ins ured will assume a portion of percent age of the cost of
covered services. Often coinsurance applies after first meeting a deductible requirement.

Copayment
A cost sharing arrangement in which a health plan member pays a specified charge for a
specified service, such as $10 for an office visit. The member is usually responsible for payment
at the time the healt h care is rendered. Typical copayments are fixed or variable flat amounts for
physician office visits, prescriptions or hospital services. Also called copay.

Cost sharing
The apportioning of health care costs between a health care plan and its participants through
employee contributions, deductibles, coinsurance, copayments, and other plan design features.

Deductible
The amount of expense an insured must pay before a benefit plan begins payment for covered
services.

DRGs
Diagnostic Relat ed Group. A prospective hospital claims reimbursement system implemented by
the federal Medicare program, in which payment is based on an epis ode of care.

Employer contribution
The share of the premium an employer pays for the benefits elected by employees. The
employees pay the remainder themselves.

Fee-for-service
A method of reimbursing providers bas ed on charges for eac h of the services provided to
patients, as contrasted with capitation payments, DRGs, per diem payments, etc.



Final Report 1/20/99                              52                             Leif Associates, Inc.
Fee schedule
A listing of accepted fees or established allowances for specified medical procedures. As used in
medical care plans, it usually represents the maximum amounts the program will pay for the
specified procedures.

Fiduciary responsibility
The process of exercising discretionary authority or control over a plan or plan assets.

Flexible benefits cafeteria plan
Plans governed by the Internal Revenue Code that offer employees choices between certain
prescribed taxable and nontaxable benefits. For example, a cafeteria plan could offer choices
among varying forms of health care coverage (managed care and indemnity options), life
insurance, a 401(k) plan deferral or cash.

Fully insured health plan
An employer health plan whereby an employer contracts with an insurance company or an HMO
for health care services. The insurance carriers, whic h either own or lease provider net works,
accept full risk for the provision of services in exchange for a premium.

HMO
Healt h Maintenance Organization. A health care delivery system that provides comprehensive
health services to an enrolled population for a prepaid fixed payment. The organization consists
of a network of healt h care providers rendering a wide range of health ser vices and assumes the
financial risk of providing these services. There is no coverage for care provided outside the HMO
network, except in the case of emergencies.

Indemnity health insurance plan
Healt h insurance benefits provided in the form of reimburs ement of covered charges, on a fee -
for-service basis.

Internal medical providers
For purposes of this report, the term “internal medical providers” refers to University Hospital,
University Physicians (together known as UANet ) and University Mental Health Services (UMHS ).

Managed care
The control of cost and utilization of health care using a variety of methods, with the goal of
delivering cost-effective health care wit hout sacrificing quality or access.

Network
A group of health care providers who have contracted with a managed care organization to
provide health care services to members of the managed care organization.

Outsourcing
The strategic use of outside res ources to perform activities traditionally handled by internal staff
and resources.

POS
Point of Service. A health benefit plan that provides an enrollee a choice at the time of medical
services to utilize a net work or non-network provider. Typically, the net work benefits are similar to
HMO benefits and are tightly managed. Out-of-network services are covered, but with greater
employee cost sharing.

PPO
Preferred Provider Organization. A health care provider arrangement whereby a third -party payer
contracts with a group of medical care providers who agree to furnish services at negotiated fees



Final Report 1/20/99                              53                              Leif Associates, Inc.
in return for prompt payment and increased volume. Covered persons are channeled toward the
PPO through the us e of financial incentives. Out-of-network services are covered, but with
greater employee cost sharing.

Prepaid health plan
A heath benefit plan that provides a defined set of health services to an enrolled population for a
predetermined premium paid in advance.

Quality of care
The degree to which patient care services increase the probability of desired patient outcomes
and reduce the probability of undesired outcomes, given the current state of knowledge.

RFP
Request for Proposal. As used with regard to healt h benefit plan, the process whereby an
employer or consultant requests cost, administrative, benefit, net work, quality, and financial
information from a number of potential health plans for purposes of selecting one or more health
care plans.

Ri sk corridor
A mechanism to share risk within a stated range of performance, such as where providers are
assessed penalties or given financial r ewards if their actual claims per member per month fall
outside a specific percentage above or below an established claims target.

Ri sk pool
The aggregate group of individuals participating in a health plan over which the risk of incurred
claims is spread.

Ri sk shi fting
Trans ferring the chance of loss, including the expenses for the delivery of health services, to
another entity. An example is when a provider group agrees to a capitated payment arrangement
from an insurance company or an employer.

Self-funding
An employer’s practice of paying benefits out of its own assets or funds without the involvement
of an insurance company. Self-funded plans may be self-administered, or the employer may
contract with an outside administrat or for an administrative services arrangement.

Utilization
The extent to which members of a covered group use plan services over a specific period.

Withhold
The "at-risk" portion of a provider's payment that is deducted and withheld by the healt h plan
before payment is made to a participating provider as an incentive for appropriate utilization and
quality of care.




Final Report 1/20/99                             54                             Leif Associates, Inc.

				
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