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Benefits Analysis

Parts I & II

913083291

912344574

RMI 3501

Dr. DrennanFall 2011



Drexel University: Parts I & II Page 1 of 13

Table of Contents

LOSS EXPOSURE MATRIX…………………………………………………………………………… 2-3SUMMARY OF BENEFITS…………………………………………………………………. 3-4

INVENTORY OF EXISTING BENEFITS:

MEDICAL BENEFITS……………………………………….………………………………………….. . 5IBC PERSONAL CHOICE …………………………………………………………………… 5-6KEYSTONE POS-HMO ……………………………………………………………………… 6FLEXIBLE SPENDING ACCOUNT ……………………………………………………… 6-7CIGNA DENTAL ……………………………………………………………………………… 7-8EYEMED VISION ……………………………………………………………………………… 8MEDCO PRESCRIPTION ………………………………………………………………....... 8-9

JOHN HANCOCK LTC ………………………………………………………………………… 9

LOSS OF INCOME: DEATHHARTFORD (GROUP TERM LIFE & SUPPLEMENTARY) ………………… 9-10HARTFORD (AD&D) ………………………………………………………………………… 10

LOSS OF INCOME: UNEMPLOYMENTUNEMPLOYMENT INSURANCE ………………………………………………………… 10

LOSS OF INCOME: DISABILITY

HARTFORD (LTD) …………………………………………………………………………… 11HARTFORD (STD) …………………………………………………………………………… 11

LOSS OF INCOME: RETIREMENT403(B) PLAN ………………………………………………………………………………….. 12

OTHER BENEFITS:EDUCATIONAL ASSITANCE………………………………………………………………. 12WORK/LIFE EXPOSURES …………………………………………………………… . 12-13DEPENDENT CARE …………………………………………………………………………. . 13PROPERTY/LIABILITY …………………………………………………………………….. 13

LEGAL EXPENSES ……………………………………………………………………………. 13




Loss Exposure Matrix

LOSS EXPOSURE IS THE

EXPOSURE

COVERED?

COVERAGE PROVIDED

Medical Expenses

Hospital / PhysicianYes PPO: IBC Personal High

PPO: IBC Personal BasicPOS-HMO: KeystoneFlexible Spending Account

Dental Yes PPO: Cigna Dental PreferredPPO: Cigna Dental Basic

Vision Yes EyeMed

Prescription Yes MedCo

Long Term Care (LTC) Yes John Hancock Retiree Health Care Yes Under 65 - Same as a full-time EE

OASDICOBRA

Loss of Income: Death

Non-accidental,Non-occupational death

Yes Group Term Life (Hartford)Supplementary (Hartford)OASDI

Accidental death Yes AD&D (Hartford)OASDI

Occupational death Yes Group Term Life (Hartford)Worker’s CompensationOASDI

Loss of Income: Unemployment

Unemployment Yes Unemployment Insurance

Loss of Income: Disability

Non-occupational Long Term Yes HartfordOASDI

Non-occupational Short Term Yes HartfordOASDI

Occupational Long Term Yes Hartford

OASDIOccupational Short Term Yes Hartford

OASDI

Loss of Income: Retirement

Retirement Yes 403(b) planOASDI

Other Benefits

Educational assistance Yes Tuition RemissionTuition Exchange

Work/life exposures Yes Parking

Mass Transit Employee Assistance Program




Dependent care Yes Flexible Spending Account

Property-Liability Yes Liberty Mutual (home/auto)

Legal Expenses Yes Hyatt (group legal)

Summary of Benefits

Benefit Plan A.M Best

Rating Funding Financing Eligibility

Personal ChoiceHigh(IndependenceBlue Cross)

(B+)VeryGood

Self-Insured Contributory Full-time &part-timeemployees +dependents,

retireesunder 65

Personal ChoiceBasic(IndependenceBlue Cross)

(B+)VeryGood

Self-Insured Contributory Full-time &part-timeemployees +dependents,retireesunder 65

Keystone POS-HMO

(A)Excellent

Self-Insured Contributory Full-time &part-timeemployees +

dependents,retireesunder 65

Cigna Dental(Base +Preferred Plan)

(A)Excellent

Fully Insured Contributory Full-time &part-timeemployees +dependents

EyeMed visionplan

(A-)Excellent

Fully Insured Contributory Full-time &part-timeemployees

MedCoprescription

(A-)Excellent

Self-Insured Contributory Full-time &part-timeemployees +dependents,retireesunder 65

John Hancock (LTC)

(A+)Superior

Fully Insured Voluntary Full-time &part-timeemployees +dependents

The Hartford(group term lifeinsurance)

(A)Excellent

Fully Insured Non-Contributory

Full-timeemployees




Hartford(supplementarylife insurance)

(A)Excellent

Fully Insured Voluntary Full-time &part-timeemployees +dependents

Hartford

(AD&D)

(A)

Excellent

Fully Insured Voluntary Full-time &

part-timeemployees +dependents

Hartford (Non-occupationalandoccupationalLong Term)

(A)Excellent

Fully Insured Non-contributory

Full-timeemployees

Hartford (Non-occupational

andoccupationalshort term)

(A)Excellent

Self Funded –(Hartford

administratedonly)

Voluntary Full-time &part-time

employees

Liberty Mutual(home/auto)

(A)Excellent

Fully Insured Voluntary Full-time &part-timeemployees

Hyatt (grouplegal)

(A+)Superior*

Fully Insured Voluntary Full-time &part-timeemployees

*Rating is for MetLife since Hyatt is their wholly owned subsidiary.

General Notes:

• These benefits are for professional administrative staff only.

• New employees can start with all Drexel University plans at the beginningof the month after they are employed. Enrollment periods last for the first three days of every month

• Full-time employees are defined as: employees working a minimum of 40

hours per week • Part-time employees are defined as: employees working a minimum of 20

hours and less than 40 hours per week

• Dependents include: spouse, same-sex domestic partners, and dependent children.

o Dependent children are defined as: children up to 19 years old, or23 if they are full-time students for dental and vision care only. Formedical and prescription coverage, children who are full-timestudents receive benefits until they are 26 years old.

o

A.M Best Ratings are from “A.M Best Rating Center” via www.ambest.com

http://www.ambest.com/







Inventory of Existing Benefits

Medical Expenses:

Independence Blue Cross – Personal Choice

Drexel University offers their employees two types of Personal Choice

PPO health plans through Independence Blue Cross. Eligible participants for both

plans include full-time and part-time employees, including dependents, and

retirees under the age of 65. Both Personal Choice plans are financed on a

contributory basis and are self-insured but administered by IBC. Even though

these plans are community rated, Drexel University full-time and part-time

employees pay 8% lower if they contribute on a bi-weekly, rather than monthly,

basis. Both plans’ participants will pay more out of pocket expenses if they

choose to go to an out-of-network provider. These expenses can be in the form of

deductibles, copayments, and coinsurance limits. Personal Choice Plans do not

require a primary care physician or referrals for services. However, out-of-

network services in these plans may require the participant to pay the expenses

of services rendered and then file a claim for reimbursement. The two plans are

Personal Choice High and Personal Choice Basic, and they differ mainly in

deductibles and coinsurance limits.

Personal Choice High offers $0 deductibles and 100% coinsurance for in-

network usage of benefits with a maximum $25 copayment for certain services.

Out-of-network usage is subject to 80% coinsurance after a $500 deductible with

a maximum of $3000 for out of pocket expenses. The deductible and maximum

for out of pocket expenses are doubled for family plans. Key features of Personal

Choice High include an unlimited lifetime maximum and 365 inpatient hospital

days for in-network care.

Personal Choice Basic plans are subject to 90% coinsurance after the

$300 deductible is paid for in-network usage. In addition, in-network usage has

maximum of $1000 for out of pocket expenses. However, the 90% coinsurance

changes to 100% for preventive care and pregnancy related services if utilized

in-network. Out-of-network usage is subject to 70% coinsurance for all services

after a $750 deductible. The maximum for out of pocket expenses is raised to




$3000 if a participant chooses to go out-of-network. The deductibles and

maximums for out of pocket expenses of in-network and out-of-network services

are doubled for family plans.

Keystone Point-Of-Service HMO

Drexel University offers their full-time and part-time employees including

dependents, and retirees under the age of 65 a POS-HMO plan through Keystone

on contributory basis. This plan is 60% cheaper than Personal Choice Basic and

80% cheaper than Personal Choice High because of its smaller network of

providers and usage of a primary care physician (PCP). The PCP is the key in

allowing this plan to be low in cost since the physician must approve a

participant for referral to certain services such as physical therapy. The usage of

a PCP reduces the risks of moral hazard or unnecessary utilization of health

services. In addition, the PCP can elect only one designated site to send all

Keystone members for each specific service. By limiting PCP’s choices to only one

provider per service, Keystone is able to negotiate a bigger discount, which leads

to the low cost premium. Under the Keystone POS-HMO plan, in-network usage

has a $0 deductible and 100% coinsurance. To further reduce the chances of

moral hazard and contain costs, in-network services are subject to many co-

payments, which have a maximum of $2000. Self-referred care, or out-of-

network usage, is subject to a $500 deductible and 70% coinsurance. Since self-

referred care has deductibles, there aren’t any co-payments. However, the

deductible is tripled for family plans. Keystone can also bill participants the

difference between their plan allowance and actual physician charge if services

were performed out-of-network.

Flexible Spending Account

Drexel University offers full-time and part-time employees including

dependents, and retirees under the age of 65 Flexible Spending Accounts (FSAs)

for health care. FSAs are based on voluntary contributions, made by eligible

employees, which are deducted on a pre-tax basis from their payroll. These pre-

tax dollars can be used for medical expenses such as deductibles, co-payments,

prescription drugs, office visits, laser eye surgery, and contact lenses. Payments




from these accounts can be made towards the expenses of employees and their

dependents for un-reimbursed health care expenses. The main benefit of FSAs is

that contributions are made on a pre-tax basis, which lowers the overall taxable

income of an employee. There is, however, a maximum $5000 limit for FSAcontributions per year. In addition, all claims must be incurred by December 31 st

of the plan year or else the money will be forfeited away from the employee due

to the “Use It or Lose It” provision that Drexel University applies.

Cigna Dental

Drexel University offers their full-time employees, part-time employees,

and their dependents two Cigna Dental PPO plans on a contributory basis. These

plans are fully insured and community rated. However, children that can receive

benefits must not exceed 19 years old or 23 years old if they are full-time

students. PPACA has no effect on the dependent age limit of full-time students in

terms of dental insurance. The two plans are Cigna Dental Base and Cigna Dental

Preferred, and they mainly differ in terms of coinsurance:

Services Cigna Dental Base Plan Cigna Dental Preferred Plan

In-Network Out-of-Network In-Network Out-of-Network

Preventive 100% 100% 100% 100%BasicRestorative

50% 50% 90% 80%

MajorRestorative

50% 50% 60% 50%

Orthodontia NA NA 50% 50%

Deductible:-Individual-Family

$50$150

$50$150

$50$150

$50$150

Annual

MaximumBenefit (perperson)

$1,000 $1,000 $1,500 $1,500

Cigna Dental Base pays the above coinsurance as agreed upon by the

preferred dentist provider whether it is in-network or out-of-network. This

means that the dentist has agreed to receive payment in full and cannot balance

bill the participant. The participant is, however, subject to co-payments and

deductibles that are stated in the above matrix.




Cigna Dental Preferred plan pays for in-network services that participants

incur the same way the Cigna Dental Base plan does. However, for out-of-

network use, Cigna Dental Preferred pays the dentist the reasonable and

customary charges, which could be the dentist’s actual or usual charge. This isthe benefit of the Preferred plan since out-of-network dentists usually charge

more than in-network dentists.

EyeMed Vision

Drexel University offers their full-time and part-time employees vision

care through EyeMed. This benefit is contributory, community rated, and fully

insured. EyeMed operates as a PPO since it offers extensive benefits for in-

network usage and increases out of pocket expenses for participants that incur

out-of-network expenses. Participants may enhance their benefits by staying in-

network since they will get allowances, $0 co-payments, and discounts if limits

have been exhausted. If participants choose to go out-of-network, they will not

have any discounts and will only see a portion of the cost paid by EyeMed. In

addition to the coverage of contact lenses, frames, and exams, EyeMed vision

offers 15% discounts on the full retail price of LASIK operations.

Medco prescription

Drexel University offers their full-time and part-time employees including

dependents, and retirees under the age of 65, Medco prescription drug coverage.

This plan is contributory, community rated, and self-insured. Even though the

prescription drug coverage is from a different vendor than the medical coverage,

Drexel University bundles the two plans together. If a Drexel University

employee chooses to participate in a medical plan, he must also participate in the

prescription drug plan. In addition, an employee cannot enroll for the

prescription drug plan alone; it only becomes available with the enrollment of a

health plan. All Drexel University employees, even those with different health

plans, have the same Medco prescription drug plan. This chart shows the

different copayments in the plan with respect to the type of drug being ordered

and method of purchase.




Co-Payment Matrix Retail – 30 day supply Mail – 90 day supply

Generic Drug $5 $10

Formulary Drug $15 $30

Non-Formulary Drug $30 $60

Medco is providing participants an incentive to buy through the mail

since they save an average of 33%. By giving an incentive for participants to

purchase through the mail, Medco can get better discounts and get steerage

towards their own preferred vendors.

John Hancock LTC

Drexel University offers their full-time and part-time employees,including their spouses, Long Term Coverage through John Hancock. This plan is

a voluntary benefit and the employee bears the cost of financing. Drexel

University employees are individually rated for the plan and they are fully

insured if they participate. John Hancock’s LTC plan provides skilled and

custodial care services to participants that need help for an extended period of

time with daily activities. Some of these services include nursing care, physical

therapy, eating, bathing, and dressing. Depending on the chosen plan, aparticipant employee could have to pay for his own care for a certain amount of

days before the policy begins to pay; this acts as a form of deductible.

Participants can choose to receive their benefits on a daily or monthly basis, and

the length of the benefit period. Since each plan is tailored to fit each employee’s

needs, premiums for John Hancock’s LTC vary widely.

Loss of Income: Death Hartford (Group Term Life and Supplementary Life)

Drexel University offers their full-time employees group term life

insurance through The Hartford on a non-contributory basis. Under this benefit,

employees’ eligible recipients can receive two times the annual salary with a

maximum of $500,000 if an occupational or non-accidental non-occupational

death occurs. Eligible recipients include an employee’s spouse or children, and in

the event the employee does not have a spouse or children then the Hartford will




not pay anything in the event of a participant’s death. The employee can elect to

limit their maximum benefit at $50,000 to avoid imputed income in the event

they die. Drexel University fully insures their employees with this policy, but

additional supplementary insurance can be bought at the employee’s expense foraccidental events or to increase the standard benefit to more than twice the

annual salary. In addition, the supplementary insurance could extend to cover

the spouse or children of full-time employees

Hartford (AD&D)

Drexel University offers their full-time and part-time employees,

including dependents, accidental death and dismemberment insurance through

The Hartford. This benefit is financed on a voluntary basis and is fully insured.

Participants in this benefit cover the exposure of accidental death and will

receive benefits just as they would in the life insurance provided by The Hartford

in the event of death.

Loss of Income: Unemployment

Unemployment Insurance

Drexel University offers their full-time and part-time employees

unemployment insurance. This plan is self-funded by Drexel University but

employees must contribute towards it. In the event of involuntary

unemployment, an employee can receive severance benefits for up to five

months of salary. The number of months in these benefits depends on how long

an employee has been working at Drexel University, with each year

corresponding to a month. Part-time employees receive benefits on a pro rata

basis rather than one year equals one month of benefits. Drexel University’s

policy does not allow them to state what their funding vehicle is, however based

on the way funding is constructed in this plan it is safe to assume that Drexel

University uses a General Asset Plan as the funding vehicle.




Loss of Income: Disability

Hartford LTD

Drexel University offers their full-time employees Long Term Disability

insurance through The Hartford on a non-contributory basis. This plan fully

insures employees in the event they become disabled, occupationally or non-

occupationally, for a long period of time. To mitigate the risk of moral hazard,

employees that are eligible to receive LTD benefits must wait a 90-day period

after the disability occurs to receive the benefits. Benefits of LTD include 60% of

an employee’s salary until they reach the normal retirement age. This benefit

also covers mental illnesses and their treatment. If a participant becomes

hospitalized in a mental institution, benefits for rehabilitation will be paid until

they become better or to a maximum of 24 months after being discharged.

Hartford STD


including dependents, Short Term Disability insurance through The Hartford on

a voluntary basis. This plan is self-funded by Drexel University but administered

through The Hartford and covers STD from occupational or non-occupational

events. Funding is based purely on Drexel University employees’ contributions,

which are put into a 501(c)(9) trust account. Even though Drexel University

refused to verify the funding source, the way the funding plan is constructed lead

us to conclude that it is a 501(c)(9) trust account. Benefits for STD commence on

the 31st consecutive day of disability and end on the 90th day or whenever the

participant is not disabled any more. Under this STD plan, benefits will be the

lesser of 60% of an employee’s monthly salary or $2700 per month. If an

employee is disabled for more than 90 days, The Hartford’s LTD plan is

responsible for the payment of benefits.




Loss of Income: Retirement

403(b) plan

Drexel University offers their full-time and part-time employees a 403(b)

to secure their income at retirement. Drexel University’s 403(b) is broken down

into two parts: mandatory and voluntary.

Mandatory: (percentages based on salary)

Age Minimum EE contribution Drexel University Contribution

35-39 2% 7%

40-49 2% 9%

50 and over 2% 11%

Voluntary: (percentages based on salary)

Minimum EE contribution Drexel University Contribution

2% 3%

3% 4%

4% 5%

5% 7%

Newly hired employees may start contributing towards their 403(b) plan

after one year of employment. This requirement is waived if the employee was

already contributing to a 403(b) in prior careers.

Other Benefits:

Educational Assistance

Temple University offers their full-time employees, including dependents,

two types of educational assistance programs on a non-contributory basis. One

programs is called Tuition Remission, which allows full-time employees and

their dependents to pursuit most of Drexel University’s programs for free. The

other program is Tuition Exchange. Under this program, eight children of full-

time employees are awarded scholarships to attend more than 600 different

universities.

Work/Life exposures

Drexel University offers many types of work and life programs to assist

their full-time and part-time employees. One of these programs is called Health




Advocate. Health Advocate provides 24-hour assistance to employees to better

understand their health benefits, handle medical bills, and find a doctor. Another

program, called Employee Assistance program, provides counseling for personal

and professional issues that employees and dependents face. Drexel also offersparking and mass transit benefits in the form of FSAs to allow employees to pay

for these services on a pre-tax basis; this includes the purchase of SEPTA passes.

Dependent Care

Drexel University offers their full-time and part-time employees FSAs for

dependent care costs. These contributions, made on a voluntary basis, can be

used to pay for employee’s children under the age of 13 for pre-school or day

care facilities. Even though Drexel University does not have their own on-site day

care, they have several day care centers with arranged discounts that could be

paid for by the employees’ FSAs.

Property/Liability


including their dependents, discounted home, renter, and auto insurance. Even

though each policy is individually underwritten for each employee, Drexel

University has arranged a discount with Liberty Mutual for these property and

liability insurance policies. Employees can purchase these policies on a voluntary

basis and choose their own plans individually.

Legal Expenses

Drexel University offers their full-time and part-time employees a legal

consultation plan through Hyatt Group on a voluntary basis. Employees that pay

the low monthly rate can consult Hyatt Group for basic legal services such as will

preparation and legal document review.



Part III: Analysis

RMI 3501 / Fall 2011

Dr. Drennan

913083291

912344574



Drexel University: Part III Page 1 of 13

TABLE OF CONTENTS

INTRODUCTION…………………………………………………………………………………………... 2

DESIGN CONSIDERATIONS AND OBJECTIVES IN OFFERING EMPLOYEEBENEFITS ……..................................................................................................................................... 3

OBJECTIVES OF THE EMPLOYEE BENEFITS PLAN……………………………. 3-4DECISION-MAKING CRITERIA IN WHAT TYPES OF BENEFITS TO OFFER 4FUNDING DECISIONS………………………………………………………………….............. 5

DESIGN OF HEALTH BENEFITS……………………………………………………………………. 6ISSUES OF CURRENT HEALTH PLANS…………………………………………...…. 6-7

EMPLOYER SUBSIDY DECISIONS ……………………………………………………...… 7FUNDING ISSUES AND COST CONTAINMENT……………………………………… 8CONSIDERATIONS FOR HEALTH CARE…………………………………………….. 8-9

DESIGN OF OTHER TYPES OF NON-RETIREMENT BENEFITS……………………… 9

DEFINITION OF DISABILITY………………………………………………………..… 9-10

GOALS AND ISSUES OF FSAS……………………………………………………………... 10

GOALS OF WORK/LIFE BENEFITS ……………………………………………..…. 10-11

REGULATORY COMPLIANCE ………….………………………………………………………….. 11COBRA ……………………………………………………………………………………………... 11

HIPAA ……………………………………………………………………………………………… 11PLAN COMMUNICATION ……………………………………………………………… 11-12

COPY OF THANK YOU E-MAIL ……………………………………………………………………. 13




Introduction

Drexel University was established in 1891 in Philadelphia with the aim of

providing educational opportunities for all men and women in practical arts and

sciences. As a non-profit organization, Drexel University offers more than 170-

degree programs. There are approximately 4750 employees in total. Our

employee benefits research was based on professional staff only, which amounts

close to 1800 employees. Drexel University’s human resource department is

comprised of 40 employees that care for the well being of other fellow

employees. Our research was performed in cooperation with Kristin McCarthy,

one of Drexel University’s four benefits consultants. Kristin has direct contact

with Drexel University’s vendors and is heavily involved in the communication of

benefits to all employees. She also works closely with her team to design and

update their benefits plan as demands and laws change. Although Drexel

University has other competitors, their employee benefits are mainly designed to

compete with The University of Pennsylvania and our own Temple University.




Design Considerations and Objectives in Offering Employee Benefits

Objectives of the Employee Benefits Plan

Drexel University’s main objective for offering benefits is to attract and

retain employees. Drexel University’s philosophy is to offer a very reasonable

amount of benefits that are essential to today’s employees. If Drexel is offering

these benefits, current employees will be satisfied with their working place.

During the interview, Kristin McCarthy stated: “We provide our benefits to show

how grateful we are to our employees whom dedicate a major portion of their

life to their workplace.” Since Drexel offers a substantial amount of diverse

benefits, employees that might think of quitting Drexel for another job will

probably think twice after they compare benefits with the other company. What

Drexel is trying to do is minimize the chance that an employee will quit because

of a poor benefits program. Drexel is also focusing on attracting prospective

employees through their benefits program. During the interview, Kristin

explained that Drexel does not want a job offer to be revoked just because they

offer one type of health plan or no long-term disability coverage. By thinking of

what employees need, the benefits consultants at Drexel manage to attract

employees with benefits that are common with competitors, but also some that

are unique to themselves.

Drexel University’s employee benefits plan is also designed to increase

productivity, commitment, and attendance. Employees are better committed to

their jobs if they feel their work environment supports them. Drexel offers their

employees these benefits to make their work life easier and more comfortable.

By making sure all employees are satisfied in their workplace, Drexel has an

efficient productivity rate and employees are very committed to their jobs.




Drexel shows their employees their appreciation through the benefits they

provide.

Decision-making Criteria in What Types of Benefits to Offer

Drexel University’s main decision in what type of benefits to offer is cost.

The costs of benefits are rising because of the increasing premiums and the move

towards experience rating by many companies. For example, Drexel had many

attempts to offer short-term disability on a non-contributory basis but the cost is

too high; however, this benefit is still offered but on a voluntary basis to

eliminate any cost to Drexel. Even though Drexel wants to be a leader in the

amount and diversity of benefits offered to employees, they often look at cost

before they consider other factors.

Another factor that determines what benefits Drexel offers their

employees is benchmarking. Even though cost can constrain offering benefits

that competitors do not offer, Drexel makes sure that they aren’t one step

behind. Drexel researches the different types of benefits that universities in

Philadelphia offer to their employees to make sure they aren’t at a disadvantage

when they want to attract a key employee. Drexel also extends their research

into benefits of other universities nationwide to get a sense of how elaborate

their benefits program is compared to others.

Drexel University also considers employees’ demographics to determine

what type of benefits they should offer. A recent attempt to contribute to the

satisfaction of employees with families, Drexel is constructing an on-campus day

care center. Drexel also uses their employee’s demographics to determine if a

new benefit will cater to all their employees’ needs.




Funding Decisions

Drexel University has some benefits that are self-insured and others that

are fully insured. When we asked Kristin “what determines the funding method

for each benefit?” her response was “the ability to contain costs.” It is always

cheaper to self-fund a benefit if the employer has thousands of employees that

can contribute towards the benefit. However, Drexel also considers the long-

term costs that are attached to each benefit. For example, Drexel chooses to fully

insure their LTD benefit simply because the losses could be paid out for a period

of 10+ years. In addition to the long-term obligations with benefits, Drexel looks

at the potential income of self-funding to lower costs of benefit plans. When a

plan is self-funded, the contribution rate made by employees could be lowered

since the premium cost does not include risk charge. In addition, contributions

made by employees could be invested by Drexel to increase the total amount of

funds available in the trust.

Drexel also bases their decisions of funding a certain benefit on the

potential of catastrophic losses involved. If a benefit is considered a high-risk

benefit towards Drexel, then the consultants will try to fully insure the benefit

instead of constructing a self-funded plan for that benefit. Kristin also elaborated

on the use of stop-loss insurance in some self-funded benefits with the potential

of catastrophic losses to contain costs and define a point where maximum

payouts will stop.




Design of Health Benefits

Issues of Current Health Plans

Drexel University offers different health plans to, hopefully, appeal to all

of their employees’ needs. There is, however, a problem with communicating the

right plan to the right person. Even though Drexel cannot force people into one

health plan, they try to communicate how each plan fits each employee

separately. These attempts of communication are often not absorbed by Drexel’s

employees. Drexel employees usually think that the Personal Choice High PPO

option is the Cadillac plan that will cover them for all costs. Even though some

employees don’t need that plan or cannot afford it, they sometimes commit to it

anyways just because they don’t want to pay high deductibles. But what they do

not understand is that the difference in premiums is so high that they will pay

more towards premiums than out-of-pocket expenses if they choose a PPO plan

instead of a POS plan.

Kristin’s team forms comparison charts between the different types of

health benefits to make employees’ decisions easier towards which plan suits

them most. However, most employees don’t take into account the frequency and

severity of their medical usage when they decide what plan they need. Kristin

also stated that family health plans cost employees almost five times more than

individual health plans, and employees rarely take that into account when they

get married or add their dependents into their health plan. This usually leads

employees to pay for more than what they will use. Drexel cannot force

employees to choose a certain health plan because in essence they offer multiple

health plans so the employees make their own decisions. However, a major

problem Drexel is facing is that some employees are not making the right




decisions and that leads to more people leaning towards one plan which will

probably raise their contribution rate.

Employer Subsidy Decisions

Drexel University offers their health plans on a subsidized basis. Even

though they would like to offer health care on a non-contributory basis, they

leave employees with a portion of the cost to help with minimizing

overutilization. When employees bear a portion of the health costs, they will not

take their health care for granted and will use it only when necessary. Drexel

subsidizes their employees’ individual plans by paying the following towards

each plan: 90% of POS plan, 80% of PPO Basic, and 70% of PPO High. These

decisions reflect Drexel’s aim to steer employees towards the POS where high

deductibles and copays are enforced for out of network use. Drexel University

owns Hahnemann Hospital and the POS plan steers employees towards Drexel’s

own hospital for health care benefits. By making employees use Drexel’s health

facilities, Drexel is able to contain costs and make sure that none of their

employees are using unneeded health care goods and services.

Drexel University also bases their subsidy decisions on the number of

claims submitted by each health plan. When Drexel decides how much they

should charge employees, and essentially subsidize part of that cost, they look at

past claims to determine a rough sketch for future claims. They look at each plan

independently and adjust the premium paid by each employee to lower the

chances of funds in the trust becoming insufficient for the plan year.




Funding Issues and Cost Containment

Drexel University has had some funding issues with its health benefits

plan, specifically of whether or not to self-insure their plans. Prior to 2011, all of

Drexel’s health plans were fully insured. However, Drexel’s benefits consultants

knew that contributions made by Drexel towards these plans were lost in the

event that employees do not incur claims. Even though self-funding seemed like

the best way to contain costs, there were issues of handling the risks that came

with it. It took Drexel’s benefits consultants a long time to assess these risks, in

cooperation with their actuaries, to make sure they were charging the right

premiums to cover the costs of claims. Drexel also had to incorporate the cost of

stop-loss insurance and administrative costs in their premiums, which was a new

task that raised some challenges in keeping premiums low. However, by

implementing self-funding for their health and prescription drug plans, Drexel is

better able to contain costs because they can now invest and keep the unused

funds in the trust to aid in future claims. Since Drexel implemented self-funding,

they passed on their savings by reducing the contribution amount made by

employees.

Considerations for Health Care

Even though health care is costs are contained by self-funding, Drexel

University could further lower their costs by implementing Consumer Driven

Health Plans (CDHPs). These plans lead employees to consider the cost of

treatment since most of their health care costs will be paid out of their own

Health Savings Account. Even though Drexel offers HSAs, they don’t have a

current strategy to implement CDHPs with High Deductible Plans. When we




asked Kristin about the possibility of implementing CDHPs she replied “it’s a

growing trend and we are monitoring it closely, but we also look at our

competition closely to determine which benefits to offer, and they currently do

not offer such plans.” We think that Drexel could further contain costs by

implementing CDHPs because people become more responsible towards who

they visit and what type of treatment they receive, keeping in mind the costs of

their choices.

Design of Other Types of Non-Retirement Benefits

Definition of Disability

During the course of benefit design, Drexel had to determine what

constitutes a person as disabled in order to receive long-term or short-term

disability benefits. Drexel University and Hartford Insurance Co. both define

disability as: the prevention of an employee from performing one or more of the

essential duties of their occupation. In addition, the disability must result from

one or more of the following: bodily injury, mental illness, substance abuse,

sickness, or pregnancy. With this definition of disability, every filed case of

disability differs in terms of eligibility. Kristen claimed that the most difficult task

in disability is assessing if a person is disabled in accordance with their job

position. For example, one of Drexel’s employees had his leg amputated due to

medical decisions to help contain his sickness; since his job required manual

labor, he received full benefits of long-term disability. On the other hand, an

office clerk also faced a similar dilemma but was not eligible for long term

disability since, in his case, he was declared disabled but working. These choices

as to whether a person is disabled are declared by Hartford, and their choices




could cause a dilemma to how employees perceive Drexel as a good or bad

employer.

Goals and Issues of FSAs

Drexel University’s main goal in offering FSAs for dependent care and

mass-transit needs is to help employees make the most out of their money.

However, Drexel also acknowledges that their FSAs make it easier for employees

to pay for their needed services, which is highly regarded and appreciated. But

there are issues that arise from offering FSAs to employees. The main issue is

that employees pay directly from their FSA to the service they need, which

means that they are not submitting claims for reimbursement. If claims are

submitted, each claim is independently assessed to see if it’s a qualifying expense

under the terms of the FSAs. However, when employees use their FSAs to pay for

services directly, the transaction goes through instantly. To eliminate the

administrative hassle and control moral hazard, Drexel out-sourced the

administrative duties of FSAs to Aon-Hewitt. Kristin noted that paying Aon-

Hewitt to administer their FSAs is an unwanted expense, but it has to be done to

monitor their employees’ usage and make sure their expenses are legitimate.

Goals of Work/Life benefits

Drexel University’s work and life benefits are provided to give employees

useful non-medical benefits for life improvement. By offering Tuition Remission

and Tuition Exchange, Drexel can give their employees a chance to pursue a

higher degree to achieve a skilled workforce with maximum productivity. In

addition, Drexel’s health prevention and wellness programs guide employees to




make the best decisions about their current health plans. These benefits seem

small, but Drexel acknowledges that it is a way to control employee turnover.

Regulatory Compliance

COBRA

Drexel University is fully compliant with COBRA. It offers its terminated

employees life and medical coverage, and the number of months varies

depending on each employee’s years of service. Drexel COBRA compliance is

administered by Conexis to ensure that they do not violate any provisions.

HIPAA

Drexel University is also fully compliant with HIPPA and do not have any

issues with any of the laws. All Drexel employees have direct access to their

medical records via IBC, Keystone, or Aon-Hewitt if an HSA was used. To ensure

their full compliance with HIPAA, Aon-Hewitt audits Drexel University on a

regular basis and administers any needed changes.

Plan Communication

Drexel University communicates their employee benefits plan extensively.

The different ways of communication used by Drexel include: phone calls,

voicemail, online publications, e-mail, mail, benefit fairs, and benefit buzzes.

Drexel does not have any problem in terms of regulatory compliance with ERISA

and plan communication. Even though many different methods are used to

communicate their benefits, Drexel has an issue with employees not absorbing




the information. Kristen noted that they try their best to communicate their

benefits to employees without seeming annoying.



Copy of the Thank You E-Mail

Kristin McCarthy

Consultant Human Resources

Drexel University3201 Arch Street, Suite 430

Philadelphia, PA 19104

Dear Kristin,

Our project started out as merely an idea, but thanks to your time and effort, it

became a reality. We would like to thank you for dedicating portions of yourbusy schedule to accommodate the two interviews we had. We would also like tothank you for answering specific questions that were deemed too confidential to

answer. We have gained a better understanding of the goals and decisionsregarding employee benefits because of your detailed explanations. It was a realpleasure meeting you and we hope we meet again in the future. We are truly

grateful for all your time and effort that coined our project. Please accept ourdeepest gratitude for your help.

Kind Regards,Mohammad AhmadSaad AlZamel

mohammad y. ahmad - drexel university.fall2011

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