Alexander d Schwartz - Suntechnicalinstitute.fall2011

8/2/2019 Alexander d Schwartz - Suntechnicalinstitute.fall2011

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Part I: Exposure Matrix

Exposure Analysis for SUN Area Technical Institute

Loss Exposure Provided Coverage/Benefits Provided

Loss of Income: Medical ExpensesOverall Medical Expenses Yes Capital BlueCross: Traditional Indemnity,

Preferred Provider PPOGeisinger: In-Network HMOKeystone Health Plan-Cen.: In-Network HMO

Dental Yes Capital BlueCross Dental

Vision Yes NCAS Vision

Prescription Yes Capital BlueCross: Traditional Indemnity,Preferred Provider PPO

Geisinger: In-Network HMOKeystone Health Plan-Cen.: In-Network HMO

Retiree Health Care Yes MedicareCOBRA

Loss of Income: Death

Non-Accidental & Non-Occupational Yes Group Term LifeOASDI

Accidental Yes Group Term LifeAccidental Death & DismembermentOASDI

Occupational Yes Group Term LifeAccidental Death & DismembermentWorkers CompensationOASDI

Loss of Income: Unemployment

Unemployment Yes Unemployment Insurance

Loss of Income: Disability

Non-Occupational: Short-Term Yes PTO (Sick Leave)Accidental Death & Dismemberment

Non-Occupational: Long-Term Yes Accidental Death & DismembermentOASDI

Occupational: Short-Term Yes Accidental Death & DismembermentWorkers CompensationOASDI

Occupational: Long-Term Yes Accidental Death & DismembermentWorkers CompensationOASDI

Loss of Income: Retirement

Retirement Yes Defined Benefit PlanOASDI

Other Exposures

Work / Life Yes Employee Wellness Program

Educational Assistance No

Dependent Care No


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Part II: Inventory of Benefits

MEDICAL EXPENSES:

Definitions and Eligibility Conditions:

SUN Area Technical Institute offers a variety of healthcare benefits to its employees.

Employees have the option of four different health insurance plans, each of which includes a

prescription drug insurance plan. Additionally, employees are offered a dental and vision plan.

All of the plans previously mentioned have the same definitions and eligibility conditions.

All full time employees that are legal residents of the United States are eligible for coverage

from the first day they start work. An employee is considered full time if they work a minimum

of 30 hours during a regularly scheduled work week. A full time employees dependents are also

eligible for coverage from the first day the employee starts work. Eligible dependants are defined

as an employees spouse and an employees dependent child. If a divorce is finalized, then a

spouse is no longer considered a dependent. An eligible dependent child is defined as: (1)

unmarried children up to age 19, including step children and legally adopted children; (2)

unmarried children up to age 26 if they are enrolled and attending a college, university, technical,

or specialized school full time. Each individual plans aspects are as follows:

Traditional Indemnity Plan:

SUN Area Technical Institute offers a fully insured Traditional Indemnity Plan, which is

administered by Capital BlueCross. Since Capital BlueCross is a not-for-profit organization there

is currently no rating by any rating agency. This plan is offered to all full time employees and

their dependents, as defined under the Definitions and Eligibility section. This plan is offered on

a non-contributory basis. The cost sharing arrangements and services provided under this plan

are as follows:


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Basic (Hospital / Surgical / Medical)

Covered Person(s) Deductible

(Initial Deductible)

Out-of-Pocket Maximum

1 Person None None

Family None None

SUNs Traditional benefit plan covers a wide array of procedures. All Inpatient and Outpatient

Hospital Services are covered for 100% of UCR. Preventive Care services, such as child and

adult physical exams are not covered, but all other preventative procedures are covered for 80%

of UCR.

Additionally, SUN employees have access to a Supplemental Major Medical plan, to fill

coverage gaps and enhance the benefits offered through their Basic Plan. This plan has a

$500,000 lifetime maximum. The cost sharing arrangements and services provided under this

plan are as follows:

Major Medical (Supplemental)


(Corridor Deductible)


1 Person $50 $400

Family $100 $400 per life insured

The supplemental major medical plan will cover any expenses that are not within the scope of

the basic plan. One example of this from SUNs plan would be the rental or purchase of home

medical equipment. This service is excluded from the basic plan, but is covered for 80% of UCR

under the Major Medical plan. The Major Medical plan will also cover any expenses that are not


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covered under the Basic plan due to the plans benefits being exhausted, or due to a dollar limit

being reached.

Preferred Provider Organization (PPO):

Another option offered by SUN Area Technical Institute is a fully insured PPO plan

administered by Capital BlueCross. Since Capital BlueCross is a not-for-profit organization it is

not issued a rating by any rating agency. This plan is again offered to all full time employees and

their dependants, as defined under the Definitions and Eligibility section. This plan is also

offered on a non-contributory basis. The cost sharing arrangements and services in this plan are

as follows:

PPO

Covered

Persons

Deductible

(In-Network)

Deductible

(Out-of-Network)

Out of Pocket Max

(In-Network)

Out of Pocket Max

(Out-of-Network)

Individual None $500 None $3,000

Family None $1,000 None $6,000

This PPO plan has a $20 co-pay for routine physical examinations, office visits for in-network

providers, and pays for 70% of UCR for out-of-network providers. For inpatient and outpatient

hospital services this plan pays 100% of UCR for in-network providers and 70% of UCR for out-

of-network providers.

Health Maintenance Organization (HMO):

Geisinger Health Plan

SUN Area Technical Institute also offers a fully insured HMO plan administered by

Geisinger Health Plan. Geisinger Health plan is not rated by any rating agency because it is also

a not-for-profit organization. This plan is an in-network only HMO meaning that no coverage


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is provided for out-of-network utilization of healthcare goods and services. A list of available in-

network providers is posted online by Geisinger Health. This plan is again offered to all full time

employees and their dependants, as defined under the Definitions and Eligibility section, and

offered on a non-contributory basis. The cost sharing arrangements and services under this plan

are as follows:

Geisinger Health Plan

Covered Persons Deductible

(In-Network Only)

Out of Pocket Max

(In-Network Only)

Individual None None

Family None None

The Geisinger Health Plan has a $20 copayment per office visit with a primary care physician,

and a $35 copayment per office visit to a specialist with a referral. This plan pays 100% of UCR

for both inpatient and outpatient hospital services.

Keystone Health Plan-Central

SUN Area Technical Institute offers a fully insured HMO plan that is administered by

Keystone Health Plan-Central, a subsidiary of Capital BlueCross. This plan is an in-network

only HMO, so no coverage is provided for healthcare goods and services utilized outside the

provider network. A list of available in-network providers is posted online by Keystone Health

Plan-Central. Since Keystone Health Plan-Central is a subsidiary of Capital BlueCross it is also a

not-for-profit organization, meaning there is no rating from any rating agency. This plan is again

offered to all full time employees and their dependants, as defined under the Definitions and

Eligibility section. This plan, like all the others, is offered on a non-contributory basis. The cost

sharing arrangements and services under this plan are as follows:


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Keystone Health Plan-Central


(In Network Only)


(In Network Only)

1 Person None NoneFamily None None

All Inpatient Hospital Services are covered in full with no dollar or day limit. All Outpatient

Services are covered in full, regardless of cost. Most preventive care services (such as physical

exams, routine screenings, and mammograms) are covered with a $25 copayment. Similarly,

physician services (such as office visits, and maternity newborn care) are covered with a $25

copayment.

Prescription Drug Coverage:

With SUNs benefit plan, each health insurance plan contains its own prescription drug

coverage. Each prescription drug policy is administered by the same organization that

administered the health plan, and any employee participating in the health plan is eligible for the

corresponding prescription drug coverage. Just like each healthcare plan, these plans are offered

to all full time employees and their dependents, as defined under the Definitions and Eligibility

section. These plans are all offered on a non-contributory basis. Each plan has its own specific

cost sharing arrangements and limits, which are as follows:

1) Traditional Indemnity Plan:

Since this is an Indemnity Plan, there are no in-network or out-of-network pharmacies,

but merely different cost sharing arrangements for generic and brand name prescription drugs.

The plan uses a percent coinsurance method to determine cost sharing by employees. For generic

drugs the plan will cover 100% of the cost. Where, for brand name drugs the plan will cover 80%


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of the cost. Employees also have the option to use a mail order program where they can receive

their prescriptions through the mail after the first 32 days of supply. With this option generic

drugs have a 15% copayment, up to a maximum of $15. While brand name drugs have a 20%

copayment, up to a maximum of $20.

2) Preferred PPO Plan:

This plan uses percent coinsurance based on a discounted amount, and there is an initial

deductable of $50 per person per calendar year. Just like the health plan, this prescription drug

option has both in-network and out-of-network pharmacies. Through this plan generic drugs that

are purchased in-network have a copayment of 20%, up to a maximum of $25; Brand name

drugs have a copayment of 25%, up to a maximum of $50; Lastly, Multi-source drugs (brand

name drugs that have a generic equivalent, but the employee still chooses the brand name) have a

copayment of 30%, up to a maximum of $50. If drugs are purchased out-of-network then the

same limits apply, but the dispensing fee will be added to the employees contribution. Like the

Indemnity plan, the PPO plan has a mail order option for any supply past the first 32 days, up to

90 days, which has the same copayments as previously listed.

3) Geisinger Health Plan:

Geisingers prescription drug plan uses a tiered copayment system. The first tier consists

of generic drugs which have a fixed copayment of $15. The second tier consists of brand named

drugs that are listed on the formulary, which have a fixed copayment of $25. Lastly, the third tier

consists of both Multi-source drugs and brand named drugs that are notlisted on the formulary,

which have a fixed copayment of $50. Like the other prescription drug plans, Geisingers plan

does offer a mail order option for any supply over 90 days, which has double the corresponding

copayments.


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4) Keystone Health Plan-Central:

Like Geisinger,KHPCs prescription drug plan uses a tiered copayment system. The first

tier consists of generic drugs which have a fixed copayment of $10. The second tier consists of

brand name drugs with no generic equivalent which have a fixed copayment of $25. Lastly, the

third tier consists of Multi-source drugs which have a fixed copayment of $40. Like the other

prescription drug plans, KHPC does offer a mail order option for any supply past the first 30

days, up to 90 days, which has double the corresponding copayments.

Dental

SUN Area Technical Institute offers a dental plan administered by Capital BlueCross

Dental. Capital BlueCross is a not-for-profit organization so it is not rated by any rating agency.

This plan is offered on a non-contributory basis. The dental plan is offered to all full time

employees and their dependents, as defined under the Definitions and Eligibility section.

Participants in this plan must have one dental checkup per calendar year. If any

recommendations of services are made by the dentist during that visit, the plan participants must

receive those services during the same calendar year as their initial appointment. Dental charges

paid by the plan are based on years of employment as follows: Year 1 of employment 70% UCR;

Year 2 of employment 80% UCR; Year 3 of employment 90% UCR; after Year 3 100% UCR. If

a plan participant fails to have a dental checkup or follow up on recommended services in any

calendar year, payments of future claims reset to Year 1 of employment with 70% UCR. This

plan also carries a $50 lifetime per person deductible, and a $500 yearly maximum.


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Vision

SUN Area Technical institute also offers a vision plan administered by NCAS, a subsidiary of

Capital BlueCross. Since NCAS is a subsidiary of Capital BlueCross it is not rated by any rating

agency due to the fact that it is a not-for-profit organization. The vision plan is offered to all full

time employees and their dependents, as defined under the Definitions and Eligibility section.

This plan is also offered on a non-contributory basis. The plan pays 100% of UCR for eye

examinations and refractive services. Refractive services would include: case history, visual

acuity (near and far), external examination, distance and near examinations, and

ophthalmoscopic examinations. The plan also partially covers post-refractive services. Post-

refractive services would include: ordering lenses and frames, adjustment of completed glasses

to a patients face, cost of materials, and verifying completed prescription upon return from the

lab.

LOSS OF INCOME: DEATH

Life Insurance and AD&D

SUN Area Technical Institute offers a fully insured non-contributory group life insurance

policy to their employees. This plan is administered through Reliance Standard Life Insurance

Company who was issued a rating of A by AM Best rating agency (www.ambest.com). This

plan includes Group Life Insurance and Accidental Death and Dismemberment Insurance

(AD&D). Eligible participants in this plan include all full-time employees who are legal United

States citizens, except any person(s) employed on a temporary or seasonal basis. The term full-

time is defined under this plan as working a minimum of 30 hours during a regularly scheduled

work week. A full time employee becomes eligible for this plan on the day their employment

begins. The amount of life insurance that is given to plan participants is one and one half times
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their earnings, rounded to the next higher $1,000, and subject to a maximum amount of

$150,000. The amount payable under the AD&D plan is the same as the life insurance policy,

with the same maximum of $150,000. Once a plan participant reaches age 65, the amount that

the life and AD&D policy will pay out reduces as follows:

Plan Participant Age Percentage Amount that Plan Payment

Reduces

65 35%

70 65%

75 75%

80 85%

LOSS OF INCOME: RETIREMENT

Pension Plan:

SUN Area Technical Institute offers a pension plan for all fulltime employees that is self

funded and offered on a non-contributory basis. The term full-time is defined under this plan

as working a minimum of 30 hours during a regularly scheduled work week. In order to be

eligible to participate, employees must be at least 21 years of age, and must have worked at SUN

for at least one year. Years of service are used to determine an employees pension amount. This

amount is determined by taking the employees average salary overthe last five years of

employment and dividing by 12 months. Employees begin receiving their benefit at age 65, and

will continue to receive the benefit until their death. Employees will receive pension benefits if

they retire early, but the amount will be reduced based on the number of years. If an employee

dies while still employed, his/her dependants will receive the pension amount in one lump sum

payment.


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OTHER EXPOSURES

Work / Life:

Additionally, SUN Area Technical Institute offers its employees an Employee Wellness

Program. This program is offered on a non-contributory basis, is self-funded, and is administered

by Capital BlueCross. This program is offered to all full time employees and their dependents, as

defined under the Definitions and Eligibility section under Medical Expenses. The Employee

Wellness Program provides services for employees and dependents for such issues as: personal

health, marriage, family, emotional well-being, stress, and other personal issues at no cost to the

employee. All of these Work / Life services can be accessed on Capital BlueCross website, or

by calling a toll free number. This benefit, like any Work / Life benefit, is designed to hopefully

keep employees healthy and happy, which results in higher efficiency and productivity for the

employer.


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Benefits Analysis

Part III

RMI 3501

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Introduction

SUN Area Technical Institute (SUN) is a vocational technical school located in New

Berlin, Pennsylvania, and serves over 300 students from four different school districts within the

area. SUN offers a variety of programs of study including: automotive technology, computer

aided drafting and design, cosmetology, criminal justice, culinary arts, dental health services,

electronics technology, and many others. SUN is a public state school, so it is funded by

Pennsylvania state taxes. What differentiates SUN from the typical vocational technical school is

that they also offer classes for adults to receive certifications in some of the offered programs.

The overall goal of SUN is to provide area students with skills needed to compete in todays job

market, and receive consideration for college placement.

SUN Area Technical Institute currently employs 55 employees and covers 181 lives

under its employee benefits package. This analysis examines the benefits that are currently

offered to employees by the organization. Throughout this project our contact person has been

James King, SUN Area Technical Institutes business administrator for the past ten years. He

maintains the sole responsibility of determining the types and levels of benefits that are offered

to SUNs employees. However, the final decision of whether the plan will be implemented lies

with the Joint Operating Committee, which is essentially SUNs version of an administrative

school board.

Employee Benefits Plan Objectives

After interviewing Mr. King, it is clear that one of the main goals of SUNs employee

benefit plan is to offer superior healthcare benefits. When employees are dealing with their

benefits, most people tend to focus on healthcare. So when designing its employee benefit

package, SUN decided to give people what they were looking for by offering four different


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health insurance plans to choose from. This includes a traditional indemnity plan, a preferred

PPO plan, and two in-network HMOs.

As with most organizations, one of SUNs main objectives is to offer benefits that will

attract and retain capable employees. Mr. King believes that SUNs healthcare options

effectively do just that. By offering so many health insurance options, SUN differentiates itself

from many of the other education institutions in the area. Mr. King went on to say that the

benefit plan is not merely about beating the competition, but in his opinion SUNs healthcare

benefits are far and above what I have seen from most other employers. With four different

healthcare plans to choose from, an employee can find a plan that best fits his/her individual

needs, instead of having little to no choice in the decision. SUNs traditional indemnity plan also

helps in retaining older employees. Indemnity plans used to be the most common health

insurance plan used by employer-employee groups, but now they are extremely rare to find. The

traditional indemnity plan is an excellent option for SUNs older generation employees, because

they have become used to these plans, and are less willing to make changes. On the other hand,

the younger generation of SUN employees has the ability to choose whatever option best fits

their needs, both financially and medically.

SUN also took employee input into great consideration when designing their current

employee benefit package. Employees are encouraged to complete surveys, suggestion sheets,

and even present their case to administration. Also, at the end of the year during their teacher

evaluation, all employees sit down with the administration to discuss any problems or

suggestions they have for the employee benefit plan. As stated by Mr. King, the benefit

planning process is very much a joint effort between administration, the Joint Operating

Committee, and the employees. This joint effort clearly shows through the benefits that are


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currently offered. Mr. King explained how SUNs lowest priced plan, the Geisinger in-network

HMO, was brought about by single employees who suggested that a lower priced, less

comprehensive plan should be offered for employees without families. Additionally, employee

suggestions for programs to help keep themselves and their dependents physically and

emotionally healthy led to the creation of the Employee Wellness Program, administered by

Capital BlueCross.

Another objective of SUNs benefit plan is to increase the overall efficiency,

productivity, and motivation of its employees. The organization does this by offering many

different plan options; much more than many other area school districts. Furthermore, all of these

services are offered at no additional cost to the employees, with every plan being offered on a

non-contributory basis. As Mr. King said, SUNs goal is to maximize employee satisfaction in

regards to the benefits that are offered to them, and this will result in employees that return the

favor in terms of efficiency, productivity, and company morale.

The last objective, which SUN believes is one of the most important, is very simple;

genuinely caring about its employees well-being. With only fifty-five employees, every

employee at SUN knows each others name, and the goal according to Mr. King is to form

relationships that will last beyond normal working hours. The Employee Wellness Program

offered by SUN helps achieve this. By providing personal well-being services for employees

who experience personal problems outside of work, employees are able to receive help, which

will prevent personal issues from affecting co-workers and the overall work environment. Mr.

King said with confidence that if employees genuinely enjoy coming to work every day, it

creates a better working environment for everyone.


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Problems, Issues, Concerns, and Considerations

Rising Healthcare Costs

One of the biggest concerns of SUN Area Technical Institute, as well as most other

organizations, is the continuing rise of healthcare costs. When designing the structure of its

health insurance plans, SUN decided to offer a wide variety of options to make the overall

benefit package more appealing to potential employees. However, with todays healthcare costs

continuing to rise, SUNs administration has realized that offering a choice of four different

healthcare plans is creating too large of a financial burden on the school. For the coming year,

SUN has been notified that it will have an 8% premium increase for its Traditional Indemnity

Plan; a 5% premium increase for its Preferred PPO; a 12% premium increase for its Keystone

Health Plan-Central HMO; and finally a 5% premium increase for its Geisinger HMO. In Mr.

Kings words, these increases in costs are a huge concern, because not offering health insurance

benefits is simply not an option. Especially when you have prided yourself as much as we do

here at SUN with the options offered in the past.

In order to contain the problem of rising healthcare costs, SUN has decided that after this

coming year it will no longer offer its Keystone Health Plan-Central HMO. Being the more

expensive of the two in-network only HMO options, the Keystone Health Plan-Central HMO has

had an increase in its premium every year due to low enrollment and a high claims history. Mr.

King noted that this plan currently only serves a small number of employees, and it is not worth

the premium increases anymore. SUN has decided to only use the Geisinger in-network HMO in

the future. Since its inception, the plan has gained much popularity with SUN employees because

of its low copayments. Furthermore, Geisinger has yet to increase its premium more than 5% in

any one year, which is a huge plus for SUNs administration.


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Funding Considerations

SUN currently funds all of the benefits offered in its benefit package through the use of

various insurance carriers. However, with healthcare costs (and in turn healthcare premiums)

constantly on the rise, SUN is considering making one of its healthcare plans self insured and

purchasing Stop-Loss insurance. Through our interview, Mr. King explains how the Geisinger

in-network HMO is currently the lowest priced plan offered to employees. He went on to say that

in order to cut costs further, SUN is in discussion with Geisinger to possibly make this plan self-

funded. By self-insuring this plan, and adding Stop-Loss insurance for catastrophic losses, SUN

could dramatically cut the overall cost of the plan. Employees are very satisfied with the present

Geisinger HMO, and may be reluctant to see any changes in the plans current structure.

However, with healthcare costs on the constant rise, SUN will not rule out self insurance as a

possible funding option.

Financing Considerations

One crucial aspect of SUNs employee benefit package is the fact that every benefit

offered is financed on non-contributory basis. In todays benefits world, it is strange to see a plan

that does not have at least one option partially paid by employee contributions. When asked why

SUN chooses to pay the full cost of its benefit plan, Mr. King had two reasons. First, since

employees do not have to pay any part of their premium, lower paid employees can participate in

the same level of care as higher paid employees. Secondly, non-contributory plans are much

easier to install, maintain, and prevent discriminatory issues because every employee is

automatically covered.

One problem that does arise from non-contributory financing is employees not

understanding the true cost of their benefits. Mr. King says, Since employees never see a


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physical dollar amount for their plans, they have the conceptual misunderstanding that they are

free; when in reality this is obviously not the case. In order to combat this problem SUN sends

out memos to all employees alerting them of any changes to the benefit package, which includes

premium increases and the reason behind the increase. According to Mr. King, this program has

been extremely successful in educating employees on the true value of their benefits.

When asked if SUN would move away from non-contributory financing and start

requiring employees to contribute to their benefits, Mr. King responded, Yes, it is a likely

possibility. According to Mr. King, there are presently no plans to modify any of SUNs

benefits to contributory financing. However, he did state that if healthcare costs continue to rise

at their current rate, SUN will be forced to either remove certain healthcare options, or require

employees to contribute financially towards their healthcare.

Consumerism

As stated earlier, SUNs Keystone Health Plan-Central HMO is going into its last year of

being offered. To replace this plan, SUN is considering offering its employees a Consumer

Driven Healthcare Plan (CDHP) with either a Health Savings Account (HSA) or Health

Reimbursement Account (HRA). These plans are something every employer should consider

when trying to contain healthcare costs. By offering CDHPs, employees are forced to behave as

a traditional consumer, meaning they will make more reasonable decisions when it comes to

utilizing healthcare goods and services. If employees over-utilize these services, they themselves

will be held financially responsible. Although this decision is not official, and has not been

approved by SUNs Joint Operating Committee, replacing the in-network HMO with a CDHP

would be a very wise decision by SUN. Mr. King stated that if a CDHP was offered by SUN,

each employee would most likely have a Health Reimbursement Account that would be funded


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by the school. The initial savings in premiums would be passed on to employees to help them

pay the high deductibles associated with these plans. As acknowledged by Mr. King, it may be

difficult for their employees to adjust to these plans, since they have grown accustom to

traditional plan designs with small copayments and low deductibles. However, CDHPs can be

beneficial for both employees and employers in combating rising healthcare costs, and are truly

the future of healthcare.

Adverse Selection

Adverse Selection should always be a concern with the design of any healthcare plan, and

SUN Area Technical Institute is no exception. By offering four different health care options,

there is a potential for SUNs health insurance risk pool to become splintered. A risk pool

becomes splintered when high risk individuals are attracted to the healthcare plan option that

offers the richest benefits, because these are the people most likely to utilize them. Conversely,

low risk individuals are attracted to the healthcare plan option that is the cheapest. In SUNs case

since all plans are financed on a non-contributory basis, this would be the option with the lowest

out-of-pocket costs (such as deductibles, copayments, and coinsurance.) This is because these

individuals know they are unlikely to utilize many healthcare goods and services, so the plan

with the cheapest overall cost for them is the one they will choose.

Obviously it seems natural that high risk individuals would be drawn towards SUNs

traditional indemnity plan. This is because although it provides little coverage for preventative

care such as check-ups and physical exams, it provides coverage (usually 80% or 100% of UCR)

for almost all hospital and surgical services at any healthcare provider. On the other hand, low

risk individuals would certainly be attracted to SUNs Geisinger in-network HMO. This is


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because this plan offers the lowest out-of-pocket costs, in terms of deductibles and copayments,

of any plan offered.

In order to prevent the risk pool from splintering, we suggest that SUN considers

offering a Multiple Option plan administered by Capital BlueCross. Since two of SUNs current

health plans are already administered by Capital BlueCross, this option would not cause many

changes for the majority of SUNs employees. By offering a Multiple Option plan, every

employee would be enrolled under one contract, and then would have the choice of enrolling in

whichever option they choose; whether it be an Indemnity, PPO, or HMO. Since every employee

is covered under a single insurance contract, this is much easier administratively for SUN.

Additionally, it would allow SUN to still offer a wide variety of healthcare options, which is

what the organization prides itself on most about its current benefit package, while cutting costs

on its premium by bundling the plans together. Lastly, this option would reduce the potential

for risk pool splintering. Capital BlueCross is taking on the risks of every employee, regardless

of which option they chose. While it may pay out more claims to high risk individuals enrolled

in the richest option (indemnity), it would also be collecting premiums from the low risk

individuals enrolled in the lower options (in-network HMO). By having all employees in the

same risk pool, the low risks essentially compensate for the high risks, making the pool balanced

overall.

Regulatory Compliance

ERISA

SUN has had no problem adhering to ERISAs standards for fiduciary responsibility,

communication activities, or vesting standards. SUN complies with the fiduciary responsibility

requirement of ERISA by offering employees the choice of four different health insurance


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options, and allowing them to choose whichever option is truly the best for them. Employees

have the freedom to go out-of-network with the traditional indemnity plan, but also have the cost

saving structure of staying in-network with the HMO plans. The decision to offer four different

plans was clearly made in the best interest of the employees, without attention to cost. SUN also

effectively communicates its benefit package to its employees. All employees are given an

electronic copy of the schools Summary Plan Description and Summary of Material

Modifications. As previously mentioned, SUN also sends out memos to every employee to alert

them of any changes to their benefit plan. Lastly, SUN does comply with ERISAs vesting

standards for definedbenefit plans. Any employee that began participating in the schools

defined benefit plan before July 1, 2011 follows a five-year cliff vesting schedule. While any

employee that began participating after July 1, 2011 follows a ten-year cliff vesting schedule.

COBRA

When it comes to the Consolidated Omnibus Budget Reconciliation Act (COBRA), SUN

does not see too many issues arise. SUN currently does not have any COBRA eligibles

electing continuation coverage under any of its healthcare plans. According to Mr. King, the

most common issue that SUN does face regarding COBRA is when dependent children of

employees graduate from college. SUN has chosen not to utilize a Third Party Administrator

(TPA) when it comes to compliance issues. When asked if SUN had considered outsourcing to a

TPA or why the organization chose not to, Mr. King stated that it would not be worth the

money. He explained that SUN is a relatively small employer, so while the administrative

burden is challenging when COBRA claims do occur, it would not be worth the additional cost

to outsource to a TPA with the number of employees and dependents the organization currently

covers.


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HIPAA

SUN Area Technical Institute takes every step necessary to comply with the Health

Insurance Portability and Accountability Act (HIPAA). Mr. King stated that keeping SUNs

employees medical information confidential is one of the schools top objectives, regardless of

the administrative burden. In regards to wellness program standards under HIPAA, Mr. King

ensures that SUNs Employee Wellness Program in no way discriminates against disabled

employees.

PPACA

SUN has already complied with certain aspects of the Patient Protection and Affordable

Care Act (PPACA). Since SUN does offer healthcare benefits to employees dependents, in

order to comply with PPACA, the age to which a dependent child can receive health insurance

benefits was raised from age 24 to age 26. In addition, although organizations are not required to

report the value of employees benefits on their Form W-2 until January 1, 2012, SUN has

chosen to plan ahead. The organization has been complying with this aspect of PPACA since the

beginning of 2011.

In regards to future compliance with PPACA, SUN has considered its options. Under

PPACA, the play or pay mandate will either require employers to continue to offer healthcare

benefits to all employees, or pay a penalty (essentially a tax) to the Federal government.

According to Mr. King, SUN has every intention of playing and continuing to offer healthcare

benefits to its employees. However, there is one potential obstacle SUN should consider. Under

PPACA, there will be an excise tax on high cost health insurance plans, known as Cadillac Plans,

which is scheduled to go into effect on January 1, 2018. This provision adds a 40% tax to any

healthcare plan that exceeds $10,200 for individuals or $27,500 for family coverage in 2018.


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Although this tax seems logical, because the average cost of a healthcare plan today is lower than

these amounts, healthcare costs have been on a constant rise for the past few decades. At the

current rate of increase, these amounts may not be far from average six years from now, and this

could cause employers to endure thousands of dollars in excise taxes. Since SUN prides itself on

offering superior healthcare benefits, it would be wise to monitor the trend of healthcare costs,

and determine at a time closer to 2018 if playing would still in fact outweigh paying.

Conclusion

Throughout our analysis it became clear that SUN Area Technical Institute puts a greater

weight on employee satisfaction than cost when designing its employee benefit package. This is

shown through the comprehensive benefit plan that SUN offers, which contains a variety of

choices. However, if SUN were to integrate a Consumer Driven Health Plan into its benefit

offerings, it could shift some financial risk to employees, which in turn would cut costs. Also, if

SUN chooses to continue to offer the many traditional health insurance plans it currently does, it

may want to consider converting its various healthcare plans into a single Multiple Option plan.

Additionally, SUN should continue to monitor rising healthcare costs, and determine as time

goes on if the organization would still choose to play under PPACAs Play or Pay mandate.

In conclusion, SUN Area Technical Institutes benefit package effectively covers many of the

loss exposures faced by its employees, while always placing the employees interests above

anything else.


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Works Cited

Interview with:

James King

Business [email protected] East Market StreetNew Berlin, PA 17855570-966-1031 ext.112

Documents

Alexander d Schwartz - Suntechnicalinstitute.fall2011