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10/19/93

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Homework for November: faculty, staff must sign up for new benefits

STANFORD -- The homework may seem like a trick but the results, university benefits officials say, will be a treat.

By Halloween, all faculty and all non-union staff should receive in their home mailboxes a thick workbook and personalized enrollment worksheet detailing how to enroll in the university's new flexible benefits program.

After several years of discussion, the university is converting to a "cafeteria-style" benefits plan that gives employees more choice in how to spend dollars the university allocates for their benefits. The new coverage will be effective Jan. 1.

Enrollment in the program will be more complicated than normal because employees also will choose among new medical insurance options.

In November, faculty and staff will use any push-button telephone to make choices among the following benefits choices:

  • Five different medical options - a new "triple- option" operated by Blue Shield that replaces the existing Blue Shield-500 coverage; a catastrophic plan for those who are rarely ill but want coverage for a major accident or illness; three HMOs (Kaiser, TakeCare, HealthNet), but without the existing HMO supplement; an out-of-area medical plan that faculty can change to when they go on sabbatical; or no coverage if the employee certifies that he or she is covered elsewhere.
  • Three dental options - the existing Delta plan; the Prudential Dental Maintenance Organization; or no coverage.
  • Employee life insurance - employees can purchase policies covering as much as four times their annual salary, or hold a $5,000 policy at no cost.
  • Dependent life insurance - various options are available for spouse and children.
  • Accidental death and dismemberment insurance - employees may pass on coverage or choose up to $250,000 for themselves; coverage also is available for spouse/domestic partner and children.
  • Two long-term disability options - plans provide long-term benefits of 50 percent or 66.6 percent of base salary.
  • Health and dependent care spending accounts - the accounts called SSSP (Stanford Salary Savings Plan) that were instituted about six years ago will continue to be available for employees who want to cover health and dependent care costs with pre-tax dollars.
  • Long-term care - a new option for disabled daily care needs not covered by other insurance and government programs; also available for spouse/domestic partner and parents of employee and spouse/domestic partner.
  • Taxable cash - employees signing up for few benefits may receive a maximum of $25 in taxable cash on each paycheck.

The new program does not provide any option for increased retirement contribution, nor can employees cash out any paid time off. The tuition grant program is not included, nor are government-required programs (social security, workers' compensation and short-term disability).

Program explained to Faculty Senate

James Franklin, director of total compensation, and history Professor Judith Brown, chair of the University Committee on Faculty and Staff Benefits, spent more than an hour explaining the new offerings to the Faculty Senate on Thursday, Oct. 14, drawing compliments, complaints and numerous questions, including one from President Gerhard Casper, who asked whether he would be covered when he travels to Asia. ("Yes," Franklin replied.)

Brown told the senate that existing benefits were developed at a time when a typical employee was a middle-aged male supporting a spouse and several children. "Employees are now much more diverse and have very different needs."

Stanford's benefits philosophy, she said, is to make the university a "desirable place to work, a place that will attract and retain faculty and staff, and to do so - this is the hard part - while making efficient use of limited resources."

Beyond minimum coverage the university wants for its employees, the objective of the expanded program is to provide choices and to create greater incentives in controlling rising benefits costs, Brown said.

Employees can get information on the new programs in three ways, she said: through the printed materials that will arrive around Halloween, via a computer program that will be made available, and by talking to "local educators" in the units who have been trained about the program.

The computer modeling disks for Macintosh and IBM-type personal computers will help employees study the financial impact of different enrollment scenarios.

Benefits fairs for employees will be held Nov. 9-11, and local enrollment meetings will be held all over campus in November.

Frustrated by the way benefits newsletters have dished out little bits of information on the changes, one faculty member asked Franklin: "Do we really need to be treated like pablum-fed children?"

Another senator spoke up to praise the communications program, which Franklin defended as standard communications practice when introducing major change.

Benefit dollar credits

Under the new program, each employee will have a pool of benefits money, divided into "dedicated" dollars the university will provide for employees to obtain medical, dental and long-term disability coverage. Beyond that, the university is providing "choice" dollars employees can use to supplement those coverages or for the purchase of life insurance and other options.

Employees who run out of benefits credits will pay the difference through before-tax payroll deduction from each paycheck. If, however, an employee wants minimal benefits, he or she can take out as much as $25 per pay period in cash. This will be treated as taxable income.

Franklin told the senate that there are no changes in who is eligible for benefits - employees working at least half time with continuing appointments of six months or more continue to qualify. However, the new program is not available to members of United Stanford Workers because the collective bargaining agreement negotiated in 1991 is in effect for one more year.

Retirees also are not eligible for flexible benefits because of Internal Revenue Service rules that require the program to be a trade-off between salary dollars and benefit dollars, Franklin said. Pension payments are not considered salary.

"I do think it's possible to do a flex-like program for retirees, and that might be a next step for us in a year or two," Franklin said.

However, retirees under age 65 will be asked to re- enroll in an existing or new medical plan.

Biggest changes are medical

The most important changes are in the new medical program, which consumed the bulk of the senate discussion.

"We could put in place flexible benefits without doing anything with our medical program," Franklin told the faculty members. "We could change our medical program without doing flexible benefits. They don't necessarily go together, but we have chosen to do them simultaneously for 1994."

The incentive for reformatting medical options is financial, he said, citing figures showing that the university's outlay for medical premiums has risen from $5.7 million in 1982 to $24.3 million just 10 years later. Dental costs have risen from $1.4 million in 1982 to $4.2 million in 1992.

Stanford is a "very high cost" medical community, Franklin said.

The Blue Shield-500 plan is being eliminated because it has gotten too expensive, he said. As the price has increased in recent years, healthier young people have changed over to health maintenance organizations. That has left an older client pool with higher medical costs, and the upward spiral continues, he said. Blue Shield is a "self-insured" plan (as claims go up, premiums go up).

Franklin said that Blue Shield subscriber-only premiums would have increased from $46 per month in 1993 to $73 per month next year. Premiums for the three HMOs, on the other hand, have increased only modestly in recent years, he said.

The university also is getting rid of the HMO supplemental plan, which Franklin said had been dubbed the "Shumway breakout plan" by some community members when it was introduced a decade ago.

They signed up for an HMO, he speculated, to treat "the sniffles," but intended to use the supplement for high-cost procedures they did not trust an HMO to perform.

Some of these employees thought they would go to Dr. Norman Shumway or other Stanford doctors if they needed "a heart, lung or brain transplant," Franklin said to chuckles. All HMO participants were automatically registered in the HMO supplement.

Rather than transplants, however, the supplement has been used mostly to cover mental health and chiropractic expenses, Franklin said. Last year, the university paid Blue Shield $810,000 to administer the program, which paid out $630,000 in claims for 550 individuals.

"To me, it's so inefficient it's a no brainer," he said as faculty laughed in agreement.

New triple-option medical plan

The medical plans for 1994 will be:

  • Triple-option plan - As its name implies, this plan offers three levels of care, the first of which is essentially the same as an HMO.

In all cases, individuals must sign up for a primary care physician. As long as the primary care physician provides all care or refers the patient to specialists, the patient is in "tier 1" and will pay just $10 per doctor visit, including check-ups.

If the subscriber self-refers to another doctor in the triple-option directory, he or she will pay 20 percent of the "preferred rate" for the service, plus an annual deductible of $250 per person ($750 per family). This is "tier 2."

At the third tier, the patient may self-refer to any doctor or hospital anywhere in the world, but will pay 40 percent of the "reasonable fee," with an annual deductible of $500 per person ($1,500 per family).

Employees will receive a directory of triple-option physicians. The network includes Stanford Hospital, Lucile Packard Children's Hospital, Stanford Faculty Practice Plan, Menlo Clinic, Palo Alto Medical Foundation, and Private Physicians Group (a consortium of about 180 independent doctors on Welch Road and elsewhere). Most members of the Blue Shield HMO network, which includes about half the physicians in California, also will be in the triple-option directory. Sunnyvale Clinic declined to be part of the new plan.

To further explain the three tiers, Franklin cited an example of a subscriber going to the Faculty Practice Plan for care. If the person developed a skin condition and was referred to a specialist in the Faculty Practice Plan, that would fall in tier 1. But if the subscriber decided to ignore that advice and go instead to a dermatologist at Palo Alto Medical Foundation, that would fall in tier 2 because the Palo Alto group is in the plan. If the subscriber decided, however, to obtain special care at the Mayo Clinic or in Switzerland, it would fall in tier 3.

"Every time you seek care, you have this choice," Franklin said. "You don't lock into one or the other tier, and one deductible rolls into the other."

Individuals who already have a primary care physician at a clinic such as Palo Alto or Stanford will get to keep that doctor. However, some of the doctors in the plan may be listed as not accepting new patients.

A doctor from one clinic is free to refer a patient to a different clinic, but financial incentives generally work against that, Franklin said in response to a question.

Each family member would have his or her own primary physician, and women are allowed a paid visit once a year to a gynecologist.

Blue Shield, which presented the lowest bid, will administer the program.

The triple-option plan is very similar to the three HMOs in the benefits covered, Franklin told the faculty. "The university has been trying to make all of our plans look exactly alike."

The differences are in drugs and mental health care. In the triple-option plan, participants will pay 10 percent of the cost of drugs, with a minimum of $5. In the HMOs, a prescription will cost just $5.

Mental health coverage also will be different. Franklin advised faculty members to study plan descriptions carefully to compare the differences.

"The cost of this plan is just amazing," Franklin said. Less-than-wholesale rates have been negotiated for prescriptions, and the various providers are "giving us very special rates," he said.

In response to questions from biology Professor Robert Simoni about costs within the tiers, Franklin said that Blue Shield will not recognize the whole cost if a physician who falls into tier 3 charges very high fees. Doctors in the triple-option directory have agreed to discount their fees, he said.

If a doctor is not in the plan but charges the same fee specified by Blue Shield, the patient still would pay the large tier-3 deductible and the plan would cover only a percentage of the fee, Franklin said. He suggested that participants going out of state for care check in advance with Blue Shield to see how much of a doctor's fee would be covered.

  • The catastrophic plan - Similar to the existing Blue Shield-500 plan, but with a $2,000 deductible. "This will only appeal, I assume, to a younger person who is feeling invulnerable and just doesn't want to pay a medical premium," Franklin said. "It may be right for some people, but not more than a couple percent will sign up for it," he predicted.
  • Three existing HMOs - The university will continue to offer Kaiser, HealthNet and TakeCare. Kaiser continues to be the least costly plan, but the new triple-option plan is slightly less expensive than HealthNet and TakeCare.
  • Out of area plan - For employees who live away from the main campus and for faculty members while they are on sabbatical. It will cover 90 percent of most services, with a $250 annual deductible for the subscriber ($750 for family). Faculty members would be permitted to change from their regular plans to this one just for the duration of a sabbatical.
  • No coverage - Employees who are covered through other plans, such as a spouse's employer, can opt out of Stanford's medical coverage and divert their benefits credits for other purposes.

Winners and losers

The 2,200 employees now in the Blue Shield-500 plan will come out winners under the new plan, Franklin told the senate. Also, approximately 1,700 employees who currently have medical and dental coverage elsewhere will have the opportunity to take out cash.

There are "very few losers" under the new plan, Franklin said, but the biggest group of them appears to be the 240 employee couples working for Stanford.

In recent years, these employees have had a special advantage, he said. Where the university paid 75 percent of the lowest-cost family plan for other employees, faculty-staff couples also had the 90 percent cost of individual coverage folded in.

That advantage will disappear under flexible benefits because every employee is treated as an individual, he said. "You get your own credits no matter whom you're married to or where your spouse may be employed."

Responding to a question from English Professor John Bender about a letter on the subject in last week's Campus Report, Franklin said he and Vice President for Faculty and Staff Services Barbara Butterfield will be sending a letter to employee couples to explain how they are affected by the change.

The letter writer said that he and his spouse, who works half time, would see their medical payments increase from $67 to $147 per month because the spouse will not qualify for "choice" credits.

Ronald Rebholz, chairman of English, told Franklin "that is an enormous attack on people who are couples."

Franklin responded that the part-time employee would still have the same support in "dedicated" credits from the university to choose medical coverage, but would have "very few choice dollars to use."

Far from taking away benefits, Franklin said, the university should be viewed as "very, very generous" in its support of part-time employees. "I don't know of any other employer where you can work 75 percent time and get 100 percent support for your benefits," Franklin said.

"That's not quite the issue," Rebholz said. "The issue is being able to receive a combination of benefits."

In 1994, Franklin responded, every employee will be treated as a separate individual. He suggested that couples have many options to consider, such as one person signing up for family medical insurance and the other registering for dental coverage.

Even before the letter was published, he had had "a lot of e-mail from my constituents attacking exactly this point," Rebholz said.

Bender seemed satisfied with Franklin's response, telling the compensation director that "beneficiaries of windfalls - and I've been that myself for a short period of time -- can scarcely complain when the windfall stops."

John Brauman, chemistry, said he also had planned to raise the issue because "I'm in the same situation." It would be helpful, he told Franklin, "if you were to provide some guidelines of what a typical package might look like to optimize benefits." Franklin thanked Brauman for the suggestion.

Franklin went on to say that 550 employees using the HMO supplemental plan may be unhappy about its elimination, but they can get the same benefit under the triple-option plan.

Individuals who are tax-deferring a lot of money under the 403b retirement plan may have a problem. Employee payments for benefits will be made every payday mostly on a pre-tax basis. That might reduce slightly the amount that can be tax-deferred.

"I think everybody is going to be better off saving tax dollars under the flex plan as opposed to deferring tax payments under a retirement annuity," Franklin said. "These you have to eventually pay, the other you never pay."

Without the changes, Franklin predicted, the university and employees together would have paid $44.5 million for medical, dental and other benefits in 1994. Under the new plan, that cost is projected at $39.4 million. He estimated that $1.5 million in savings would accrue to the university and $3.5 million to faculty and staff.

Clinton plan and other questions

What happens when the Clinton administration adopts a national health policy? Is this all going away?

"Who knows," Franklin said, answering his own questions. "Our benefits package seems very appropriate for the Clinton plan. The emphasis on choice and planned competition that we have in place is very similar to the Clinton plan.

"What might change would be tax advantages for employee medical premium contributions," he said. Also, the university's responsibility for retiree medical payments might be reduced.

Employees who fail to enroll in the new program during November will be assigned to default coverage, "which is not to their advantage." The default coverage will include only the triple- option plan, $5,000 in life insurance and 50 percent long-term disability coverage. Part-time employees, however, would not get medical coverage.

Tony Siegman, electrical engineering, asked about the maximum life-time coverage. Franklin said an important difference between the old Blue Shield-500 and the new triple-option plan is that in tier 1 the medical group bears the risk. "As long as you're in tier 1, they are going to pick it up, no matter what happens to you. They get a monthly set amount to take care of you." Tiers 2 and 3 carry a combined $1 million maximum benefit.

In the retiree plans, the maximum benefit in the Blue Shield plan is being increased from $300,000 to $1 million. Retirees will never reach that, Franklin said, because Medicare pays first.

Franklin earned applause from the faculty for his presentation.

After the meeting, he said that 50 phone lines are being installed for Stanford's 8,000 employees to use during the November registration. The lines will be monitored and if more are needed, Communication Services will add them, he said. Enrollment calls are expected to take 8 to 10 minutes, he said. The lines will be open 24 hours a day.

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