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New health benefits tack avoids 'Cadillac tax'

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For nearly 15 years after making the decision to self-insure its employee health benefit plans in 1999, Western Kentucky University's approach to modifying its plan offerings to control medical costs was largely reflexive, said Kari A. Aikins, the university's assistant director of human resources.

“We had known for many years that we needed to make some pretty significant changes,” Ms. Aikins said. “We found ourselves being very reactionary in terms of when and how we made changes to our health plan, and it basically depended on the reserve level in our self-insured pool. If the reserve fell below our target level, we'd make a few changes, and that would get us through a few years, but that's not sustainable long-term.”

That all changed in the fall of 2013, Ms. Aikins said, when the university hired New York-based human resources specialist Sibson Consulting, a unit of The Segal Group Inc., to assess its readiness for the onset of new coverage and reporting requirements under the Affordable Care Act.

Sibson's analysis revealed that the university's health benefits program would likely trigger the reform law's 40% excise tax on high-value health insurance plans — known as the Cadillac tax — as early as 2018 or 2019, costing the school an additional $1.4 million on top of a health benefit budget that was already approaching $20 million annually.

“That's what really propelled us to take a more proactive approach to this,” Ms. Aikins said. “If we did nothing, we projected that we'd spend somewhere between $20 million and $30 million over the next seven years.”

Ms. Aikins, her staff and Sibson spent the next few months designing a replacement health benefits program for the university's existing preferred provider organization plans to minimize the effects of the excise tax and promote more responsible medical utilization and healthier behaviors.

The result of those efforts was a trio of coverage options: a high-deductible health plan linked to a health savings account and two PPO plans, each linked to health reimbursement arrangements. Under the replacement benefits design, the university's annual contributions to employees' HSAs and HRAs would vary depending on employees' full participation in its workplace wellness program, as would eligibility for monthly premium discounts.

“From a conceptual point of view, the main thrust of this was to change the culture of health at the university,” said Norman Jacobson, senior vice president for higher education benefits at Sibson Consulting. “The key to doing that is knowing your employee population, and Kari really knew the school's employee population, and knew coming in what would be impossible and what would be workable.”

Ms. Aikins said she and her team were well aware that implementing the replacement program, later branded Top Life, would present logistical and administrative challenges.

First and foremost, all changes to WKU's health benefits program must meet the approval of the university's benefits committee, comprising 14 academic faculty members and school administrators.

“That's probably one of our biggest challenges,” Ms. Aikins said. “You have representatives from all of these different departments, and nobody ever wants to make a change that could be harmful to employees, even though ... it's going to be beneficial in the long run.”

Despite the range of interests represented, Ms. Aikins and her team were able to win the committee's support — and, later, the support of WKU's senior administrative leaders — for the benefits program in a matter of weeks in the spring of 2014.

Ms. Aikins' colleagues credit the program's relatively speedy approval to her gifts for clear communication and detail-oriented strategic development, especially at the committee level.

Other logistical challenges Ms. Aikins and her team met and overcame on the road to implementing the Top Life program in time for the 2015 plan year included its integration with Benefitfocus, the automated, cloud-based benefits administration platform the university launched one year prior through Charleston, South Carolina-based Benefitfocus Inc.

“Kari was responsible for learning that system and its capabilities, as well as getting it integrated with our systems and communicating with the campus faculty and staff how it works and how it would affect their enrollment,” Tony Glisson, the university's director of human resources. “Without that blend of abilities that she has, it would have been impossible to pull all of that off.”

Although it is too early to know if the changes will have the desired effects, Ms. Aikins said the initial projections look promising.

The shift to account-based health plans is expected to shield the university from exposure to the reform law's excise tax through 2022, and reduce the university's projected 2015 health benefits budget by 5% to approximately $18 million.

“It was actually a larger number to begin with because of the higher-than-expected engagement in the wellness program — and to be clear, that's a good thing,” Ms. Aikins said.