Health Service System

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1 Health Service System Life and Long-Term Disability Request For Proposal (RFP) Debrief August 7, 2012 Prepared by Aon Hewitt Health and Benefits

2 Contents Executive Summary Background Request for Proposal Overview Financial Comparison Scoring Protocol Aon Hewitt Recommendation LTD Clinical Services of Aetna Milestones for Implementation Claims Transition Considerations Implementation Support 1

3 Executive Summary The Health Service System (HSS) engaged Aon Hewitt s national Life/LTD expert to assist with the Request for Proposal (RFP) for plan year 2013 life insurance and long-term disability (LTD) insurance offerings. Aon Hewitt, in conjunction with HSS staff, prepared and submitted a comprehensive RFP to eight vendors. Aon Hewitt received quotes on one or both coverage lines from all eight vendors. A selection panel (comprised of City employees from DHR, Controller s Office and HSS) assessed each product independently. The selection panel unanimously selected Aetna for Life Insurance. The selection panel unanimously selected Aetna for Long Term Disability Insurance. This decision, effective January 1, 2013, will reduce the annual cost of the coverage for both products from $8.5M to $6.1M resulting in savings for the city of $2.45M annually or $9.8M over the life of a 4-year rate guarantee. The selection panel assessed the customer service, claim processing procedures, clinical support for disability and value-added benefits to be superior to our current vendors. Aon Hewitt recommends the HS Board approve the change from our Life Insurance and Long-Term Disability insurance vendors to Aetna effective January 1,

4 Background Current Plans Will Not Change Current (In-Force) Long Term Disability (LTD) Insurance Long Term Disability (LTD) Insurance is administered by HSS to approximately 20,000 city employees who have MOU provisions supporting this benefit Two different LTD plans are currently in force: For unions including SEIU, Consolidated crafts, TWU, Teamsters, Courts, etc.: Plan with a 180 day elimination period 60% of wages up to $5,000 monthly with a $100,000 annual maximum Current monthly cost is $0.560 per one hundred dollars in actual payroll for the enrolled members For unions including MEA, MAA, Courts IFPTE Local 21, etc. Plan with a 90 day elimination period % of wages up to $7,500 monthly with a $135,000 annual maximum Current monthly cost is $0.485 per one hundred dollars in actual payroll for the enrolled members 3

5 Request for Proposal Overview Aon Hewitt, in conjunction with HSS staff, prepared a comprehensive Request for Proposal (RFP) document for life insurance and long-term disability coverage The RFP included all HSS requirements around legal and contractual requirements; forms to be submitted and approved prior to contract award, additional requirements; and protest procedures The RFP requested proposals that assumed no plan design or population changes for the quotes on in-force policies In addition to financial and underwriting, RFP questions focused on customer service, claim processing procedures, reports and audit access, account management, valueadded benefits and clinical management and support for LTD An alternative option life insurance quote was also requested for expanded coverage for a larger HSS population All vendors provided quotes for life or LTD, or both 4

6 Initial And Finalist LTD Scores Initial: First Round Aetna Cigna Hartford ING MetLife Prudential UNUM Panalist Preliminary Preliminary Preliminary Preliminary Preliminary Preliminary Preliminary # # # # Total Score Finalist: Second Round Aetna MetLife Prudential Panalist Preliminary Preliminary Preliminary # # # # Total Score

7 Financial Comparisons: Current vs. Aetna Plan Type Current Vendors Aetna % Change $ Change Basic Life $375,431 $316, % -$59,279 Supplemental Life/Dependent Life $88,802 $76, % -$11,966 Long-Term Disability* $8,067,908 $5,687, % -$2,380,646 Total Estimated Annual Costs $8,532,141 $6,080, % -$2,451,891 Total Estimated Four(4) Year Rate Guarantee -$9,807,564 * The LTD aggregate costs represent the combined costs for both the 90 day and 180 day policies. Observations Approving Aetna as the combined Life and LTD provider will result in an estimated -28.7% savings of $2.452M annually Aetna is considered a top-tier life and disability carrier in the National Account arena Aetna is rated as A by A.M. Best and A+ by Standard & Poor s (S&P) 6

8 Aon Hewitt Recommendation Aon Hewitt recommended that the HS Board approve to change the current Long Term Disability (LTD) provider, UNUM, to Aetna effective January 1, Monthly cost will be $0.391 and $.352 per one hundred dollars in actual payroll for the enrolled members for the two plans in place today (the 180 day and 90 day elimination period plans) Further, Aon Hewitt recommended a one year contracting agreement with Aetna and three (3) one-year options to renew covering the four year rate guarantee period and performance guarantees at 3% of premium. The Board unanimously approved the move to Aetna. Incumbents have been notified of the change and implementation efforts to transfer to Aetna have begun with a kick-off scheduled for Tuesday, August 14, Aetna has agreed to a $25,000 Implementation Credit and $25,000 for a Readiness Review/Pre-implementation audit. Aon Hewitt will lead this implementation working with the key CCSF Depts., HSS, Aetna and the current providers to ensure a successful and smooth transition. 7

9 LTD Clinical Services/Resources of Aetna Aetna has the following resources available as part of their LTD claim adjudication process: 107 RNs 40 Behavioral Health Unit Specialists 15 Vocational Rehab Specialists 2 On-staff Physicians 1 Social Security Administrator Separate, Independent Unit to Administer All Appeal Claims Internal Auditors to Monitor Quality Assurance Processes 8

10 Aon Hewitt Recommendation: Insource versus Outsource Considerations Advantages Disadvantages Self-Funded Insource LTD program More control over claim process More flexibility around plan design features Costly to administer as employers cannot hire the clinical resources that the vendors have Employer retains financial liability for all claims until termination Expertise in making claim decisions, especially at any occupation stage and social security procurement, may be lacking Adherence with compliance issues Due to claim fluctuations, annual cost is more challenging from a budgeting perspective Self-Funded Outsourced LTD Program Fully Funded Outsourced (current model) More control over claim process More flexibility around plan design features Vendor s clinical resources are utilized in the claim adjudication process Depth and breath of clinical resources available for claim adjudication Third party makes independent claim decision and accepts all liability for those decisions Can be budgeted on an annual basis Employer retains financial liability for all claims until termination Due to claim fluctuations, annual cost is more challenging from a budgeting perspective More costly on a monthly premium basis 9

11 Milestones for Implementation There are several key milestone that Aon Hewitt will assist with, to ensure that proper timing is met: Eligibility File Feed Typically, a test file feed will need to be sent to the vendor no less than 90 days in advance of the effective date. In this case, that would be approximately 10/1/12 This file feed help expedite the claim intake process and also allows for online EOI reviews Final Contract Reviews This refers to the plan design contracts which Aetna will utilize to pay claims. Aon Hewitt will review the initial drafts and provide comments to HSS to assist in their review. Once all parties are in agreement, these documents will be finalized and will be incorporated into Aetna s claim system and be part of the claim adjudication process This typically happens roughly 30 days prior to the effective date of the policy and will depend on timely turnaround times by all parties Training Aetna s team will want to sit with HSS to learn more about your work environment and culture in order to fully understand how they can best assist you with items such as return to work opportunities. Aetna will also spend time training your staff on how to utilize their reporting system. This training typically occurs around the effective date of the plan and generally has a follow up sometime between 3 and 6 months post-effective date 10

12 LTD Claims: Transition Guidelines For LTD, any claim incurred prior to the effective date with Aetna (1/1/13) will remain Unum s liability Even though no premium will be paid to Unum after 12/31/12, they are holding reserves to account for the run out of existing liabilities. These reserves have been factored into the HSS rates since the inception of the account Because of the historical long lag time for the submission of some LTD claims and the fact that Unum does not manage the STD portion of the claim, Aon Hewitt will need to have discussions with Unum around this issue As part of the implementation process, ideas should be explored on how to ensure that Aetna is getting claims timely during the 90 day and 180 day elimination periods. This should help to minimize the number of late claim submissions CCSF will still maintain a relationship with Unum for claims before 1/1/13 During implementation, a process will be discussed on how to handle claims that are inadvertently sent to Aetna by mistake All vendors are accustomed to dealing with takeover issues as new cases are brought onto their books Let s discuss a few likely case scenarios 11

13 LTD Vendor Transition: Implementation Process Aon Hewitt understands that there is currently a certain level of interaction between CCSF Depts., HSS and your current vendor Unum As part of our ongoing dialogue, we will be asking questions around the details of these interactions For example: Who and How does payroll interact with Unum today? What is the timing and frequency of those interactions? How does the catastrophic Illness group interact with Unum? Can that process be reevaluated as we implement the new plan with Aetna? Are there efficiencies that can be gained by having Aetna involved in the process earlier? How does HSS work with Unum today on potential return to work opportunities? Is there an internal clinical resources who works directly with Unum on these opportunities? How are EOI requests handled today under the ING plan? How much time does HSS spend on this issue? As part of the implementation with Aetna we may find that there are opportunities to make a number of processes more streamlined, therefore saving time for everyone What are some areas that you would like to see Aetna assist CCSF with that would make the LTD process easier for you? 12

14 Implementation Support CCSF Implementation Support provided by the Aon Hewitt team: Your primary contact for all implementation issues or questions Review and confirm the LTD contracts, policies, services and pricing and ensure performance guarantees meet CCSF requirements Manage the implementation plan and timelines and key contacts Coordinate kick-off meetings and coordinate weekly implementation calls, manage implementation plan updates, deliverables, identifying any risks to the plan Propose process and/or approach based on best practice Review the employee communication plan and materials Recommend employer report set up architecture and ensure that Aetna is able to accommodate recommended set up Provide any needed support 60 days after go live date including resolution of EOI and billing issues 13

15 Implementation Support Readiness Testing Audit Establish on site claim readiness testing plan Create fictitious claims for all products which will ensure a level of confidence that the plans have been set up correctly in Aetna s system Aetna will input the test claims in a test environment to ensure not to jeopardize the production system Aon Hewitt will interview the claim staff to ensure they can demonstrate an understanding of the plans, service requirements and confirmed customized processes Aon Hewitt will address any question that the carrier may have about the fictitious claims to ensure there is no misinterpretation of the data Aon Hewitt will develop the preliminary audit findings verbally with the carrier so that any issue may be immediately addressed Aon Hewitt will prepare a written report to be review by HSS and deliver to the carrier Aon Hewitt will work with the carrier to develop a plan to implement any necessary administrative changes 14

16 Contact Information Dave Madden Karen Hill Dennis New Aetna Account Management and Sales Team Account Executive Phoenix, AZ G.I. Account Executive Walnut Creek, CA National Accounts Sales Executive PA Sherry Greiser Eric Rummell Implementation Team Implementation Manager Disability Operations Plan Sponsor Liaison Aon Hewitt 151 Farmington Ave Hartford, CT Catherine Breezee Michael Bailey Vice President San Francisco, CA Vice President Philadelphia, PA Health & Benefits Consulting July 3, 2012 Health Service Board Presentation 15