Recommendation for Medical Plan Changes University Benefits Advisory Committee March 5, 2007

Why Change? HealthNet claims trends over the last three years in excess of budgeted levels and national trends: 16% in FY2004, 23% in FY2005 and 21% in FY2006; HealthNet claim expenses doubled between 2001 and 2006; University has absorbed increases exceeding budgets by $5 million during these years without passing on as additional costs to employees; claim expenses exceeded budget by almost $3 million; Have not marketed the medical plan in nine years since we implemented with HealthNet in April 1998; Commitment to continuing to provide access to quality healthcare options while maintaining affordability to both employees and to Pace.

Why Change? 2007 POS renewal rates increased 21.7% 2007 POS employee per check contributions would have been – Individual Pre $49.67 ($20.92) Individual Post $52.50 ($43.22) Employee +1 - $ ($191.61) Family - $ ($257.12) 2006 rates ( ), POS and HMOs, were frozen pending medical plan decisions for implementation July 1, 2007

Why Change? Healthcare increases are rising three times faster than cost of living; Health care premiums, nationally are expected to increase by 9 to 12% in 2008; Using a conservative 10.5% increase for 2008 POS Premiums would increase.

What we would expect for 2008? Coverage HealthNet POS Annual Premium 1/1/2006 HealthNet POS Annual Premium 1/1/2007* HealthNet POS Projected Annual Premium 1/1/2008 Individual-Post 2004 $6,915.12$8,399.04$9, Employee + 1$13,138.56$15,958.80$17, Family$17,630.64$21,414.96$23, *Rate Increases for employees absorbed by Pace as of 1/07

HealthNet Plan Expenses FY Fiscal Year*Paid Medical Claims Paid Drug Claims Paid Vendor Claims Total Claims Plan Expenses Total Claims/Plan Expense Annual Increase % 2000/20013,276,3891,269,08982,995 4,545, ,4395,375, /20023,710,4441,438,456171,398 5,148, ,5406,036, % 2002/20033,857,7461,581,436193,963 5,439, ,0476,363, % 2003/20044,221,9432,005,824221,585 6,449, ,7467,367, % 2004/20055,405,6102,138,308308,738 7,852,656 1,181,9719,034, % 2005/20066,217,9562,571,9691,024,261 9,814,186 1,114,13410,928, %

Medical Plan Expenses FY Fiscal Year* Total Claims/ Plan Expense HMOs University Expense HMOs Plan Increase % Total University Medical Plan Costs Total Medical Plan Increase % 2000/20015,375,9171,526,6826,902, /20026,036,4411,757, %7,794, % 2002/20036,363,2292,064, %8,427, % 2003/20047,367,0982,217, %9,584, % 2004/20059,034,6272,258, %11,293, % 2005/200610,928,3202,257, %12,650, %

Medical Plan Review Began work in March 2006 Selected C&B Benefits Consulting as a result of a competitive RFP process to assist with this medical plan review and outline the strategies for review –Plan design changes –Contribution Strategies –Consolidation of carriers –Product Offering changes –Carve out of medical plan options –Funding arrangements

Medical Plan Review Objectives for New Medical Plan –Ensure continuation of comprehensive medical plan –Give Faculty and Staff Choice and Freedom to go out of network –Access to quality networks, providers, facilities –Affordability –Cost containment for Pace at budget levels (reduce $3 million of University’s excess, unplanned medical plan expense) –Quality medical management excellence –Quality Client Service and Claims Payment Processes

Medical Plan Review Analysis Analysis of demographics of Pace University participants and retirees demonstrated the following: –The average age for the entire Pace active population is 44 –The average age for the HealthNet POS plan is 48 (compared to non Pace HealthNet members whose average age is 32) –The average age for all other Pace HMOs is 42 –The average contract size for the Pace HealthNet POS plan is 1.26 members per contract; –The average contract size for the all other Pace HMOs is 1.88 members per contract; –87% of all HealthNet POS claims and services are in-network

Medical Plan Review Process July 2006 –Request for Information sent to 13 medical carriers; October/November 2006 –Medical Plan Subcommittee and Benefits Advisory recommended to accelerate the timetable of the medical plan implementation to July 1, 2007 while freezing employee contributions to medical plan through June 30, 2007; November 2006 –President approves recommendation –Employees notified of deferred medical plan open enrollment; December 2006 –Formal request for proposal sent to three finalists, Aetna, HealthNet and Oxford/United Healthcare

Medical Plan Review Process January 2007 –Medical Plan Subcommittee meets with finalists to review medical plan management, claims processing; quality of providers and customer service; –Employees notified of status of medical plan update and announcement of their role in the process; February 2007/March 2007 –Campus focus groups held -94 employees attend; –30% response to on-line survey conducted to gauge satisfaction with plan and tolerance level to change; –Meetings with subcommittee to help shape recommendations –Finalize recommendations

-Draft - Recommendations 1.New Plan Administrator 2.Funding Option 3.New Plan Design Platform 4.New Contribution Strategy 5.Annual Medical Waiver Option

Plan Administrator Oxford/United Healthcare is currently the strong candidate to replace all current medical plan offerings: –Larger network of providers both locally and nationally; –Employees would have access to the Freedom Network of Oxford as well as United HealthCare providers through United Health Care Choice Plus; –Had the highest match of current providers/hospitals in comparison to HealthNet and Aetna; –Yields higher financial savings based upon consolidation of medical plans; –Guarantees premium rates 18 months (until December 2008); –Improved utilization of technology and quality medical management in comparison to HealthNet; –National Centers of Excellence including Sloan Kettering, Mayo Clinics, St. Jude

Plan Administrator Oxford/United Healthcare is ranked 9 th by New York State Insurance Board and is ranked better than Aetna and HealthNet in areas such as complaints, decision reversals, satisfaction, etc. Received highest accreditation outcome demonstrating levels of service and clinical quality that meet or exceed NCQA’s (National Committee for Quality Assurance) rigorous requirements for consumer protection and quality improvement in the following categories. –Access and Service –Qualified Providers –Staying Healthy –Getting Better –Living with Illness

Provider/Hospital Match Percentage Match Empire Professional Empire Institution (Facilities) OxfordHealthNetHIPAetna 84%100%88%81%94% Oxford86%100% 86%93%89% HealthNet75%96%84%85%89%85%

Funding Option Fully Insured * –Consolidation with one carrier; risk unknown for experience with HMOs –Risk is assumed by carrier –Easier to budget since responsibility is limited to monthly premium paid; –Need to comply with all state mandates * Still under discussion and review

Current Plan Design CarrierHEALTHNET All HMOs Type of Plan100/70 POS In-NetworkOut-of-NetworkIn NetworkOut-of-Network Deductible N/A$300/$600N/A Coinsurance 100%70%100%N/A Out-of-Pocket Max (includes ded) $1,000/$2,000$1,800/$3,600N/A Office Visit Copay$15 Deductible & Coinsurance $15N/A Specialist Copay$15 Deductible & Coinsurance $15N/A Hospitalization100% Deductible & Coinsurance 100%N/A Emergency Room Copay$15 $50N/A Prescription Drug Copay$10/$20/$30 Non API pharmacy subject to Ded. & Coins. $10/$20/$35N/A POS - Point of Service HMO – Health Maintenance Organization

Proposed Plan Design – 3 choices* CarrierOXFORD/UNITED HEALTHCARE Type of Plan100/70 POS90/70 POS EPO In Network Out-of- NetworkIn Network Out-of- NetworkIn Network Out-of Network DeductibleN/A$300/$600 $250/$500$500/$1,000 N/A Coinsurance100%70% 90% 70%100%N/A Out-of-Pocket Max (includes ded) N/A$1,800/$3,600$1,250$2,500$2,000/$4,000N/A Office Visit Copay $10 Deductible& Co-insurance $20 Deductible &Coinsurance $20 N/A Specialist Copay $15 Deductible & Coinsurance $20 Deductible &Coinsurance $20 N/A Hospitalization100% Deductible& Coinsurance Deductible& Coinsurance Deductible& Coinsurance 100%N/A Emergency Room Copay $100 N/A Prescription Drug Copay 15/$25/$50 2X Mail 15/$25/$50 2X Mail 15/$25/$50 2X Mail 15/$25/$50 2X Mail 15/$25/$50 2X Mail N/A Plan design options still being finalized POS - Point of Service; EPO – Experience Rated HMO

Current Contribution Strategy Pace pays 85% for individual coverage (special phase-in for pre 2004 hires) Pace pays 65% for dependent coverage Current POS employee per check contributions (since Jan. 2006) – Individual Pre $20.92 Individual Post $43.22 Employee +1 - $ Family - $257.12

Projected Per Paycheck Contributions in 2008 CoverageCurrent POS Contribution (since 1/1/06) 2007 POS Contribution * 2008 POS Contribution Projected Ind-Pre 2004 $20.92$49.67$57.95 Individual- Post 2004 $43.22$52.50$57.95 Employee + 1 $191.61$232.73$ Family$257.12$312.50$ *Rate Increases absorbed by Pace as of 1/07

Proposed Contribution Strategy I Current employees: –University would contribute 100% the full cost of individual coverage for the EPO; –Employees electing a POS plan would pay the difference (i.e., buy up). – University would continue to contribute 65% for dependent coverage for the EPO; –Employees electing a POS plan would pay the difference (i.e., buy up) for dependent coverage. Contribution strategy not yet finalized POS - Point of Service; EPO – Experience Rated HMO

Proposed Contribution Strategy II Reviewed contribution strategy based upon the following salary ranges: –<40,000 –$40,001 to $80,000 –$80,001 to $150,000 –$150,001 to $220,000 –> $220,000 Contribution strategy not yet finalized POS - Point of Service; EPO – Experience Rated HMO

Proposed Contribution Strategy III University would set contribution rates to provide incentive to enroll in EPO or POS I plans – this strategy would allow us to stay within budget parameters Employees can elect POS options but pay a bit more; rates still competitive for a attractive plan designs Individual coverage: 85% EPO; 80% for POS I; 77.5% for POS II Dependent coverage: 65% EPO; 60% for POS I: 57.5% for POS II Contribution strategy not yet finalized POS - Point of Service; EPO – Experience Rated HMO

Annual Medical Waiver Option Provide a cash incentive of $750/year to employees to waive medical coverage at Pace University; 160 employees currently have waived medical coverage; Assume additional 75 employees will waive (to increase to 15% opt out rate) Net savings is approximately $182,290

Retirees Current Retirees: –Have access to either the EPO or 90/70 POS plan at no or minimal cost for individual coverage; –If current retirees wish to elect the 100/70 POS plan, they would pay the difference (i.e., buy up) Future Retirees: –Have access to all of the medical plan options including the 100/70 plan; –Will contribute at the same premium cost share level as immediately prior to retirement

Comments – send to For Network Provider searches: - Oxford Freedom Network - United HealthCare Choice Plus Network