Feasibility Study for Consolidation of Benefits

Milliman

JUNE 10, 2025

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Report Overview Page 3

Current Benefits Page 6

Potential Disruptions Page 14

Overview of Consolidation Options Page 22

Detail of Consolidation Options Page 30

Recommendations Page 48

Assumptions and Methodology Page 51

Limitations and Caveats Page 55

Appendix – Financial Detail by Consolidation Scenario & Institution Page 58

Table of contents

Overview

Background

The benefit programs for Utah System of Higher Education (USHE) institutions currently utilize six different health benefit carriers, each with distinct costs, coverage options, and contract negotiation processes. The USHE includes:

▪ Five degree-granting institutions and one technical college that are self-insured (four of these six benefit programs have the same benefits administrator to manage their plans)

▪ Four degree-granting institutions (including Utah State University – Eastern) and seven technical colleges that are not self-insured and instead use traditional insurance carriers (nine of these are covered by the Public Employees Health Program (PEHP)*, two use other carriers)

This feasibility study is intended to explore the consolidation of employee benefit programs across USHE member institutions. Centralizing benefit functions across USHE institutions is anticipated to enhance system-level efficiencies and reduce aggregate health and welfare benefit program costs of USHE member institutions.

*PEHP, a non-profit government entity, provides medical, dental, employee life, and long-term care insurance to employees of state agencies, including some members from higher education and public education sectors. However, the Utah Public Employees’ Benefit and Insurance Program Act prevents PEHP from insuring larger public higher education institutions in Utah.

This report contains Milliman’s findings of the feasibility for various consolidation approaches for the benefit programs of the Utah System of Higher Education institutions.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Scope of the Analysis

As requested by USHE, Milliman used data received from each of the USHE institutions to perform the following tasks:

1. Evaluate the relative value of benefits for each institution against Milliman benchmarks

2. Evaluate the current state of benefits offered to determine if there are any outliers.

3. Summarize stakeholder engagement survey results

4. Estimate the costs and benefits across a continuum of options for consolidating employer provided health benefits across USHE institutions

Consolidation Scenarios This report explores the feasibility of each of the following consolidation scenarios for USHE member institutions, including the pros, cons, and potential financial impact of each.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Vendor Selection

Institutions collaborate to select vendors while maintaining their individual benefit options

Ancillary Benefits

Institutions consolidate ancillary benefits (Life, AD&D, LTD) without consolidating health, dental, or vision benefits

Stop Loss Pool

Institutions pool their medical and pharmacy claims experience for stop-loss. Each institution remains responsible for claims under the stop-loss threshold

Form a Consortium

Form a consortium to leverage negotiations with vendors

Join State Risk Pool

Move all USHE institutions to a fully-insured benefit through PEHP

Establish a USHE Risk

Pool

All USHE institutions pool risk of benefits. This is explored three ways:

1) Institutions are rated based on their specific risk

2) All institutions are charged a single pooled rate

3) Form a separate entity to managed the USHE pool

Important Notes Regarding Consolidation Scenarios

Limitation on Use of Results

These scenarios have been developed using actual historical claims experience, plan designs, and enrollment. While a necessary function of assessing the consolidation options is to estimate financial impacts, these findings should not be used for other purposes, such as budgeting or setting premiums for a future period. Those future values should be based on the most recently available data and will require final administrative expense numbers, plan designs, plan parameters (e.g., stop-loss thresholds), and selected vendors. The historical impacts of consolidated options are necessarily based on administrative expense estimates and do not reflect the final actual administrative expenses the consolidated programs would potentially procure from bidding vendors.

Selection of Consolidation Option

Consolidation options which include consolidation of health benefits will require a well-developed strategy providing a structure that maintains network adequacy and benefit flexibilities for smaller regional institutions. The consolidation options which include health benefit consolidation discussed in this report outline some considerations, but the final structure of the consolidated offering will be highly dependent upon the benefit and administrative partners selected by USHE under any one of these considered options.

Scenarios presented in this study have been designed to determine the feasibility of consolidation of benefit programs for USHE member institutions. These results should not be used for other purposes.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Other Considerations

Any organization initiating changes to benefit programs or benefit administration experiences disruptions. Many of these disruptions, when managed properly, can be short-term and any lasting negative effects on the health and welfare benefits plans can be minimized. However, it is important to consider these disruptions, the impact they have on the benefits program, and the impact they have on members.

While member institutions in total should achieve reduced benefit program costs, not all scenarios will result in individual member institutions reducing their own benefit program costs. This is because individual member institutions’ benefit program design, demographic risk, or morbidity risk differs from the average of the same metrics for the entire consolidated pool. The result of consolidating to the average will be that some individual institutions may observe an increase while others observe a decrease in costs. Additional steps could be taken to further reduce the overall benefit program costs, such as making plan designs leaner or lowering the levels of coverage, but these actions are not within the scope of review or recommendations. Care should be taken in evaluation of these scenarios to determine what type of benefit program cost increases are tolerable for individual member organizations.

Current Benefits

Summary of Current Benefit Programs by Institution

Institution Health

(HSA)

Health

(non-HSA) HRA Dental Vision Life AD&D Disability

Bridgerland (BTC) ✓ x ✓ ✓ ✓ ✓ ✓ ✓

Davis ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Dixie ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Mountainland (MTC) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Ogden-Weber (OWTC) ✓ ✓ ✓ ✓ ✓ ✓ N/A ✓

SLCC ✓ ✓ ✓ ✓ ✓ N/A N/A N/A

Snow ✓ ✓ ✓ ✓ ✓ N/A N/A N/A

SUU ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Southwest (SWTC) ✓ x ✓ ✓ ✓ ✓ ✓ ✓

Tooele (TTC) ✓ ✓ ✓ ✓ ✓ ✓ ✓ N/A

Uintah Basin (UBTC) ✓ ✓ ✓ ✓ ✓ N/A N/A N/A

UoU ✓ ✓ ✓ ✓ N/A ✓ N/A N/A

USU – Eastern (USU – E) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

USU ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Utah Tech (UTU) ✓ ✓ ✓ ✓ ✓ N/A N/A N/A

UVU ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Weber State (WSU) ✓ ✓ ✓ ✓ ✓ N/A N/A N/A

Benefits offered, based on data provided to Milliman by individual USHE institutions

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

x = institution indicated benefit was not covered under their current structure. N/A = institution did not provide information about these benefits.

*We have not included benefits such as pet insurance, accident insurance, critical illness benefits, or specialized mental healthcare & services outside of the health plan.

Summary of Health Benefit Program by Institution

Institution Insurance Type TPA / Insurer Subscriber Counts Number of Plans Wellness Program

Bridgerland Fully Insured UUHP 162 1 x

Davis Fully Insured PEHP 220 2 ✓

Dixie Fully Insured PEHP 111 2 ✓

Mountainland Fully Insured PEHP 214 3 ✓

Ogden-Weber Fully Insured Select Health 142 2 ✓

SLCC Self-Insured Regence 1,291 2 x

Snow Fully Insured PEHP 348 2 x

SUU Self-Insured UMR 1,104 2 x

Southwest Self-Insured MotivHealth 64 1 x

Tooele Fully Insured PEHP 50 2 ✓

Uintah Basin Fully Insured PEHP 92 2 ✓

UoU Self-Insured Regence 15,527 2 ✓

USU – Eastern Fully Insured PEHP 259 2 ✓

USU Self-Insured Regence 4,384 3 ✓

Utah Tech Fully Insured PEHP 715 2 ✓

UVU Self-Insured Regence 2,143 2 ✓

Weber State Fully Insured PEHP 1,650 2 ✓

Since the majority of benefit program cost is attributable to health benefits for medical and pharmacy coverage, this analysis primarily focuses on these benefits.

Overview of Medical Plan Designs (1 of 3) The seventeen USHE member schools have a total of 39 (23 unique) plan designs

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Plan Breakdown

Carrier / TPA MotivHealth PEHP PEHP PEHP Regence Regence Regence Regence

Plan HDHP Star HSA Traditional Consumer

Plus HDHP BluePoint BluePoint Advantage

General Coinsurance 20% 20% 20% 30% 10% 0% 20% 20%

Office Cost Sharing 20% 20% $30 30% $25 $12 $25 $40

Deductible $1,750 $1,600 $350 $3,000 $1,700 $300 $600 $250

OOPM* $3,500 $3,000 $3,000 $6,050 $3,500 $3,500 $3,500 $2,500

Actuarial Value 83.4% 83.9% 88.7% 75.0% 84.7% 94.1% 84.6% 85.3%

Institutions Southwest

All PEHP

Covered

Institutions

All PEHP

Covered

Institutions

Mountainland SLCC SLCC SLCC UoU

*OOPM = Out-of-Pocket Maximum

Overview of Medical Plan Designs (2 of 3) The seventeen USHE member schools have a total of 39 (23 unique) plan designs

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Plan Breakdown

Carrier / TPA Regence Regence Regence Regence Regence Regence Regence Regence

Plan HDHP HDHP Blue Blue White White HDHP Traditional

General Coinsurance 30% 10% 0% 20% 0% 30% 20% 20%

Office Cost Sharing 30% 10% $15 $30 $15 $35 20% $15

Deductible $1,600 $2,000 $250 $500 $375 $750 $1,600 $375

OOPM $5,000 $3,000 N/A $3,250 N/A $4,000 $5,000 $2,500

Actuarial Value 80.0% 87.1% 91.3% 83.11% 90.5% 80.0% 82.2% 89.1%

Institutions UoU UoU USU USU USU USU USU UVU

Overview of Medical Plan Designs (3 of 3) The seventeen USHE member schools have a total of 39 (23 unique) plan designs

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Plan Breakdown

Carrier / TPA Regence Regence Select Health Select Health UMR UMR UUHP

Plan Traditional HDHP Traditional HDHP HDHP Traditional HDHP

General Coinsurance 20% 20% 20% 20% 20% 20% 10%

Office Cost Sharing $30 $25 $25 $15 $35 $35 10%

Deductible $750 $2,000 $750 $1,600 $1,750 $1,000 $2,000

OOPM $5,000 $4,000 $3,000 $3,000 $3,000 $3,500 $3,000

Actuarial Value 83.4% 81.3% 89.1% 87.2% 83.2% 86.7% 85.1%

Institutions UVU UVU Ogden-Weber Ogden-Weber SUU SUU Bridgerland

Dental Plan Designs Dental coverage offered within USHE is largely consistent across the member institutions

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Plan Breakdown

Annual Limit $3,000 $2,000 $2,000 $1,500 $1,500

Preventive Services

Coinsurance 100% 100% 100% 100% 80%

Basic Service

Coinsurance 100% 80% 80% 80% 80%

Major Services

Coinsurance 100% 50% 60% 50% 50%

Institutions SLCC SUU, UOU, USU UVU

Bridgerland, OWTC, SLCC, SWTC

All Others

Of the 23 unique plan designs offered by the USHE benefit programs, 19 have an actuarial value (AV) between 80% and

90%. 1 plan is leaner and 3 are richer.

▪ Mountainland Technical College, Consumer Plus $3000 Deductible –

75.0% AV

▪ Utah State University, White $375 Deductible – 90.5% AV

▪ Utah State University, Blue $250 Deductible – 91.3% AV

▪ Salt Lake Community College, BluePoint $300 Deductible – 94.1% AV

Three plans with significant enrollment could experience a financial impact if more expensive plan options are selected:

▪ Utah State University, White $750 Deductible – 80.0% AV

▪ University of Utah HDHP, $1,600 Deductible – 80.0% AV

▪ Utah Valley University HDHP, $2,000 Deductible – 81.3% AV

We measured the value of plans using actuarial value (i.e., the expected percent of claims paid by the plan after member cost sharing) and identified outliers

Plan Outliers

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Consumer Plus (Mountainland)

BluePoint (SLCC)

HDHP (UOU)

Blue (USU)

White (USU)

White (USU)

HDHP (UVU)

75%

80%

85%

90%

95%

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

A c tu a ri a l V a lu e

Deductible

Potential Disruptions

Disruption Overview

Disruption

We define disruption as any difficulty or challenge arising from consolidation for the following:

▪ Human resource and benefit managers at the respective USHE institutions

▪ Employees or their dependents covered by any benefits consolidated

▪ USHE management

▪ Other stakeholders

Plan consolidation will introduce disruption to USHE member institutions and their covered employees and dependents. A strategy will need to be developed to minimize these disruptions and maintain high quality access and coverage for members of the respective health plans.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Overview of Discussion

The most impactful disruptors resulting from benefit consolidation will be to the respective health benefit offerings of the institutions. The health benefits represent the largest expense component of the health & welfare benefit offerings of each institution. Additionally, it is likely the most valued benefit by members of the benefit program. If USHE selects a consolidation approach which includes the consolidation of health benefits, then a well-developed strategy will need to be implemented to ensure that disruptions are tolerable for USHE member institutions.

Summary of Institution Survey Benefit program managers provided input on how consolidation could help or hinder their program’s performance

Milliman conducted a survey, requesting responses from the seventeen USHE member institutions, eleven institutions responded

The following questions were asked:

• List any challenges your institution currently faces with your employee benefit plans.

• List one or two potential disruptors due to benefit consolidation that concern you.

• List one or two opportunities/benefits for your institution from benefit consolidation.

• On a scale of 1-10, how favorably do you view benefit consolidation

(1 being not favorable and 10 being favorable)?

The graphic to the right displays the favorability scores provided by the respondents. The detailed responses have been incorporated in the following pages, outlining potential disruptors.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

2 2

1 1

0 0 0 0 0

1 2 2.5 3 4 5 6 7 8 9 10 o f R e s p o n d e n ts

Favorability Score (1-10)

Summary of Institution Survey

Plan Design

Health Benefits

At present, schools have a level of flexibility in determining which plan designs its members would prefer.

A common concern arose where member institutions were concerned about being limited to options that did not align with their members’ preferences.

Other Benefits

While not as critical, consolidation could also limit flexibility for benefit designs for other benefits.

Network

Medical Benefits

One of the most significant challenges facing consolidation of health benefits is the development of a network that allows institutions outside of major metropolitan areas (i.e., Weber, Davis, Salt Lake, or Utah counties) access to current providers.

Smaller regional institutions do not want to be beholden to the decisions of the large institutions that are not familiar with network options in smaller metropolitan or rural areas.

Dental and Vision Benefits

To a smaller degree than that experienced in the medical plan, members could lose access to their preferred dentists and optometric solutions.

Membership Disruption

Benefits in General

In addition to the disruption created by potential plan design and network changes, members may face changes to:

▪ Administration of benefits (e.g., new insurance cards, new customer service solutions, new employee benefits’ contacts)

▪ Wellness benefits (e.g., some programs may have off-the-shelf or customized benefits, a consolidated approach may result in a shift in these benefits)

▪ Condition management solutions (e.g., some institutions may have adopted a third-party service to help manage endocrine conditions, a consolidated approach may remove or restructure those benefits or utilize a different third-party vendor)

Any consolidation approach will create disruptions. Based on input from the eleven USHE member institution survey respondents, we have focused on the three disruptions most frequently mentioned.

Identification of Key Disruptions

These disruptions were identified by USHE member institutions as their biggest concerns.

While a more robust consolidation approach will see disruption in these areas, there are strategies to minimize that disruption.

Minimization of disruption is critical to ensuring widespread satisfaction of

USHE member institutions.

Plan Design

While the plan design of the health benefits will be the most critical, care should also be taken for dental, vision, and ancillary offerings.

▪ A broad portfolio of health benefit offerings in a consolidated structure can be created to allow participating member institutions flexibility in plan selection. Each institution could be limited to a smaller number of plan options, which it selects for its employees.

(Details discussed in scenarios)

▪ Member institutions should have input on plan design options they would like available

▪ Dental, vision, & ancillary benefits could have a small portfolio from which institutions can select

Network

Network options currently available to individual institutions should be maintained or a completely adequate network that meets an institution’s member’s needs should be constructed in its place.

▪ Consolidation of health benefits must not be at the expense of smaller regional institutions

▪ Networks should be adopted or structured to maximize retention of physicians that members currently visit

▪ No small regional institution should lose its autonomy due to the participation of a larger institution dominating the enrollment participation of the consolidated approach

Membership Disruption

Any type of change to the health benefit offerings of a benefit program creates some level of member disruption. The disruption includes plan design, physicians and hospitals included in-network, interactions with plan administrators, premiums, and additional offerings such as wellness programs or special condition management programs.

▪ Current options available to institutions should be carefully studied before networks are constructed

▪ Administrative partners should be carefully vetted and made aware of the unique circumstances surrounding consolidation of so many organizations

Disruption tolerance levels should be evaluated and determined before a consolidated approach is adopted. Any disruptions that are unacceptable should be avoided either through selection of an alternative consolidation option or through the adopted structure of the selected consolidation option.

Legal Considerations for Consolidation

Utah Code § 49-20-202 applies to health & welfare benefits of higher education institutions. It includes legislation around how risk pools are constructed and size restrictions on higher education institutions participating in the state risk pool. The scenario options we have analyzed include consolidated risk pools and a single scenario with all USHE institutions participating in the state risk pool. If these options are under serious consideration, review of the Utah Code and identification of potential code amendments may be necessary.

We are not attorneys and are not offering legal advice. We recommend that USHE receive professional legal advice when reviewing the scenarios we have outlined, in conjunction with Utah Code § 49-20-202. If amendments are necessary, USHE will need to work with the state legislature to adopt the appropriate legal language for the amended code.

Plan consolidation will require an in-depth review of the current Utah code regarding health and welfare benefits for USHE institutions. Our limited understanding of the Utah code follows, but we are actuarial consultants and not attorneys.

Utah Code § 49-20-202

1) The program shall establish separate risk pools for:

a) state employees; and

b) the Utah Children's Health Insurance Program.

2) In accordance with participation standards established by the program, the following entities may elect to participate in the risk pool established under Subsection (1)(a):

a) in accordance with Subsection (3)(b), an institution of higher education designated under Section 53B-1-102 with a total full-time equivalent enrollment of less than

18,000;

b) an independent entity as defined in Section 63E-1-

102; and

c) a comprehensive regional college.

3)

a) The program shall create risk pools for other covered employers separate from those created in Subsection (1) as determined by the program.

b)

i. If an institution of higher education described in Subsection

(2)(a) has 1,000 or more plan enrollees, the program shall establish a rate for the institution of higher education based

100% on experience; and

ii. if the rate established under Subsection (3)(b)(i) is:

A. less than the risk pool rate established for the state employees' risk pool, the program may include the institution of higher education in the state employees' risk pool described in Subsection (1)(a); or

B. more than the risk pool rate established for the state employees' risk pool, the program shall create a risk pool for the institution of higher education that is separate from the state employees' risk pool under Subsection (1)(a).

From Chapter 20: Public Employees’ Benefit and Insurance Program Act

Potential Required Code Revisions

Current Code Requirements and Potential Revisions

(3)(b)(i) Rates for institutions with 1,000 or more plan enrollees must be based entirely on experience

The consolidated options presented later in this report include scenarios where rates are determined by experience as well as a single pooled rate. Both options merit consideration; however, implementing a single pooled rate may necessitate an amendment to Utah Code § 49-20-202 (3)(b)(i)

(3)(b)(ii) For institutions with rates based entirely on experience as specified in (3)(b)(i), if the rate is lower than that of the state employees’ risk pool, the institution may be included in the state employees’ risk pool. Otherwise, they will be part of a higher education risk pool, separate from the state employees’ risk pool

Should groups choose to join the state employees’ risk pool, the remaining institutions within the USHE consolidation would consist predominantly of institutions with higher claims experience, consolidated into a single pool. If institutions are permitted to exit the USHE pool, any group experiencing a favorable claims year could opt to join the state employees’ risk pool or become self-funded. This would result in increased rates for the remaining groups within the pool, rendering the USHE consolidation strategy impractical.

Conversely, if institutions are not allowed to exit the USHE pool, an institution that was initially prevented from joining the state employees’ risk pool due to recent unfavorable experience could remain in the underperforming pool indefinitely. This scenario would be particularly costly for a group with a historically strong performance and favorable future outlook that simply experienced unusual adverse conditions at the time of consolidation.

Utah Code § 49-20-202, part of the Public Employees’ Benefit and Insurance Program Act, places restrictions and requirements for financial management of funds related to insurance benefits for higher education institutions and regional colleges. These regulations may require proposed revisions.

Overview of Consolidation Options

Consolidation Option Scenarios

Pros / Cons

Each of the consolidation scenarios present pros and cons to USHE and the respective member institutions. We have outlined the pros and cons based on our experience with benefit consolidation for other entities, our market understanding, and the feedback received from the eleven institutions who responded to the survey. This list is not exhaustive and in practice the institutions will experience difficulties or benefits that are unique to their circumstances.

Implementation Notes

Each scenario presents unique implementation challenges. We have included notes for consideration for the selection of a given option. These notes are based on our observations of these types of consolidated approaches and have been made with the intent to mitigate the concerns presented by the USHE survey respondents.

We have considered six consolidation options and two sub-options for USHE’s review. We outline pros and cons of each of the scenarios, provide notes on implementation of a given consolidation approach, and present projected financial impact estimates based on our financial modeling for five of the scenarios.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Financial Modeling

We have performed modeling of the financial impact resulting from consolidation for five of the consolidation options. Three consolidation options

(consolidating for vendor selection, establishing a stop-loss pool, and forming a consortium to leverage negotiations) require specific adoption details provided by USHE and specific quotes provided by vendors to be modeled. While not modeled specifically, we generally expect these three consolidation options to yield minimal to modest financial savings in comparison to the more significant consolidation options, such as forming a single risk pool.

For the five consolidation options with modeling, the next section of the report, “Detail of Consolidation Options,” presents the high-level financial impacts of consolidation to USHE in total. For the detailed projected financial impact to each USHE member institution, please see the Appendix.

Our modeling is based on generally accepted actuarial principles, and we have made assumptions when necessary to complete the analysis.

Details of the modeling can be found on the following pages.

Financial Modeling - Savings The financial modeling included in this report is focused on direct savings from consolidation under various scenarios

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Financial Modeling - Savings

The financial impact modeled for five of the consolidation options is focused on savings that would be expected through:

▪ Reduced administrative expenses o Vendor, broker, and other professional fees

▪ Improved Rx rebates

▪ Improved contracts

▪ Reduced reserves due to lower claims variability

▪ Selection of improved vendor expenses (e.g., most competitive rates for comparable ancillary benefits)

▪ Removal of stop-loss insurance based on the size of a consolidated pool

There are additional areas where savings would likely be captured, but we have not included in our analysis:

▪ Indirect savings due to efficiencies of managing a single large H&W benefit program rather than 17 smaller, individual H&W benefit programs o Benefits managers and other human resource professionals carry significant responsibilities and workloads, a consolidated approach reduces their workload and frees their time for other duties

▪ A large organization would be able to explore options for more effective utilization and case management options that could effectively reduce claims – estimates of these savings are highly dependent upon the selection of the programs and the adopted consolidation option (such a study is beyond the scope of this assignment)

▪ A consolidated organization could also benefit from certain third-party platforms, based on the specific morbidity profile of the consolidated

H&W program

Financial Modeling - Costs The financial modeling included in this report took into consideration costs that may be incurred through consolidation

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Financial Modeling - Costs

We do not anticipate any direct costs from consolidation itself; however, we would expect that costs would arise in the event that benefits are added to or expanded from an institution’s current benefit package.

▪ We did not model additional medical, dental, or vision costs since our recommendation would be to preserve current benefit levels as much as possible for these benefits

▪ We would anticipate costs for ancillary benefits since some institutions are not covering these benefits or are covering minimal levels

▪ In the event that USHE elects to form a separate entity to manage the consolidated risk pool, we did not include implementation costs for that entity in our financial modeling.

Modeling Financial Impact of Consolidation Scenarios The following gives a high-level overview of the methodology and assumptions we used in modeling the financial impact of consolidation scenarios. For more details, please see the Assumptions and Methodology section of this report.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Vendor Selection

No financial modeling – savings are dependent upon vendors selected and their respective quotes

Ancillary Benefits

We assumed all institutions would adopt the same benefit levels for group life insurance, AD&D, and long-term disability (LTD) coverage. Savings estimates were based on market norms, where group life insurance and AD&D could be potentially be secured at a 1.8% to 10.9% lower rate than the rates currently in force for the institutions with these benefits. We assumed no savings for consolidation of LTD benefits since LTD rates are currently optimized.

Stop Loss Pool

No financial modeling – while some savings may be available in this model, if all institutions participate in the pool it would require institutions adopt a low attachment point for the protection of the smallest institutions. This results in costs for the larger institutions.

Form a consortium

No financial modeling – savings are highly dependent upon negotiations

Join State Risk Pool

We assumed all institutions would move to the state risk pool and receive the state risk pool rates. However, since USHE institutions costs are roughly 17.6% higher than the current state risk pool, the overall pool would need a 7.0% increase to rates if USHE were to participate. We also assumed an additional 2.0% margin should be added for the claims variability of these higher risk groups being added to the pool. These assumptions form the basis of our high savings estimate. The low savings estimate includes an additional 5% increase to USHE costs to account for potential claims fluctuation.

Establish USHE Risk Pool

Please see the following page for the full details of the three options based on a consolidated risk pool.

Establish USHE Risk Pool

We modeled three options under a single risk pool.

1. Single risk pool, managed by current USHE or institution staff, with individual rates reflecting individual member institutions’ risk profiles

2. Single risk pool, managed by current USHE or institution staff, with a single pooled rate

3. Single risk pool, managed by a newly constructed entity

We modeled three options for establishing a single risk pool for all USHE member institutions.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Each of these options assumed the following:

1. All institutions would offer the same ancillary benefits. Rates per member were set to the most favorable rate available among current USHE member institutions

2. Benefit levels of medical, dental, and vision coverage for the respective institutions would be maintained. Claims experience for the institutions was projected to a common date (see the Assumptions and Methodology section of this report for details on projection of the claims experience) to establish appropriate comparisons with current premiums and premium equivalent rates. Current costs for fully-insured entities reflect their current fully-insured premiums. Current costs for self-insured entities reflect their claims expense, professional fees, vendor fees, stop-loss premiums, stop-loss recoveries, and Rx rebates.

3. All vendor and professional service fees are set to reflect market norms for a group of the size of the consolidated entity.

4. Removal of all stop-loss coverage – consistent with market norms for a group of this size.

5. Rx Rebates were set at the same percentage of claims as that experienced by the current self-insured institutions, on average.

Consolidation Option Comparison - Pros

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Rates vary by Institution

Pooled

Rate

Pros

Consolidate for selecting vendors

Consolidate ancillary benefit(s)

Establish a stop-loss pool

Form consortium to leverage negotiations

Join State

Risk Pool via

PEHP

Establish a risk pool for all institutions

Form a separate entity to manage pooled risk

Reduced costs ◼ ◼ ◼ ◼ ◼ ◼ ◼

Reduced administrative burden ◼ ◼ ◼ ◼ ◼ ◼ ◼

Increased opportunity for selecting high-quality vendors

Most types of benefits can be covered directly by a single entity

Reduced claims risk ◼ ◼ ◼ ◼ ◼

Rates reflect risk of individual institutions ◼

Legend

Potential Pro ◼ Expected Pro

Consolidation Option Comparison - Cons

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Rates vary by Institution

Pooled

Rate

Cons

Consolidate for selecting vendors

Consolidate ancillary benefit(s)

Establish a stop-loss pool

Form consortium to leverage negotiations

Join State

Risk Pool via

PEHP

Establish a risk pool for all institutions

Form a separate entity to manage pooled risk

Limited financial benefits /

Potential for increased costs ◼ ◼ ◼ ◼

Limited administrative relief ◼ ◼ ◼ ◼

Reduced flexibility (selecting benefits, vendors, networks, business partners)

Administrative complexity ◼ ◼ ◼

Limitations on specialized approaches to manage costs or improve member experience

Limited to self-insured institutions ◼

Legend

Potential Con ◼ Expected Con

Detail of Consolidation Options

Consolidate for Selecting Vendors

Pros

▪ Reduced costs

– Utilize knowledge of all institutions and administrative capacity to help most cost-effective solutions

– Potentially more negotiation power

▪ Reduced administrative commitment

– Some institutions may be able to reduce the time they spend on selecting vendors given that multiple organizations are all working on selecting vendors

▪ Increased opportunity for selecting high-quality vendors

– The institutions working together can share experience and insights with various vendors to increase the likelihood that all USHE institutions can select the highest quality vendors

Cons

▪ Limited financial benefit

– Since the groups are not consolidating risk there are limits to the negotiation power in this structure

▪ Limited administrative relief

– Since the organizations will need to agree on the selection of vendors, with no guarantee of meeting their members needs, this could add a different form of administrative burden

USHE institutions would maintain individual benefit options but collaborate in the selection and contracting of vendors.

Implementation Notes

If USHE member institutions consolidate for selecting vendors, we make the following recommendations:

▪ Convene a meeting to determine benefits under consideration for consolidated vendor selection.

o We would generally not recommend consolidation for selection of medical benefits since without greater consolidation there are limited financial benefits.

o Selection of services such as stop-loss carriers, TPAs, benefits consultants, and ancillary benefits could be valuable.

▪ Develop a plan for vendor selection and what commitments each institution is under for this approach.

▪ Issue RFPs as necessary to initiate process for final vendor selection.

Implementation notes and financial impact of consolidation

Consolidate for Selecting Vendors – Implementation & Financial Impact

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Any potential savings are highly dependent upon the number of vendors that USHE chooses to consolidate.

Consolidation for Ancillary Benefits

Pros

▪ Reduced costs

– These benefits are typically fully-insured. For fully-insured situations, economies of scale reduce expenses of these benefits

– For any benefits that negotiated administrative expenses, larger organizations have more negotiation power

▪ Ease of administration

– Rather than multiple organizations negotiating and contracting individually, only one administrator would need to negotiate and contract for these benefits

Cons

▪ Limited financial benefit

– These benefits are minor expenses relative to the health benefits. While there is financial upside for this consolidation, the savings is minor relative to the overall benefits program expenses

▪ Limited administrative relief

– Like the financial aspect of these benefits, the administration and management of these benefits is much simpler than health benefits.

Consolidating these benefits does provide some administrative relief, but by the nature of the benefits it frees up a small amount of time for human resource departments and / or benefit managers

▪ Limits flexibility of a given institution in selection of these benefits

Consolidation of benefits such as life, disability, AD&D, etc. without consolidating health, dental, or vision benefits.

If USHE member institutions consolidate ancillary benefits, we make the following recommendations:

▪ Convene a meeting to determine which benefits will be included. It likely makes sense to include life insurance, AD&D, and disability. The institutions may elect to include other benefits, such as pet insurance, critical illness coverage, etc.

▪ Determine the benefit levels the institutions would like to make available.

▪ Have a single point of contact negotiate and contract rates

Financial Modeling Notes

We modeled the estimated financial impact using the following assumptions:

▪ Any institutions that are not currently offering all 3 of life, AD&D, and LTD would begin to offer all 3 benefits after consolidation, and at the same level of benefit. This is creating projected “costs” for some institutions.

▪ Consolidation of LTD benefits is unlikely to result in significant savings because the rates have already been optimized.

Implementation notes and financial impact of consolidation

Consolidation for Ancillary Benefits – Implementation & Financial Impact

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Due to the relatively small dollar value of these benefits, however, these savings would likely only represent a fraction of a percent of USHE’s total benefits budget.

Based on market norms, there is potential for 1.8% - 10.9% savings for life and AD&D costs only under consolidation.

9 USHE institutions do not currently offer either a group life, AD&D, or disability benefit

(or a combination thereof).

Establish Stop-loss Pool

Pros

▪ Potential for reduced costs

– Economies of scale allows for reduced stop-loss premium

Cons

▪ Potential for increased costs

– Because smaller institutions would be unable to carry the risk for a high stop-loss attachment point it would be necessary to have a relatively modest threshold. This would result in the larger institutions paying higher stop-loss premiums by virtue of contracting a richer benefit

▪ Administratively complicated

– Administering such a plan would necessitate USHE to track claims data for all participating organizations to provide to the stop-loss carrier. This would require an additional administrative step for USHE or its member organizations. The complication of the structure would likely erode savings from the reduced stop-loss premium

▪ This scenario would be limited to the six self-insured institutions

USHE institutions would pool their medical claims experience with each member institution responsible for any claims under the stop-loss threshold. Any claims over the stop-loss threshold would be the responsibility of a common stop-loss carrier and each group would pay the same stop-loss premiums as charged by the carrier.

We would not recommend establishing a single stop-loss pool since such an approach would be administratively burdensome and much more costly for many institutions.

• Higher costs result from a necessarily low reinsurance attachment point to protect the smallest institutions, which creates unnecessary financial burden on larger institutions that do not require a low reinsurance attachment point.

Implementation notes and financial impact of consolidation

Establish Stop-loss Pool – Implementation & Financial Impact

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Any potential savings due to economies of scale are likely to be offset or surpassed by the necessity of a modest stop loss attachment point as dictated by the smallest participating institution.

Form a Consortium to Leverage Negotiations

Pros

▪ Reduced costs

– Utilize knowledge of all institutions and administrative capacity to help most cost-effective solutions

– Since the groups would be negotiating together on benefits, they would capture economies of scale savings and savings from increased negotiation power

– A consortium could be utilized for direct contracting health benefits

▪ Reduced administrative commitment

– Some institutions may be able to reduce the time they spend on negotiating and contracting with vendors since these processes could be consolidated

▪ Increased opportunity for selecting high-quality vendors

– The institutions working together can share experience and insights with various vendors to increase the likelihood that all USHE institutions can select the highest quality vendors

Cons

▪ Limited financial benefit

– Since organizations would not be pooling risk financial savings are limited, negotiation power is limited

▪ Potentially limits flexibility for selection of benefits, vendors, and network

Like consolidation for selection of vendors, USHE could create a consortium of its member groups to leverage negotiations with vendors.

Form a Consortium to Leverage Negotiations – Implementation & Financial Impact

Implementation Notes

Many employer groups are participating in consortiums to help leverage negotiations. While the USHE institutions would not be as large as most employer consortiums, there could still be leverage for negotiations.

If USHE member institutions form a consortium to leverage negotiations, we make the following recommendations:

▪ Convene a meeting to determine which vendors and / or benefits under consideration for a consolidated approach.

o In order for this approach to be effective, the institutions would need to be in agreement on the vendors they would use.

o Each member institution would have full autonomy of benefits and benefit design – the consortium approach would only be used for initial contracting to secure preferred pricing.

Implementation notes and financial impact of consolidation

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Savings would be highly dependent upon benefits negotiated by the consortium.

Join State Risk Pool via PEHP

Pros

▪ Most types of benefits (i.e., medical, dental, etc.) can be covered directly via

PEHP

▪ Reduced benefits administrative burden for each school

– With benefits fully insured, HR and benefits managers at the individual schools will be able to relinquish much of their benefit management responsibilities, freeing them up for other tasks

▪ Reduced claims risk for the current self-insured institutions

Cons

▪ Likely to require revisions to the current code

▪ Large groups are typically self-insured because it is significantly less expensive than a fully insured product

▪ Benefit plan designs are limited

▪ Network options are limited

▪ Limits on specialized approaches to managing costs

▪ Limits on specialized approaches to improve member experience

▪ USHE member institutions’ claim levels are higher than that of the current

PEHP state risk pool. By including all USHE entities in the state risk pool, costs for the overall state risk pool would increase by 5% to 7%.

This would move all institutions to a fully-insured benefit through PEHP.

Join State Risk Pool via PEHP – Implementation & Financial Impact

Implementation Notes

All member institutions would join the state risk pool via PEHP.

▪ This would require code amendments

Financial Modeling Notes

▪ Approximately 90% of savings in this scenario are attributable to the

University of Utah due to their current program costs being significantly higher than the PEHP state risk pool average.

Implementation notes and financial impact of consolidation

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Estimated savings of

6.0% to

10.5% to USHE’s current total health & welfare spend

6 institutions project to have cost savings

11 institutions project to have increased costs

Establish a Risk Pool for All Institutions – Rates Vary by Institution

Cons

▪ Potential limitations on flexibility of:

– Plan designs

– Networks

– Vendors

– Business partners

▪ If only some benefits are consolidated, administration could be burdensome

All USHE institution pool risk of benefits.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Pros

▪ Reduced costs

– Economies of scale reduce short- and long-term costs

– Reduced administrative expenses

– Reduced stop-loss costs

– Reduced cost volatility

– Potential for direct contracting with networks

▪ Reduced benefits administrative burden for each school

– With benefits managed at a consolidated level, HR and benefits managers at the individual schools will be able to relinquish much of their benefit management responsibilities, freeing them up for other tasks

▪ Increased opportunity for selecting high-quality vendors

– Input from individual institutions will result in the selection of the highest quality business partners and vendors

▪ Rates reflect risk of individual institutions

– This ensures all institutions are financial winners, to the extent that their current premiums accurately reflect their risk

Establish a Risk Pool for All Institutions – Rates Vary by Institution – Implementation & Financial Impact

Implementation Notes

If USHE member institutions establish a single risk pool, we make the following recommendations:

▪ Select a managing committee who will be tasked with making benefit decisions, vendor negotiations, contracting, and employee benefit support.

▪ We recommend that a portfolio of plans are made available from which member institutions could select from.

▪ We recommend securing multiple network partners to minimize disruption to institutions employees and the respective benefit programs.

▪ We recommend that the pool work with a third-party for claims administration.

▪ Contract with a vendor who can underwrite the rates each year to ensure schools are paying rates reflecting their demographic and risk profile.

Financial Modeling Notes

▪ The four institutions with projected cost increases under this scenario are entities whose fully-insured rates do not wholly reflect their risk.

▪ No credibility adjustment was applied when developing institution-specific rates. In practice, the premium equivalent rates would be established with credibility adjustments by institution based on covered lives.

Implementation notes and financial impact of consolidation

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Estimated savings of

2.5% to

7.0% to USHE’s current total health & welfare spend

13 institutions project to have cost savings

4 institutions project to have increased costs

Establish a Risk Pool for All Institutions – Pooled Rate

Cons

▪ Potential limitations on flexibility of:

– Plan designs

– Networks

– Vendors

– Business partners

▪ If only some benefits are consolidated, administration could be burdensome

▪ Single rate for all institutions necessarily means some institutions are winners and some are losers

All USHE institution pool risk of benefits.

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Pros

▪ Reduced costs

– Economies of scale reduce short- and long-term costs

– Reduced administrative expenses

– Reduced stop-loss costs

– Reduced cost volatility

– Potential for direct contracting with networks

▪ Reduced benefits administrative burden for each school

– With benefits managed at a consolidated level, HR and benefits managers at the individual schools will be able to relinquish much of their benefit management responsibilities, freeing them up for other tasks

▪ Increased opportunity for selecting high-quality vendors

– Input from individual institutions will result in the selection of the highest quality business partners and vendors

Establish a Risk Pool for All Institutions – Pooled Rate – Implementation & Financial Impact

Implementation Notes

If USHE member institutions establish a single risk pool, we make the following recommendations:

▪ Select a managing committee who will be tasked with making benefit decisions, vendor negotiations, contracting, and employee benefit support.

▪ We recommend that a portfolio of plans are made available from which member institutions could select from.

▪ We recommend securing multiple network partners to minimize disruption to institutions employees and the respective benefit programs.

▪ We recommend that the pool work with a third-party for claims administration.

Implementation notes and financial impact of consolidation

MILLIMAN FEASIBILITY STUDY FOR CONSOLIDATION OF BENEFITS - USHE

Estimated savings of

2.5% to

7.0% to USHE’s current total health & welfare spend

5 institutions project to have cost savings

12 institutions project to have increased costs

Form a Separate Entity to Manage Pooled Risk

Pros

▪ Many of the same benefits of a consolidated risk pool

▪ Reduced costs

– Economies of scale reduce short- and long-term costs

– Reduced administrative expenses

– Reduced stop-loss costs

– Reduced cost volatility

– Potential for direct contracting with networks

▪ Reduced benefits administrative burden for each school

– With benefits managed at a consolidated level, HR and benefits managers at the individual schools will be able to relinquish much of their benefit management responsibilities, freeing them up for other tasks

▪ Increased opportunity for…