University to replace Health Net and PacifiCare with a new medical plan in 2012; offers incentive for insurance premium discount

L.A. Cicero Portrait of Randy Livingston

Randy Livingston, vice president for business affairs and chief financial officer

In a move aimed at curbing rising health care costs while continuing to provide employees access to high quality health care, Stanford will replace two costly HMOs – Health Net and PacifiCare –with a new medical plan that will be administered by Blue Shield beginning in 2012.

The university also is encouraging employees to participate in the BeWell Employee Incentive Program and become eligible for a discount on their 2012 medical plan premiums. 

Stanford is making the changes now so the university will be in the best possible position to support the health and wellness of its population while still offering affordable health plan choices.

"These changes in our medical care plans are not just about slowing the rising cost of health care," said Randy Livingston, vice president for business affairs and chief financial officer at Stanford.

"They're also about having a healthier population of employees and dependents. We believe a healthier population will lead to more productive and happier employees – and help Stanford reduce health care costs. Hence, we have a big focus on integrating the BeWell @ Stanford Program into our new health care benefit design."

The new medical plan will be known as the Exclusive Provider Organization (EPO), which will offer the same benefits now covered by Health Net and PacifiCare next year. Copayment amounts will remain the same –$20 for visiting a primary care physician and $35 for visiting a specialist in 2012.

Stanford will begin distributing detailed information about the new medical plan to employees in mid-August, with information about the cost of employees’ premiums in early October.

The EPO will be one of four medical plans available to employees in 2012. The others are plans already offered: Kaiser Permanente (an HMO); the Blue Shield Preferred Provider Organization (PPO); and the Blue Shield High Deductible PPO. (Information on the current Kaiser and Blue Shield medical plans offered by Stanford can be found on the university's Benefits website.) 

Kaiser Permanente will be the low-cost plan for employees again in 2012.

Employees who enroll in the new EPO medical plan will be able to choose doctors and specialists from Blue Shield’s medical provider network – the same network available to employees who sign up for the PPO and High Deductible PPO plans.

The majority of employees who are currently enrolled in Health Net and PacifiCare will find their doctors and specialists listed in the Blue Shield provider network directory. 

Employees who enroll in the new EPO will continue to have access to doctors and specialists at the Palo Alto Medical Foundation. 

Under the new medical plan, employees also will have access to doctors at Stanford Hospital & Clinics and at Lucile Packard Children's Hospital. The Blue Shield network is international, which will be important to employees who have dependents living in other states or countries. 

Next year, Stanford is more closely integrating its BeWell @ Stanford Program into its health care benefit design. Employees who complete two components of the BeWell Employee Incentive Program – the Stanford Health and Lifestyle Assessment (SHALA), and a Personal Wellness Profile – by Nov. 30, 2011, will be eligible for a $20 discount per pay period on their medical plan premiums in 2012.  This incentive is available to all employees, regardless of which health plan they enroll in – even for those who waive coverage at Stanford.

Livingston said the aim is to tie health and wellness to the cost of health care coverage.

"We believe that employees who actively manage their health and lifestyle will be more productive and incur lower health care expenses over time," he said.

In 2012, Stanford also will introduce a customized care management program in partnership with Stanford Medical Center for enrollees in any of the three Blue Shield plans. The goal is to help plan members better manage chronic conditions as well as multi-faceted diseases that require specialized care.  

In a recent interview with Stanford Report, Livingston and Les Schlaegel, associate vice president for  benefits, answered questions about the new medical plan and other changes the university is making to its medical care offerings in 2012.

Chart of the annual total healthcare premium

(Click image to enlarge)

SR: Why is Stanford dropping Health Net and PacifiCare? 

LIVINGSTON: We realized that Health Net and PacifiCare are no longer as competitive as they once were. If we go back 10 years, the cost of participating in Health Net and PacifiCare was just about the same as participating in Kaiser. Since then, the gap between them has spread. Now Health Net and PacifiCare have much higher premiums than Kaiser. 

SR: Why is Stanford changing its medical plan offerings in 2012? 

LIVINGSTON: The rising cost of health care is one of the real economic challenges we face as a university – like all employers. Over the last 10 years, the cost of health care per employee has been rising by an average of 12 to 15 percent a year.

Also, the new health care legislation – the Affordable Health Care Act – passed last year really got our attention, because it includes, among other provisions, a potential 40 percent excise tax on high-cost health plans. While that provision isn't triggered until 2018, we ran some projections for the premiums for Stanford health plans and found that all of our plans are on a trajectory to exceed the excise tax threshold. The way the legislation is written that tax could fall to either the employer or the employee. We told employees last summer – in a 2010 Health Care Reform Update – that if our medical plans were subject to the excise tax, that tax would be passed on to them. That means employees would have to pay a 40 percent excise tax on the amount of the premium above the threshold. So it's quite a substantial penalty.

SR: What are the advantages of an Exclusive Provider Organization?

LIVINGSTON: The EPO is not an insurance plan. Instead of paying a premium to a health insurance carrier, Stanford will pay employees’ health insurance claims. In this respect, Stanford is the insurer, and carries the associated risk. We believe we have a large enough population that we can absorb that risk ourselves. Blue Shield will process claims and paperwork as the plan's third party administrator.

The new EPO gives us much more flexibility in plan design, so we are able to introduce a customized care management program. It is not possible to identify people with serious chronic conditions in an insured plan (like Health Net or PacifiCare) and have them participate in a customized care management program tailored to their particular needs.  

SCHLAEGEL: Employees enrolled in the EPO must go to doctors and specialists who are in the Blue Shield medical provider network. In contrast, the Blue Shield PPO and High Deductible plans allow employees the freedom to go to any doctor or specialist of their choice – inside and outside the network – but out-of-pocket costs are substantially lower and more predictable when employees go to a Blue Shield network provider. We expect the EPO will have lower premiums than the Blue Shield PPO.


  Chart of the annual medical plan cost

(Click image to enlarge)

SR: Should employees who switch to the EPO from Health Net and PacifiCare expect premiums to be higher next year?

SCHLAEGEL: We are still in the process of determining the cost of the EPO. There are two factors working here: normal health care inflation and the price of Kaiser Permanente, our low-cost plan (the university bases its contributions on the Kaiser Permanente plan, and employees pay the difference in the cost between the Kaiser HMO and the plan they choose).  We anticipate employees who select the EPO could pay more than they do for their HMO today. However, had we continued to offer Health Net and PacifiCare in 2012 employees could expect increases to those plans also. 

SR: Why did Stanford decide to offer $20 per pay period discounts on premiums to employees who participate in the BeWell Employee Incentive Program? 

LIVINGSTON: Because those employees are really paying attention to their health by completing the Stanford Health and Lifestyle Assessment (a confidential online health risk assessment that takes only 20 minutes to complete); having their biometrics – including a blood test for cholesterol levels – measured along with a health counseling session; and creating an individualized wellness plan. If employees complete those components this year – the deadline is Nov. 30, 2011 – they will receive a $480 discount on their premiums in 2012.

SR: Is there something employees can do now to see if their doctors and specialists are included in the Blue Shield network?

SCHLAEGEL: Yes. Employees can do an online search of the "Find a Provider" section of Blue Shield’s website  to see if their doctors and specialists are listed.

SR: What about prescription medications?

SCHLAEGEL: Employees can also do an online search of Blue Shield's website to see which drugs are in its drug formulary – its list of approved prescription drug and cost-effective generic alternatives. If their medications are not in Blue Shield's formulary, employees should look for equivalent drugs.

SR: What if one of my doctors or specialists is not in the Blue Shield provider network?

SCHLAEGEL: If you are under a provider’s care, and now they're not in the Blue Shield network any longer because of this change, we have what we call "transition of care.” For up to 90 days after Jan. 1, you continue to go to that provider, and get the benefit as if that provider were in the network. It gives you another 90 days to find a different arrangement.  One of the reasons we will be distributing detailed information about Blue Shield's network in mid-August is to give employees time to think carefully about their options. If their doctors are not in the Blue Shield network and they want to continue seeing them, employees might want to consider enrolling in the Blue Shield PPO. We will include information about what an employee needs to do to access this transition plan in the communications to be sent out this fall.

SR: What is the customized care management program?

LIVINGSTON: Under the customized care management program provided by Blue Shield, we will give employees with severe, chronic illnesses access to a dedicated care management team, which will coordinate their care and ensure they are staying on an appropriate course of treatment. The idea is to help people with serious chronic diseases – diabetes, cancer or congestive heart failure, for example – gain control of their condition and manage their disease effectively.

The aim is to keep them healthy and avoid costly and dangerous health crises. Stanford employees may "self-identify" as patients with severe, chronic illnesses and request a dedicated care manager from Blue Shield. In addition, Blue Shield will also identify employees with severe, chronic illnesses by reviewing their medical claims and some of the information collected under the BeWell @ Stanford Program.

All these programs and services will be administered under strict rules of confidentiality and laws which provide protection for an individual’s health information.

SR: Who will have access to the new customized care management program? 

LIVINGSTON: Employees and dependents enrolled in the Blue Shield plans will be invited to participate based on their medical profile. Employees enrolled in the Kaiser HMO already benefit from the HMO’s care management plan.

Chart of the annual medical plan cost per employee

(Click image to enlarge)

In addition, Stanford will provide Blue Shield participants with multi-faceted, complex diseases a new program, the Ambulatory Care ICU Program, created by Stanford Medical School and Stanford Hospital & Clinics. 

SR: What is an Ambulatory Care ICU?

SCHLAEGEL: An Ambulatory Care ICU is a new form of "walk-in" intensive care expressly designed to prevent costly and dangerous health crises among patients with severe, chronic illnesses. Employees who qualify for the new program will receive an increased level of medical attention, with medical care available 24/7. This new program is expected to be available in the summer of 2012.

SR: What other steps will Stanford be taking to curb health care costs?

LIVINGSTON: One of the problems of the U.S. health care system is that individuals don't have the tools to become "good consumers" of health care. Most patients have no idea how much a doctor's visit, a procedure or a diagnostic test costs. Yet, it's not uncommon to find huge price differences among providers within the same network and geographic area.  Individuals also have difficulty comparing quality and outcomes among different providers in their network.  Providers and insurance companies have been unwilling to share this kind of information. 

We are exploring an online tool that provides an inside look at health care costs and quality within the provider network. We very much want to engage our employees as partners in becoming better and more knowledgeable consumers of health care.

SR: Do you hope that employees will help lower health care costs by using that tool?

LIVINGSTON: We would watch whether employees change their health care decision-making based on the availability of this kind of information. We haven't decided yet whether we will take a more aggressive step in the future by changing the way some benefits are covered based on this information.

If we did decide to change the way certain benefits would be covered, Stanford would establish a “reference” price for an office visit, procedure or diagnostic test, and employees would pay the difference if they chose a higher-cost alternative. For example, if a procedure ranges in cost from $500 to $2,500, Stanford could decide to pay the median price; employees could still go anywhere they want for the procedure, but they would pay the difference between the median established by Stanford and the full price. The earliest Stanford would start this reference-based benefit would be 2013. 

SR: Is there a phone number to call for more information?

Call Stanford Benefits at (877) 905-2985 and press option 9.