Benefits Analysis Part I: Exposure Matrix Part II: Inventory of Benefits Part III: Benefits Analysis

RMI 3501 Dr. Drennan Fall 2011 Matthew Sullivan - 912434388 Charles Yan - 912681546

Table of Contents
Benefits Matrix...1 Inventory of Benefits..2 Overall Medical Expenses....2 Health Reimbursement Arrangement (HRA).....2-3 Health Savings Account (HSA).....3 Flexible Spending Account (FSA)......3-4 Dental....4 Vision........5 Prescription...5 Long Term Care6 Retiree Healthcare6 Loss of Income Death Basic Life Insurance...6-7 Optional Life Insurance......7 Group Universal Life Insurance.........8 Loss of Income Unemployment Severance8-9 Loss of Income Disability Short-Term Disability........9 Transitional Work Arrangement (TWA)..10 Long-Term Disability...10 Loss of Income Retirement 401k Plan..11 Other Loss Exposures Cash Accumulation Fund.11 Work/Life11-12 Dependent Care FSA12 Marsh Voluntary Package............12 Benefits Analysis.13-25

Benefits Matrix
Loss Exposure Is the Loss Exposure Coverage Provided Covered? Medical Expenses Yes Health Reimbursement Arrangement, Health Savings Account, Flexible Spending Account Yes DHMO, DPPO, Dental Select Option Yes Health Reimbursement Arrangement, Health Savings Account, Flexible Spending Account, Retiree HMO*, Retiree POS*, Retiree Indemnity* Yes Health Reimbursement Arrangement, Health Savings Account, Flexible Spending Account Yes Marsh Voluntary Benefit Yes Retiree HMO, Retiree POS, Retiree Indemnity, COBRA, Medicare Loss of Income: Death Yes Basic Life Insurance, Optional Life Insurance, Group Universal Life Insurance, 401(k) Plan, OASDI Yes Basic Life Insurance, Optional Life Insurance, Group Universal Life Insurance, 401(k) Plan, OASDI Yes Basic Life Insurance, Optional Life Insurance, Group Universal Life Insurance, 401(k) Plan, OASDI, Workers Compensation Loss of Income: Unemployment Yes Severance Pay, Unemployment Insurance Loss of Income: Disability Yes Yes Short-Term Disability Plan, PTO, TWA, OASDI Basic Long-Term Disability, Supplemental LongTerm Disability, TWA** OASDI

Overall Dental Vision

Prescription LTC Retiree Healthcare

Non-accidental, non-occupational

Accidental

Occupational

Unemployment Non-occupational Disability Short-term Long-term Occupational Disability Short-term Long-term

Retirement Educational Assistance Work/Life Exposures Dependent Care Property-Liability Legal Expenses *Applies after age 65

Short-Term Disability Plan, PTO, TWA, OASDI, Workers Compensation Yes Basic Long-Term Disability, Supplemental LongTerm Disability, TWA**, OASDI, Workers Compensation Loss of Income: Retirement Yes 401(k) Other types of Loss exposures: Yes Cash Accumulation Fund Yes PTO, Vacation Days, Employee Assistance Program Yes Dependent FSA Yes Marsh Voluntary Benefits No N/A

Yes

**Does not apply for long-term disability for over 25 consecutive months.

Cigna is one of the largest health services firms in the United States. They are currently dually headquartered in Philadelphia, Pennsylvania and Bloomfield, Connecticut. The firm currently employs almost 30,000 employees to better serve their clients in health services. As a health services organization, Cigna offers a wide array of benefits through their Signature Benefits Program that attract and retain new employees and also satisfies the loss exposures of their well- knowledge employees. The majority of the benefits that Cigna offers are self-funded as they are one of the largest and most stable health services firms. AM Best1 issued Cigna with an A rating for financial strength and with an outlook of very stable. Almost all of the benefits that Cigna offers their employees promote better well-being and increased knowledge of personal health. Overall Medical Expenses Health Reimbursement Arrangement (HRA) Cigna offers a self-funded HRA which is administered through an ASO with Cigna Healthcare. Every Cigna employee is eligible to participate in the HRA immediately after they have completed the HealthQuotient, a confidential health risk assessment. Employees can have their eligible dependents, spouses, and domestic partners covered under the HRA as well. This HRA is a contributory benefit and Cignas goal is to finance 76% of the cost and to have the employee finance 24%. There are multiple options to choose from based on how large each employee wishes their out of pocket maximum to be. Once the out of pocket maximum is reached, there is 100% coverage for covered expenses. For any option an employee chooses, there is a benefit enhancement for deciding to stay in the Cigna network. Cignas contribution to each employee amounts to $750 for employee only coverage and $1,500 if the employees dependents and spouses are covered as well. Cigna also contributes $250 per year if an employee and their covered family members participate in their Well Aware Chronic Obstructive Pulmonary Disease, Diabetes, and Cardiac programs. Cigna also contributes $150 for participation in
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AM Best rating taken from www.ambest.com

their Healthy Pregnancy, Health Babies Care Coaching program in the first trimester and $75 if they join in the second trimester. Cigna will also make a $150 contribution for use of a Center of Excellence. There is a Lifetime Maximum of $2,000,000 per covered life. Once this limit is reached, coverage is dropped. Health Savings Account (HSA) Cigna also offers another CDHP option in the form of an HSA. The HSA is self-insured and administered through Cigna Healthcare by an ASO. A HSA is set up through JPMorgan Chase. The same persons can be covered as in the HRA, with the same requirement of the HealthQuotient. There are 2 options of HSAs based on if the employee wants to use the Cigna network or utilize out of network services. For either option Cigna contributes $200 to each fund for employee only coverage and $400 if the employees dependents and spouses are covered as well. Cigna makes the same additional contributions for the same participation in programs as in their HRA. Cigna also will match employee contributions to their HSA in the amount of $200 for employee only coverage and $400 if employees dependents and spouses are covered as well. The maximum an employee can contribute by pre-tax contributions through payroll deduction is $2,500 for employee only coverage and $5,000 if the employees dependents and spouses are covered as well. The out of pocket maximum for in network services is $4,000 for employee only coverage and $8,000 if the employees dependents and spouses are covered as well. For out of network services, the maximums are $6,000 and $12,000 respectively. Once the out of pocket maximum is reached, 100% coverage applies to all covered expenses. The same Lifetime Maximum applies of $2,000,000 per covered life. There are benefit enhancements for choosing to stay in network which include Preventive Care Screenings at no charge. Flexible Spending Account (FSA) Another benefit that Cigna offers its employees is a Healthcare Flexible Spending Account (FSA). An employee is eligible to enroll on the first day of employment at Cigna. An employees legal 3

spouse and dependent children can also be covered under this benefit. The FSA is funded completely by employee pre-tax contributions through payroll deductions. The maximum that an employee can contribute into an FSA per year is $5,000. Cigna will take these deductions and deposit them into a trust fund. An employee cannot use their FSA for expenses that they are covered under another benefit like Medical or Dental plans. Employees can use their FSA for expenses from prescription drugs, vision care, physical therapy, and other covered expenses. Any funds remaining in the FSA after one year will be forfeited to Cigna which can help pay for the administrative expense. Dental Cigna provides Dental coverage that is self-funded and administered through an ASO by Cigna Healthcare. The cost of coverage is contributory, with Cignas objective to pay about 60%, with the employees to cover the remaining 40%. Contributions can be made with pre-tax contributions unless the employee works in Puerto Rico, where they are made after-tax. Cigna offers three options for Dental coverage: Dental HMO, Dental POS, and Dental Select Option. Under the Dental HMO Option there is no deductible and no co-insurance. There is also no charge for routine checkup, fillings and other basic services. There is no coverage for employees that utilize out of network services. Under the Dental POS Option, there is a $25 deductible per person and $75 per family in the network and $100 and $300 respectively for out of network services. There is a $2,000 maximum benefit limit per year. There is a 50% co-insurance after the deductible for inlays, crowns, dentures and orthodontics. For out of network utilization, the co-insurance is a lower rate. Under the Dental Select Option there is a $25 deductible per person and $75 per family. The maximum benefit per year is $2,000 per person. There is 50% coinsurance after the deductible for inlays, crowns, dentures, and orthodontics. The Dental Select Option is only offered in areas where the Dental HMO and Dental POS are not offered.

Vision Cigna provides vision coverage through their HRA, HSA, and FSA plans. The HRA and HSA plans are offered on a contributory basis and cover periodic and routine vision exams to determine if corrective lenses are needed. Unfortunately, both of these plans do not cover the fitting of contact lenses and glasses. The FSA plan that is funded by full contributions from the employee also covers the routine vision exams. The FSA also covers contact lenses and glasses and even can be used to cover lasik eye surgery. Prescription Cigna offers prescription coverage through their HRA, HSA, and FSA healthcare benefits. The HRA and HSA plans that are both contributory cover two types of prescription drug benefits. The first program is called the Retail Prescription Drug Program. Under this program, an employee can have prescriptions filled at any participating pharmacy. The employee will pay the discounted cost of each prescription until they reach their deductible. After an employee has met their deductible, they will pay co-insurance for each 30-day supply filled at a network pharmacy. The co-insurance amount will depend on the type of drug the employee receives. Cigna has a drug list which classifies drugs under: Generic, Preferred Brand Name, and Non-Preferred Brand Name. The highest co-insurance will be for generic drugs and the lowest will be for non-preferred brand name drugs. The second program is called the CIGNA Tel-Drug Mail-Order Prescription Program. This program allows employees to have their prescriptions filled by mail-order for up to a 90 day supply. Under this program, an employee pays the discounted cost of the prescription until they reach their deductible. After this, co-insurance will apply and will vary based on the classification of drugs as mentioned in the Retail Prescription Drug Program. Both programs do not include certain drugs like diet pills and growth hormones. Through the FSA plan that is fully contributory by the employee, prescription drugs are considered a covered expense. All prescription drugs can be covered unless they are considered to be for cosmetic purposes.

Long-Term Care Cigna offers a Long-Term Care benefit on a voluntary basis. Employees pay the entire cost of this benefit and choose the level of coverage they would like. Cigna has contracted with Marsh to provide this to their employees. Marsh has also been contracted by Cigna to provide their employees with other voluntary benefits involving Group Insurance. Retiree Healthcare Cigna offers three types of Retiree Health Care plans for eligible employees: Retiree HMO, Retiree POS and Retiree Indemnity. The employee must have been a full-time employee by a Cigna company, must participate in their Signature Benefits program, be at least age 55, and have at least been with Cigna for 5 years. Cigna also offers the retiree health care plan to surviving spouses, dependents or domestic partners of the eligible employee. Under the retiree HMO, employees can choose from a list of participating health care providers, no out-of-network coverage is offered. Under the POS option, both in and out-of-network coverage is offered, however, the out-of-network coverage includes a deductible. The Retiree Indemnity option will reimburse employees for a portion of their covered medical expenses after the employee has met the deductible. All of the retiree healthcare options offer coverage for Dental, Vision, and Prescription drugs just like the active employee healthcare options. Loss of Income Death Cigna offers three types of Life Insurance to their full-time, regular employees: Basic Life Insurance, Optional Life Insurance, and Group Universal Life Insurance. All of these options are offered through Cigna Group Insurance and vary in how they are financed. Basic Life Insurance A Basic Life Insurance plan is offered by Cigna to their employees. Employees are automatically eligible for Basic Life Insurance the day they start employment with Cigna. An employee does not need 6

to enroll in this plan, Cigna automatically enrolls each employee and pays the entire cost on a noncontributory basis to the employee. Cigna offers term life insurance coverage that is equal to one times the employees eligible earnings. An employees earnings will be paid to the beneficiary on the policy after the death of the insured from any cause. There is also an accelerated death benefit that will pay either 25% or 50% of the policy in a lump sum payment if the employee has been diagnosed with a terminal illness. Also offered through Basic Life Insurance is Business Travel Accident Insurance. This will provide coverage if an employee dies while away on business travel of any kind. For this benefit, Cigna offers three times the employees eligible earnings with a minimum of $100,000 and a maximum of $1,000,000. Optional Life Insurance Cigna also offers their employees an Optional Life Insurance option. Employees are automatically eligible to enroll in this benefit on their first day of employment with Cigna. Unlike, the Basic Life Insurance plan, employees must enroll themselves in this plan if they wish to get coverage. The benefit is offered to employees on a fully-contributory basis with after-tax dollars through payroll deductions. The cost of the benefit depends on the level of coverage each employee wishes to seek and whom they seek coverage for. Employees can get coverage for themselves and any spouse or covered dependents they have. The Optional Life Insurance plan offers a Personal Accident Insurance (PAI) option. The PAI pays 100% if an employee or covered dependent dies as a result of an accident and will pay a full or partial benefit if an employee or covered dependent is paralyzed or loses body parts or members. Purchase of PAI for employee increases in amounts of $25,000 up to a maximum of $500,000. Coverage that passes the $250,000 amount is subject to a maximum of 10 times the employees eligible earnings. PAI pays 100% of the benefit amount within 365 days of a covered accident of loss of life.

Group Universal Life Insurance Coverage (GUL) Cigna also offers an additional life insurance plan through their Group Universal Life Insurance Coverage (GUL). This plan is financed completely by the employee with after-tax dollars through payroll deduction and is offered through Cigna Group Insurance. The GUL plan allows employees to purchase additional permanent life insurance coverage for themselves and their spouse or domestic partner and term insurance for their dependent children. An employee can purchase coverage for themselves up to 10 times their eligible earnings with a maximum of $3,000,000. An employee can purchase coverage for their spouse up to 3 times their eligible earnings or $150,000 whichever is less and may purchase $5,000 or $10,000 coverage on a term basis for each covered child. Benefit payments under $5,000 will be paid in a lump sum payment and any payments over $5,000 will be deposited into a personal checking account. All Cigna Life insurance plans ends when the employee retires, terminates, or dies. Loss of Income Unemployment Severance Package Cigna offers a severance package to most full-time employees that have been terminated from their employment. This benefit is funded and administered by Cigna. Cigna pays the entire cost of severance. There are 2 options offered to employees, Schedule I-A and Schedule I-B. Under I-A, two weeks of severance pay is provided at the employees base salary for each completed year. The chart of Schedule I-A benefits is provided below:

Schedule I-B provides severance pay at the employees base salary regardless of length of service. The chart of Schedule I-B benefits is provided below:

All severance benefits that are offered by Cigna are contingent upon the employee releasing Cigna and all officers and employees from any liability related to their employment and that the employee will not solicit any customers or employees of Cigna to end or change their relationship with Cigna for one year following the employees termination. Loss of Income Disability Short Term Disability (STD) Cigna provides their employees with a Short-Term Disability plan. Cigna offers this benefit on a non-contributory basis to the employee. To qualify for this plan the employee must be a full time employee and enrollment is automatic the first day of employment with Cigna. Only employees can be covered under the STD plan, no dependents can be covered. An employee is covered under the STD plan if the cause of disability is of a medical condition related to an accident, illness or pregnancy. An employee receives 100% of base salary for the first six weeks absence and receives 75% of base salary for 20 weeks after. STD coverage ends when a Cigna employee changes from full-time status, the employee is terminated or if Cigna terminates the plan. Under Cignas STD plan, there is also a Paid Time Off (PTO) benefit. The first 5 days of a disability leave will be funded by an employees PTO time. An employee will receive 100% of their salary for the first 5 days regardless of their service time.
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Schedule charts provided from Severance Summary Plan Description of Cigna

Transitional Work Arrangement Cigna also offers their employees a Transitional Work Arrangement (TWA) option. The TWA option gives employees the ability to return to work at a reduced function if they are able to perform at least 50% of their work duties. Through the TWA program, employees will work less than regular hours and receive their pro-rated pay for that period. To supplement the difference, employees will receive partial STD benefits which should accumulate with their pro-rated pay to their normal salary. Basic and Supplemental Long Term Disability Cigna offers a Long Term Disability (LTD) Plan for all full-time employees under an insurance contract by the Life Insurance Company of North America. Cigna includes two parts within the LTD plan: Basic LTD and Supplemental LTD. Employees are automatically enrolled and covered for the Basic LTD on the first day of work and Cigna pays the full cost of the plan. The Supplemental LTD plan is optional, coverage begins when an employee decides to enroll and they pay the entire cost for coverage with pre-tax dollars through payroll deductions. An employee is covered under the LTD plan if the disability is of an injury or sickness and if the employee is unable to perform all their work duties. Cigna offers LTD benefit payments after an employee has completed the applicable waiting period. The LTD benefit amount is given on a monthly basis and is equal to the gross disability benefit minus other income benefits. The Basic LTD plan is equal to 50% of the employees monthly eligible earnings while the Supplemental LTD plan is equal to an extra 15% of the employees monthly eligible earnings. Both LTD plans combined will provide an employee benefit amount equal to 65% of the monthly eligible earnings. LTD benefits end when an employee has earned 80% of their indexed covered earnings on their regular job or if employee has passed the maximum benefit period at age 65. Loss of Income Retirement

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Cigna 401(k) Plan Cigna offers all of their employees a 401(k) plan as a retirement benefit. The Cigna 401(k) Plan is a contributory benefit as employees can make contributions into their 401(k) account and Cigna matches these contributions. All employees are automatically enrolled in this program upon their first day of employment with Cigna. Employees can make pre-tax contributions through payroll deductions up to 16% of their salary. Employees can choose to make any contributions from 0% up to 16% without paying taxes on those contributions. Cigna will match employee contributions up to 6% of the employees salary. Employees are considered fully vested after 2 years of employment. Employees are 100% vested in their own contributions but must fulfill 2 years of employment to gain 100% of Cignas contributions into their 401(k) account. If an employee ceases employment with Cigna before the full 2 years, at least part of their funds will be forfeited. Other Types of Loss Exposures Cash Accumulation Fund Cigna offers their employees a Cash Accumulation Fund to help cover education expenses. This benefit is optional to employees and is offered on a fully contributory basis to employees. The Cash Accumulation Fund allows employees to accumulate cash which can be used for college tuition and other educational expenses. This benefit can be used by the employee, the employees spouse, and dependents of the employee. The employee can make pre-tax contributions to this fund by payroll deductions. Interest earnings in the Cash Accumulation Fund are tax deferred. Employees will pay taxes on the interest if they withdraw more than their total contributions. The interest rate for the Cash Accumulation Fund can fluctuate but will never be less than 4%. Work/Life Benefits Cigna offers their employees multiple benefits that help them cope with both work and personal life problems. Cigna has an Employee Assistance Program (EAP) to help employees deal with any 11

problems they might have. The EAP helps address employees personal problems, specifically mental hazard issues. Every employee has the right to utilize this benefit, even if they are not enrolled in any other benefit plans. Cigna also offers Paid Time Off (PTO) and vacation days. Employees receive 100% of salary during PTO, when they have suffered from any illness or injury that restricts them from working for short periods of time. Cigna also provides their employees with multiple vacation days per year depending on their service time. Employees can sell back their vacation days to Cigna and even buy 2 more vacation days per year. Dependent Care FSA Cigna offers their employees a Dependent Care FSA to cover expenses involving their dependents. This benefit is offered to all employees on a fully contributory basis and is self-administered by Cigna. The employees are able to make pre-tax contributions through payroll deductions. The maximum amount that an employee can contribute is $5,000 annually and the employee must contribute at least $100 to be eligible for this benefit. The funds in the Dependent Care FSA can be used for covered expenses like child care, housekeeping related to child care, and dependent care in a licensed facility. The Dependent Care FSA cannot be used for any expenses that are not considered a covered expense. At the end of the year, any expenses that are left in the account are forfeited to Cigna to help pay for the administrative costs of applying the plan. Marsh Voluntary Package Cigna offers a multitude of property-casualty benefits through a contract with Marsh. These benefits are offered on a voluntary basis to employees, Cigna makes no contributions to any of these benefits. Employees can make after-tax contributions through payroll deductions. Some of the benefits that Cigna offers their employees include: Group Auto Insurance, Group Homeowners Insurance, and Pet Insurance. Employees take advantage of these benefits because of the convenience factor by just being able to take payroll deductions to pay the premiums. 12

Part III: Benefits Analysis

Introduction & Background of Cigna Cigna3 has a very long and rich history as it was formed by the merger of two of the oldest insurance companies, the Insurance Company of North America (INA) and Connecticut General Life Insurance Company (CG), in 1982. After this merger, Cigna became one of the largest insurance companies in the world, offering both property-casualty coverage as well as employee benefits lines. In 1998 and 1999, Cigna sold off its life insurance business to Lincoln National Corporation and their property-casualty line to ACE. Since then, Cigna has sold off different lines including their individual and group life re-insurance to a subsidiary of Swiss Reinsurance Company and their retirement business to Prudential. Cigna has also focused on acquiring new health services firms, health networks, and technology firms to expand their employee benefit lines. All of these actions have been an attempt for Cigna to become a global health services firm. Cignas deals have proven effective as they are now a major health services firm that is dually headquartered in Philadelphia, Pennsylvania and Bloomfield, Connecticut. Cigna has accomplished their goal of becoming a global firm as they currently operate in 29 countries around the world. Most recently, Cigna has started business in Singapore and Turkey in 2011. In 2010, Cigna acquired Vanbreda International and began their reputation as leader in international benefits. They are one of the largest players in the health services industry, serving over 66 million customers worldwide, as it employs nearly 30,000 employees to serve their large

All history provided from www.cigna.com and interview with Mr. Wolf

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customer base. Cignas future plans include becoming solely headquartered in Bloomfield, Connecticut and to continue to expand operations in foreign countries. With nearly 30,000 employees contracted with Cigna, there are around 47,000 lives covered under some type of benefit offered. To help understand all of the benefits that Cigna offers under their Signature Benefits Program, Jim Wolf has offered his guidance with many years of expertise with Cigna. His current title is Director of Employee Benefits and Plan Strategy. Jim deals directly with the consultants of Towers Watson to design the best package for Cignas employees. His primary functions also consist of overseeing the regulatory compliance, administration, and communication of the benefit program. Jim has helped keep Cigna ahead of many of the new regulations and the industry trend to more consumer driven options. Design Considerations and Objectives in Offering Employee Benefits Cigna offers an extensive benefits package to their employees and covered dependents through their Signature Benefits Program. The reasoning behind this is to stay competitive with the industry and to promote better health within their employees. Cignas mindset is that a benefits program should be only a factor in an employees decision to join or stay with Cigna. For those employees that make benefits their primary factor, they are usually thought of as the individuals that are going to cause an adverse selection problem. Cigna believes that if they can remain competitive with the industry in their benefits program, that their workplace environment will sway prospective employees to be a part of Cigna. To remain competitive within their industry, Cigna offers their employees multiple options of health coverage and also dental, vision, prescription drug, life insurance options, disability, and retirement options. To

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attract and retain their own employees, Cigna believes it has become the norm within their industry to offer all of these benefits. Some of Cignas largest competitors are Aetna and United Health Group. When offering benefits to their employees, Cigna keeps these organizations in mind and tries to stay on par with them. A major difference Cigna believes they have from their competitors is that they offer benefits that will make their employees attentive to their personal health situations. Cigna offers an extensive Employee Assistance Program (EAP) that promotes employee health and provides assistance to any employee in need of advice or recommendation, both personal and work related. They also offer a wide array of wellness programs and health initiatives. Cigna believes their EAP and the wellness programs and initiatives give them a competitive advantage in regards to their competitors. Cigna appears to be accomplishing their objective based on their good retention rates and high employee satisfaction. Employees have been responding well to the freedom of choice and the increase attention to their own healthcare. Demographics Cignas situation is different from most companies offering benefits to their employees in the sense that they are a health services firm offering benefits lines to businesses as well. When deciding which benefits to offer, they have to understand that many of their employees have extensive knowledge in the benefits field and know what products will provide the best value to them personally. This is also a main reason why Cigna has tried to stay ahead in the trends of the industry. With employees of high knowledge, they know where the industry is going and what new products will be providing the most coverage, so it is Cignas responsibility to continuously provide their employees with the most advanced products, like their CDHPs. Obviously Cigna has employees that do not have extensive knowledge in the benefits industry as well. With nearly 30,000 employees, Cigna has locations around the United States and also
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around the world. This is also a factor in plan design when they are electing which benefits to offer to their entire work force. The age range of Cigna employees is very large considering they have 30,000 employees. Because of this, Cigna must offer a wide array of benefits that can be utilized by employees in different life cycles. For all employees, Cigna provides Summary Plan Descriptions (SPDs) for all of the benefit options they offer. These SPDs are extensive and go as far as to explain everything that is covered, not covered, how to enroll, and even how to dispute claims. All of the SPDs are hosted on the Cigna website for all employees to have easy access to any information regarding their benefits package. Cigna also has toll free hotlines that are listed in each SPD for employees to call regarding any issues or concerns they may have about their plan. Financing and Funding Funding is a main factor in the benefit plan design that Cigna offers to their employees. Cigna has elected to self-insure almost all of the benefits that they offer to their employees. All of the healthcare benefits they offer are self-insured and administered by Cigna Healthcare through an ASO contract. Their vision and prescription drug coverages are all offered through these medical plans that are self-insured. Cigna has decided to self-insure these benefits because they believe the wellness programs they have established have produced a reliable and consistently good claims history. For Long Term Care, Cigna has elected to contract with Marsh to provide a voluntary benefits package to their employees. Through this package, employees can elect which level of coverage for LTC they need and can have their premiums deducted from their payroll after-tax. Employees can also elect to receive coverage for Group Auto, Group Homeowners, and even Pet Insurance through this package with Marsh. For Life

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Insurance, Cigna contracts with Cigna Group Insurance and the plan is administered by Cigna Group. The goal that Cigna has in all of their benefits is to finance about 75% of the cost of the plan, with the employee providing the remaining 25%. Cigna believes this is enough to provide substantial value to their employees, with the employee sharing a large enough cost to responsibly consume the benefits offered. Cigna also believes it is important to note when the employee contributions are taking place. That is why Cigna was at the front of the trend in implementing Consumer Driven Health Plans (CDHPs). When employees have to pay for the first dollar coverage and have to reach a limit with their own money before coverage exists, they will consume more responsibly to prevent using their own finances. This has been a major advantage to Cigna as they have kept their employees thinking about the true cost of benefits. For non-healthcare benefits, Cignas contribution levels vary between as little as 60% to as much as full contributions for term life insurance and other benefits. Cigna tries to exceed the industry average in contributions so they can attract and retain as many employees as possible without attracting adversely selected employees. Design of Health Benefits Cignas main objective in offering health benefits is to provide employees with rich coverage while giving the employees the decision making responsibility, but at the same time containing as much cost as possible. To meet this main objective Cigna offers an HRA, HSA, and FSA option to their current employees, different retiree healthcare options to their former employees, and a voluntary Long Term Care option.

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Consumer Driven Health Plans (CDHPs) In the past Cigna used to offer HMO and PPO options. During this time period, they experienced problems and friction with their employees. Many employees were not happy with the HMO because of the lack of choice to use their provider they liked if they were out of the network. Cigna also was growing less receptive to these options and when CDHPs started evolving they decided to implement them. The cost containment and employee decision making responsibility were two of the largest reasons Cigna decided to implement them. Now, Cigna only offers CDHPs for medical expenses. Cigna offers an HRA and multiple coverage levels of an HSA. The benefits that Cigna offers are very rich and can be customized to each employees needs. Cigna makes contributions to both the HRA and HSA to help subsidize the first dollar expenses that employees will have to make before the high deductible health plan coverage begins. Cigna also provides more contributions when employees participate in some of the wellness programs they offer, including the Well Aware Chronic Obstructive Pulmonary Disease, Diabetes, and Cardiac programs and the Healthy Pregnancy, Healthy Babies Care Coaching program. Cigna has seen increasing participation levels in these programs as employees want to capture more contributions from Cigna, but at the same time these programs are helping Cigna contain costs through having healthier employees. The more an employee participates in a wellness program, the more likely they will be to be more attentive to their personal health. To continue the upward trend in participation levels, Cigna has multiple outlets of communication to their employees. Cigna sends emails to all employees twice a month to remind them about all of the wellness programs they offer. Cigna also sends a newsletter to all

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employees once a year and has multiple health and wellness teams that are on site. This will reward Cigna in the form of fewer claims in the future, a happier employee at work, and an employee that will be able to work longer in their lifetime. Cigna has elected to self-insure the high deductible health plan after the HRA or HSA. Cigna also has Cigna Healthcare as the administrator for these benefits through an ASO contract. Cigna is comfortable self-insuring because they are a huge firm with stable income and a stable outlook in the future4. Cigna has also decided to self-insure these benefits because they believe their claims history is very credible and that they have taken the proper steps to contain costs and promote less unnecessary consumption of healthcare. During plan design meetings, Mr. Wolf has compared the claims experience to that of Cignas book of business and it has always been lower for Cigna employees. He attributes this to the increase awareness through the health and wellness programs and also the free preventive care benefits that are offered through their medical plans. Cigna believes if preventive care is free to employees they will utilize it more when necessary and can possibly avoid extremely large claims in the future. With the consistent increasing of costs in healthcare, this cannot be understated5. Due to the programs and benefits that Cigna offers their employees in health benefits, they have been able stay below the average claims in their book of business. This is proof that the health and wellness programs and initiatives they are offering have been effective and are helping save Cigna money. Even though some of these programs might be expensive to implement and maintain, they have proved to be worth it which is why Cigna continues them and is always expanding these initiatives.

4 5

www.ambest.com Bulk Pack Article: U.S. Health Care Trend Survey, Summer 2010

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Flexible Spending Account (FSA) Cigna provides their current employees with a Flexible Spending Account (FSA) option to help cover their medical expenses they incur. Employees do participate in this plan and Cigna has noticed many choose to complement their HRA or HSA with an FSA. Even though Cigna provides no financing through this plan, employees have shown their appreciation of before-tax payroll deductions in the fact that they are participating in this plan. Cigna administers this plan on their own with employees financing on a fully-contributory basis. Cigna still allows their employees to contribute up to $5,000 but this amount will be decreased to $2,500 beginning in 2013 due to PPACA6. This might cause some frustration with employees, especially the ones that rely solely on the FSA to cover medical expenses, but this is not something that Cigna can control. They have begun to communicate this change to their employees and there has been no backlash as of yet, but Cigna does expect some when the changes go into effect in 2013. Retiree Healthcare Cigna has decided to offer three options of retiree healthcare benefits to their former employees. These plans consist of: Retiree HMO, Retire POS, and Retiree Indemnity. They have elected to continue these benefits for their retirees because that is what their former employees are most comfortable with. Cigna views their retirees as stubborn in a sense and would not be very receptive to change. They feel as though their retirees appreciate the option of these three plans and they can elect which level of freedom they need in their healthcare options. If a retiree is mostly concerned with cost, Cigna provides the HMO option and if they want more
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Bulk Pack Article: Preparing for Health Care Reform A Chronological Guide for Employers

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freedom, they have the indemnity option. Cigna believes this is key because their retirees have different mindsets when it comes to healthcare after retirement. Cigna self-insures these plans as well and administers them though an ASO contract with Cigna Healthcare. The reasoning behind this is mainly that they are a stable, huge firm and believe they can control costs and end up with a lesser price than if they went out and purchased these options. Also, the wide location of Cigna retirees, could pose a problem if they looked to receive coverage. In the future, Cigna is moving towards dropping these HMO and PPO options and providing an indemnity wrap-around option. They have already begun offering this to their retired employees and believe it provides the best coverage and value to them. This indemnity wrap-around would provide coverage for medical expenses that Medicare does not cover or after coverage is exhausted through Medicare. So far, Cigna believes this option has been effective in providing the best coverage for their retired employees at the lowest cost and has reinforced their plan to drop the HMO and PPO options. Long Term Care Currently Cigna offers Long Term Care coverage by means of a voluntary benefit with Marsh. The convenience factor is prevalent for employees7. They enjoy the fact that if they elect coverage, they do not have to make any premium payments and Cigna will automatically deduct their pay after-tax. While looking towards the future, Cigna is beginning to think about offering Long Term Care on a contributory basis. They need to research the industry to see what their competition is offering their employees. While Long Term Care is not as big of a factor as
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Bulk Pack Article: Pricing Worksite Benefits Right: The Best Price is Not Always the Lowest When it Comes to Voluntary

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medical plans, employees with knowledge in the benefits field might start factoring this into their decision. During the current economy while many employers are dropping benefits or making them less rich, Cigna might elect to continue offering this as a voluntary benefit until the competition requires them to make an adjustment. But Cigna also knows how important it has been for them to stay ahead of the industry. Design of Other Types of Non-Retirement Benefits Cigna holds a standpoint, when it comes to employee benefits in general, of offering great value to their employees at low cost to Cigna. When offering other types of benefits, it is essential for Cigna to capture what their employees truly value. Cigna has found that their employees truly value work-life balance benefits. Some of the main benefits Cigna offers to their employees would be their Paid Time Off (PTO), vacation days, Employee Assistance Program (EAP) and Transitional Work Arrangement (TWA). Employees value the sense that Cigna truly cares about them and that their personal life is important as well. After healthcare, Cigna employees value these work-life balance benefits very highly. Communication of these benefits is extremely important. Employees need to know of these benefits to fully understand the notion that Cigna truly does care about them. Other benefits that employees value are their Severance and Disability benefits. Cigna employees want a sense of security. Cigna employees want security in their income if their employment with Cigna is to end. The severance package Cigna offers is rich in comparison to others and Cigna employees value this highly. They also value the Short Term and Long Term Disability benefits that Cigna provides. If anything is to happen, employees know they have security from Cigna. The STD and LTD benefits that Cigna offers are extensive and can cover

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anything from occupational to non-occupational accidents. This satisfies Cigna employees that know they will be covered no matter what the cause. Cigna also offers voluntary benefits to their employees through a contract with Marsh. Some of the benefits covered under this contract are Group Auto, Group Homeowners, and Pet Insurance. These benefits are offered on a voluntary basis, so employees do pay the entire cost, but Cigna believes that their employees appreciate the fact that Cigna acknowledges their personal exposures and provides an outlet for them to cover these expenses. Even though the employees are paying the entire cost, Cigna appears noble by their concern for their employees. Regulatory Compliance Cigna utilizes all of their resources to remain in compliance with the regulations of HIPAA, ERISA, PPACA and COBRA. Cigna has employees that concentrate on compliance with these regulations and retain lawyers to ensure compliance. They have taken great pride in the fact that they have been ahead of most of these regulations and stress attention to detail when designing each benefit to ensure regulatory compliance. Cigna has taken appropriate measures to ensure compliance with HIPAA. Cigna is especially exposed to violations of HIPAA with the utilization of many health and wellness programs. To ensure compliance with HIPAA8, Cigna has made a point to not offer advantages for losing weight or other milestones like that. Rather, Cigna offers advantages for just participating in certain programs. There are no requirements to meet, other than just attend. Cigna views attendance in these programs as enough to get employees to consciously view their personal health and hopefully make the necessary changes to create a healthier lifestyle.
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Bulk Pack Article: Overview: Final Regulations on HIPAA Nondiscrimination Provisions and Wellness Programs

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For COBRA compliance, Cigna contracts with an organization called Ceridian. Once an employee has become COBRA eligible, Cigna will provide Ceridian with the information of the qualified beneficiary and Ceridian handles the rest of the administrative process. Although this does not exempt Cigna from any fiduciary responsibility, Cigna prefers the administrative process to be taken care of by an outside party. Cigna contracts with Ceridian for all of their benefits they offer to their employees and provides their contact information in all of the SPDs so employees can contact them at any time with any questions about continuation coverage. To comply with PPACA Cigna actually has been very proactive in their adjustments. Some regulations Cigna implemented before PPACA were lifetime maximums, preventive care, waiting periods, and dependent child care9. Cigna had lifetime maximums in their plans but they were eliminated. The old lifetime maximum that Cigna had was $2,000,000 per covered life but when Cigna was hearing news about PPACA, they decided they would be ahead of the curve and eliminated this stipulation. Cigna also implemented changes in free preventive care and waiting periods. Cigna began offering preventive care at 100% coverage before it was required. Cigna saw this as a great way to contain costs especially in their CDHPs. They also always offered no waiting periods for their employees. Whenever an employee joins Cigna, coverage begins immediately after an election of benefits. Cigna also was ahead of the curve in dependent child care. Employees of Cigna were able to receive coverage for their children up to age 26 before PPACA was even passed. These changes and the others required by PPACA have cost Cigna millions of dollars to implement in their benefits plans. The amount of man-power and resources it took to decipher the regulations and find out what they would need to change was daunting in itself. Then Cigna actually had to make the changes to the SPDs and effectively communicate

Bulk Pack Article: Preparing for Health Care Reform A Chronological Guide for Employers

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all changes to every employee. This PPACA bill alone cost Cigna millions of dollars and is only one example of the costs that are incurred when new regulation occurs. As of yet, Cigna has not had any problems with complying with regulations. Cignas outlook of the new regulations are double sided in the sense of what they are offering their employees but also as their book of business to other firms. During the interview, Mr. Wolf expressed the fear of the unknown in the future. Most of the PPACA regulations are not coming until 2013 2018. He sees many employers struggling with the new regulations that will be forthcoming, if they are even allowed, specifically the preexisting condition exclusions. For Cigna, he believes there could be difficulties with multi state coverage. Cigna has employees in all 50 states and even outside of the United States. How the states are going to respond to these new regulations has yet to be seen and Mr. Wolf expressed the future in regulation is indefinite. Conclusion Overall, Cignas Signature Benefits Program is very rich and comprehensive for their employees. Cigna takes a great deal of time and resources to ensure employees needs have been met while also containing the cost of the benefits program. By implementing the new CDHP benefits and providing extensive wellness programs, Cigna has been able to offer broad benefits while consistently keeping low claims. Cigna takes their employees health very seriously and are legitimately concerned with their well-being, which is what puts Cigna apart from the rest. Whether it is through healthcare options, disability, or work-life options, Cigna truly cares about their employees. The future is unknown but Cigna will always remain on top of the industry in satisfying their employees needs.

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Works Cited AM Best. Web. 28 Nov. 2011. <http://ambest.com/>. Cigna Corporation. Web. 28 Nov. 2011. <www.cigna.com>. Listed Bulk Pack Articles provided by Dr. Drennan

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Thank You Note: Contact: Jim Wolf Director of Employee Benefits and Plan Strategy

Dear Mr. Wolf, Thank you very much for your time during our interview. I really appreciate you allowing me to do my project on Cigna and the opportunity to analyze Cignas benefits program. It was a great opportunity for me and the insight you gave me truly improved my knowledge of the industry and also assisted in my successful completion of the project. It was a great learning experience being able to apply classroom knowledge to real world examples. I cannot thank you enough for the time you gave me and for allowing me to use Cigna for my project. Thank you very much and have a nice holiday. Sincerely, Matthew Sullivan

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