A Case Study of Managing Employer-Sponsored Health Insurance

Employee Health Benefits at Dartmouth College

A Case Study of Managing

Employer-Sponsored Health Insurance

Jeffrey C. Wang

Tuck School of Business at Dartmouth, Class of 2011

Submitted On: June 2, 2011

DRAFT

Page 1 of 18

In mid-February of 2011, Steve Kadish, Chief Financial Officer of Dartmouth College, was

wrapping up another 12-hour day in the office. Since coming to Dartmouth with newly

inaugurated President Jim Yong Kim in July of 2009, Kadish had been in the midst of a

whirlwind of issues, as is often the case in a complex institution such as Dartmouth. Kadish, a

soft-spoken yet incisive man, had previous been the Director of Global Health Equity at Brigham

and Women‟s Hospital in Boston, MA, a former undersecretary of the Department of Health and

Human Services of Massachusetts, and a former administrator of the Harvard Pilgrim insurance

company.1 He had spent the past twenty months absorbing the college‟s rich history and

institutional memory, while traversing the aftermath of the Great Recession, the most significant

financial crisis that Dartmouth had faced in recent memory.

On Kadish‟s mind this wintry evening was the health of Dartmouth‟s employees, covered by

health insurance provided by the college. To help meet a $100 million budget shortfall,

Dartmouth had recently made significant changes to the cost structure of health benefits for its

employees, requiring a higher financial contribution by employees in the provision of their health

care. The cost-sharing changes were projected to make a $9 million contribution to the savings

required for meeting the budget gap. The new health plans rolled out as of January 1, 2011. As

Kadish read his last email and put his notes away, he pondered over the impact that these

benefits changes may have on the college, and what the future of health care for the employees

will look like.

Profile of Dartmouth College

Established in 1769, Dartmouth College was an undergraduate residential college, also with

graduate programs in medicine, business, engineering, and the arts and sciences.2 A member of

the Ivy League of universities, Dartmouth was considered one of the best universities in the

world, often ranked in the top 10 national universities by such publications as the U.S. News and

World Report.3 Located in the rural New England town of Hanover, New Hampshire, Dartmouth

prided itself not only on the education of future leaders, but also on fostering a strong sense of

community. Students, faculty, and staff all pointed to the relationships that they shared with

other community members as a strong reason for studying and working at Dartmouth.

Beneficiaries

As of fall of 2009, Dartmouth employed 4,245 faculty and staff. Approximately a quarter of this

number consisted of faculty members, while the remaining included both members of the staff

and administration.4 Dartmouth provided health insurance to its employees under the Dartflex

health plan, as part of a variety of fringe benefits that also included retirement benefits, tuition

reimbursements, and others. Dartmouth also provided health insurance to dependents of its

employees (the ratio of covered members to employees, as of 2009, was approximately 2.15).

1 http://www.dartmouth.edu/~news/releases/2009/05/11.html

2 http://www.dartmouth.edu/home/about/facts.html

3 http://colleges.usnews.rankingsandreviews.com/best-colleges/dartmouth-college-2573

4 Exhibit 1, Employees at Dartmouth College, Fall 2009

5 Anthem Utilization Report, 2009

Page 2 of 18

Total compensation to Dartmouth employees consisted of a combination of wage and salary, and

this collection of benefits.

Plans Under Dartflex

In recent years, Dartflex offered three health coverage options to Dartmouth‟s employees and

their dependents - (1) a Point of Service plan (POS), (2) a Preferred Provider Organization plan

(PPO), and (3) an indemnity plan.

The POS plan, historically the most popular plan among Dartmouth beneficiaries, usually

required each member to be engaged with a primary care provider. In instances where the

member presented a more specialized care need, a POS member would request a referral from

his or her primary care provider in order to see a specialist. Without this referral, the member

would need to pay a relatively larger portion of the cost of care out-of-pocket. Members were

responsible, out-of-pocket, for co-pays and deductibles, as well as co-insurance payments up to a

pre-determined maximum.

The PPO plan, the second most popular plan at Dartmouth, did not require the referral process in

order for a member‟s care to be covered. The plan designated certain providers as being withinor

out-of-network,

...