News
The Virginia Retirement System outsources group life benefit adminstration
By Miriam Basch Scott
Reprinted with permission from the Employee Benefit Plan Review, September 2000 issue. Charles D. Spencer & Associates, Inc., Publishers, Chicago, Illinois. (800) 555-5490. www.spencernet.com
The Virginia Retirement System's (VRS) decision in 1998 to outsource administration of its members' group life insurance has proven to be a winning strategy for all the parties involved. William F. Leighty, director of the VRS, told the EBPR.
The VRS is a consolidated retirement plan covering nearly all public employees and retirees in the Commonwealth of Virginia, including employees of the state and local governments, teachers, judges, firefighters and state police. Founded in 1942, the VRS "insures the financial future for Virginia's public employees," Mr. Leighty explained.
Participating public employers may opt for different VRS benefit packages, but generally the VRS offers four very similar pension plans; short and long term disability programs; accidental death and dismemberment coverage; and life insurance (basic and optional) for employees and retirees, and their families. The VRS also plans to offer a long term care program in 2001.
The VRS provides employees basic life insurance of two times salary; employees may purchase additional coverage of one, two, three or four times salary. The basic life insurance coverage amount doubles in case of accidental death or dismemberment. Employees may purchase coverage for spouses at one-half the employee's amount, and in amounts of $5,000, $10,000 or $15,000 for each child. The "family-friendly" life insurance policy for children allows employees to cover all their children for one price, Mr. Leighty said.
The VRS group life plan covers 390,000 members (including 96,000 retirees) along with their spouses and dependents, through some 760 member employers. Member employers include one agency with three employees and another with no employees but eight retirees, Mr. Leighty said.
Active bidding
Through 1998, the VRS administered the group life benefits, which were
insured for nearly 40 years by the Life Insurance Company of Virginia.
In 1998, the General Assembly directed the VRS to seek general bids on
its active employee group life business. The Life Insurance Company of
Virginia did not bid on the VRS business.
In looking for a life insurance carrier, the VRS specifically sought the ability, for itself and its member agencies, to monitor plan activity, including call center statistics, and to determine online the status of applications and claims. In addition, the VRS member employers wanted to be able to have daily contact with the life insurer for the group. "We were looking for a partner that could utilize and leverage technology and provide empathetic and compassionate service to members and their families," Mr. Leighty explained. "The most basic and most important thing we do here at VRS is handle a death."
Because of the varied sizes and technological capabilities of its member employers, the VRS knew it could not rely exclusively on technology and computers for information. "If you get down to some of the areas in southwest Virginia, computers may not be available," Mr. Leighty said.
The VRS selected Minnesota Life Insurance Company, which became the plan carrier on Jan. 1, 1999, with a three-year, performance-based, negotiated-rate contract with two one-year renewals. At the time, the plan represented $25 billion worth of insurance and $100 million in annual premiums.
To provide dedicated service to the member employers, Minnesota Life established a new branch office in Richmond, Va., where the VRS is now headquartered. The Richmond branch office is responsible for insurance application, administration, claims processing, and customer service to the VRS member employers and their employees, explained Joe Chang, manager of Minnesota Life's Richmond Office.
Extranet service
Minnesota Life's bid included provision of an extranet, which was an important
element in the VRS's decision to award the contract to Minnesota Life,
explained Mr. Leighty. The extranet has a three-point link with Minnesota
Life's home office in St. Paul, Minn., the insurer's Richmond branch office
and the VRS office, Mr. Chang explained. The extranet gives the VRS and
its member employers the ability to review in "real time" the status of
pending claims or insurance applications and to learn about the benefits
being provided, added Donna Blatecky, the VRS assistant director for benefit
programs. Claims are reported to, and processed by, Minnesota Life, while
the VRS and member employers answer claims and insurance application inquiries.
The performance-based contract uses quantitative and qualitative performance standards, Ms. Blatecky explained. Minnesota Life uses standards in the various steps in claims processing and it must annually conduct satisfaction surveys with the VRS member employers. For example, Minnesota Life must pay 95% of all claims within seven days of receiving the necessary information. Minnesota Life has exceeded that standard and is paying at 98.5%, Mr. Leighty noted.
In addition, Minnesota Life must notify insurance applicants quickly of their insurability. The carrier has exceeded the agreed upon standard and 97.9% of the time is notifying clients within seven days of receiving the required information.
Both Minnesota Life and the VRS monitor the carrier's performance monthly and they meet quarterly. "The types of performance measures that are built into the contract make it easy for us to get a good feeling of how it's working out there," Mr. Leighty said. "Couple that with the satisfaction surveys of member employers, and you get a good sense of how Minnesota Life resolves issues and how happy the employees are."
In a survey of the VRS member agencies completed in 1999, the agencies generally gave Minnesota Life high marks on service and performance standards, including processing claims, conversions, accelerated death benefits, and providing call center support.
The VRS originally had planned to outsource group life claims for only its active employee group claims for only its active employee group, but because the arrangement with Minnesota Life has worked so well, in July 1999 CRS decided also to outsource retiree life claims. "We felt Minnesota Life could handle the entire program far better and we could concentrate on our small staff of 174 on doing the things we do very well," Ms. Blatecky said. "When you look at the number of staff that does direct service to our membership, they have a tremendous responsibility, about one staff person for every 3,000 members," she added.
"Outsourcing to Minnesota Life gave the carrier the ability to focus solely on the group life aspect; thus the response time for a death claim was not mired down in other agency operations," Mr. Leighty agreed. "One of the reasons we really liked Minnesota Life is that they have the statistical capability to give us very results-oriented measures and we just didn't have those built in to our old system," Mr. Leighty elaborated.
"We are a very good match for VRS because of the high level of service they emphasize," Mr. Chang commented. "What the VRS has done is leverage us to enhance the high level of service that they provide their members."
"We're very happy with it," Mr. Leighty concluded. "It's a successful example of outsourcing a benefit administration that has helped us and our employees out tremendously. It's allowed us to concentrate on monitoring performance instead of cutting checks. We think it's been a real win for us."
