exv10w1



 




EXHIBIT 10.1



CONFIDENTIAL TREATMENT REQUESTED




	 	Howard G. Buff

Vice President, Benefits and

Corporate Human Resources

Phone: 281-348-2985



June 20, 2003


Mr. Simeon Schindelman, President

UnitedHealthcare Small Business Group

5901 Lincoln Drive

MN012-NL23

Edina, MN 55436


Dear Simeon:


We believe that the contents of this letter sets forth our agreement as to
modifications to the terms of our existing contracts and other agreements. The
contracts being modified are the Minimum Premium Financial Agreement, Minimum
Premium Administrative Services Agreement, and the Security Deposit Agreement.
Please execute this letter on the appropriate signature line below indicating
the agreement of UnitedHealthcare to the modifications and return a signed copy
to me. After the letter has been signed by you, we will work together to
incorporate the modifications into the existing contracts.


Profit/Risk Charge and Pharmacy Rebates

We have agreed that effective October 1, 2003, UnitedHealthcare will reduce the
profit/risk charge to ***%. Further, UnitedHealthcare will retain all pharmacy
rebates subject to the disclosure provisions in the existing agreements.


Security Deposit

We have agreed that UnitedHealthcare will reduce the balance of the Security
Deposit to a flat amount of $17.5 million, effective December 31, 2003. The
refund of $7.5 million in excess of $17.5 million, plus accrued interest, shall
be returned to Administaff by January 31, 2004.


Premium Stabilization Reserve

We have agreed that, at Administaff’s request, UnitedHealthcare will negotiate
terms of an agreement under which a premium stabilization reserve or equivalent
thereof to be held by UnitedHealthcare would operate to reduce or eliminate the
balance of the Security Deposit subsequent to such an agreement. Any premium
reserve fund established would, when combined with the remaining security
deposit, provide UnitedHealthcare the same required or needed overall level of
risk protection.


*** indicates material has been omitted pursuant to a Confidential Treatment
Request filed with the Securities and Exchange Commission. A complete copy of
this agreement has been filed separately with the Securities and Exchange
Commission.


 






 


Mr. Simeon Schindelman

Page 2


Rate Setting Methodology

We have agreed in principle to change the Rate Setting Methodology. Towers
Perrin and Jay Jaeger will work together to develop fully a methodology for
setting prospective rates which is consistent with the methodology set forth
below which was included in Kim Bacon’s letter of May 15, 2003. In addition,
the rate setting process will include a reporting mechanism that will provide
the information necessary for Towers Perrin and Administaff to understand the
factors used in the rate calculations.



	 	 	 	The methodology for setting funding rates beginning with the
first quarter of 2004 (that is based on the Actuarial
Standard of Practice No.31—Documentation of Health Benefit
Plan Ratemaking) will be as follows; subject to any
refinements approved by Jay Jaeger and Towers Perrin:
	 
	 	1)	 	Use a rolling ***-months of paid claims to
estimate future PEPM claims. For example, Q2 2004 premiums
would use *** through *** paid claims experience, since Q2
premiums would be provided by UnitedHealthcare in December
2003.
	 
	 	2)	 	Use a ***-month lag for headcount to come up
with the PEPM rate before trends, adjustments, etc. For
example, if the claims used are from *** through *** (to
estimate Q2 2004 rates), the enrollment count used should
be *** through ***.
	 
	 	3)	 	Apply the following health cost risk factors to
reflect changes between the base period and the future
predicted period. In the example we have been using, the
base period is *** through *** and the future predicted
period is Q2 2004. The health cost risk factors are:




	 	Age

Gender distribution

Family size distribution

Geographic distribution

Enrollment distribution by plan type (HMO, PPO, etc.)

Plan design changes




	 	 	 	The change in costs due to these health risk factors should
be actuarially justifiable, i.e., using credible database
and tools agreed upon by Administaff and UnitedHealthcare.
Further, the tabular data used to make adjustments should be
documented and discussed, and should change no more
frequently than annually.
	 
	 	4)	 	UnitedHealthcare undoubtedly uses some form of
*** in their own small group underwriting accounting. A
*** should be developed for Administaff and Administaff
should have the option of paying this *** to minimize ***
fluctuation in experience.
	 
	 	5)	 	UnitedHealthcare will use trend separately for
***. In addition, trend period will reflect mid-point of
base period (with *** months lag) to mid-point of
projected period. This should eliminate the need to
calculate change in IBNR in the calculations.
	 
	 	6)	 	Administration costs should be reflected in the
rate calculations as a separate item with individual items
for ***.
	 
	 	7)	 	Components of claims costs should be segregated
for ***, etc.
	 
	 	 	 	UnitedHealthcare will notify Administaff *** days in
advance of any change in the
methodology before the next coming rate cycle. In
addition, UnitedHealthcare will
include the details of rate calculations in a renewal
package every quarter and will review
them with Administaff.



 






 


Mr. Simeon Schindelman

Page 3


Additionally, effective the first quarter of 2004, the following
deficit/surplus recovery process shall be utilized. If UnitedHealthcare
notifies Administaff that an unrecovered deficit or unrefunded surplus exists
as of the end of a calendar quarter in connection with its applicable quarterly
review, UnitedHealthcare may adjust the rates for the *** successive calendar
quarters beginning no earlier than *** days subsequent to such notice.


Further, if a an unrecovered deficit at the end of a quarter exceeds ***% of
aggregate quarterly premiums for such quarter, UnitedHealthcare will have the
ability to recover such amount more quickly than *** quarters.


Exclusivity

We have agreed to a modification to the exclusivity provisions of the contracts
as described below. In that regard, through the course of detailed market
discussions, Administaff and UnitedHealthcare will determine the circumstances
under which a modified carrier offering will be a viable alternative to our
current approach in any or all of the following six markets for 2004.



	 	1.	 	***
	 
	 	2.	 	***
	 
	 	3.	 	***
	 
	 	4.	 	***
	 
	 	5.	 	***
	 
	 	6.	 	***
	 
	Detailed discussions for these markets will include the following:
	 
	 	•	 	Pricing, product and other competitive information.
	 
	 	•	 	Specific expected advantages to be gained through another carrier offering.
	 
	 	•	 	Discussion and determination of how another carrier option would be
introduced and offered to customers. This would include price,
contribution, product and benefit plan design differences, employee
level choice versus customer level choice, etc.
	 
	 	•	 	Discussion of whether some combination of different or additional
offerings through UnitedHealthcare would best serve Administaff.
	 
	 	•	 	Based upon these discussions, the existing product options
available through UnitedHealthcare, and the size and product
distribution of the existing membership in each market,
UnitedHealthcare would then decide to:
	 
	 	 	 	1.	Continue to be offered as an HMO and/or PPO option at the ***
level (a customer could have more than ***).
	 
	 		 	2.	Continue to be offered as an HMO and/or PPO option at the ***
level only with all *** selecting plans offered only through ***.
	 
	 		 	3.	Elect to no longer be offered as an option in that market.
	 
	 	•	 	Decisions and changes in offering status may also have pricing
implication.




The provisions regarding exclusivity change notice and cure periods contained
within the existing contracts will not apply to these six markets for all
periods after UnitedHealthcare and Administaff have reached agreement on the
details of Administaff’s introduction of carrier alternatives in these markets.


 






 


Mr. Simeon Schindelman

Page 4


Sincerely,


/s/ Howard Buff


Howard Buff


ACCEPTED and AGREED to:



	 	 	 
	By:	 	
/s/ Simeon Schindelman



Simeon Schindelman

President

UnitedHealthcare Small Business Group
	 
	cc:	 	
Ron White, UnitedHealth Group

Jay Jaeger, UnitedHealthcare

Steve Walli, UnitedHealthcare

Mike Barbour, Towers Perrin

Kim Bacon, Administaff

Simeon Schindelman, UnitedHealthcare