Development of and initial experience with a shared-risk arrangement between an employer, Allied-Signal, Incorporated, and a health insurer, CIGNA Corporation, are discussed. Rapidly rising health-plan costs and projections for even greater increases in the next three years, coupled with other related considerations, spurred Allied-Signal to undertake a major re-evaluation of its employee health plan in 1987. After extensive discussions and consultation, Allied-Signal negotiated a shared-risk contract with CIGNA, a dual-option insurer, under which premium price increases are capped for a period of three years. CIGNA is at risk for any costs that exceed premium revenue; if costs are less than premium revenue, CIGNA will retain the surplus. Price and geographic accessibility to Allied-Signal beneficiaries were the two key factors in the choice of CIGNA Corporation. The company selected a point-of-service delivery model, which grants employees greater freedom of choice in the use of health-care providers; those who use network providers pay a fixed copayment while those who use nonnetwork providers pay a fixed copayment providers pay an annual deductible plus 20% of medical expenses incurred above the deductible. During the first year of the program, 75% of beneficiaries used network providers from 95% to 100% of the time. The actual costs for the first 18 months were less than projected and much less than increases experienced by fee-for-service plans during that same period. The shared-risk contract between Allied-Signal and CIGNA Corporation has been successful thus far.(ABSTRACT TRUNCATED AT 250 WORDS)