ANN ARBOR—In response to costs that have doubled in the last five years, the University will undertake a two-part plan to slow the rate of increase of its expenditures for employee health insurance, Provost and Executive Vice President for Academic Affairs Paul N. Courant told the Board of Regents today (April 17). The current budget pressures facing the University have increased the urgency for addressing the rapid growth in health insurance costs, he said. In a preliminary measure, the University will require most employees and retirees to pay a share of the cost of health insurance premiums, beginning Jan. 1, 2004, Courant told regents. At present, 70 percent of employees and retirees, including virtually everyone with individual coverage, pay no co-premium, he said. To create a longer-term solution, a committee of faculty and staff, appointed by Courant, will begin work immediately to examine the best way to determine University and employee contributions for health insurance on an ongoing basis. Courant presented regents with a number of statistics to provide context for the magnitude of the expense. The combined amount paid by the University and employees toward health insurance premiums is estimated at $184 million in fiscal year 2003 (FY03), up 17 percent from the prior year and double the figures for 1998 ($92 million). In that same period, the share assumed by the University increased from 92 percent to 94 percent of the total. “It has been 15 years since the University took a comprehensive look at the way it determines the employee portion of health care premiums,” Courant said. “The formulas have not been changed in response to major changes in healthcare trends, including the growth of managed care, nor have they been adjusted in light of data about the University’s
actual experience.” For example, when the current formulas were adopted, HMOs were relatively new offerings, and only a small portion of faculty and staff enrolled in them. Now, they are the most popular type of plan, Courant said. “The wider payment of co-premiums will not stop the increases in cost to the University; it will only slow them down,” Courant said. “Even after most employees begin to pay a co-premium, the cost to the University for providing health insurance probably will increase by about 13 percent in 2004.” The committee’s primary work is to design a comprehensive, rational structure that determines University and employee premium-sharing and that is financially responsible, competitive in the marketplace and responsive to the needs of faculty and staff, Courant said. The committee will also consider structures used by other universities and businesses—such as a fourth tier that would cover households that consist of one adult with any number of children. A fourth tier would recognize that costs are lower for this configuration than for households of two adults, or of two adults with children. “I want to emphasize that these actions—both the short-term change and the longer-term recommendations of the committee—are not intended to diminish the number or quality range of the health plans offered by the University,” Courant told regents. “They [the offerings] are very important to the health and welfare of our faculty and staff and their families, and are important aspects of our ability to recruit and retain the highest quality workforce.” The committee will report its findings and recommendations in Sept. 2003, followed by a period for campus discussion. Final decisions are slated for the end of the Fall 2003 semester, with implementation as soon as possible.
How benefit changes will affect employees
In 2004, almost all employees who now pay nothing toward their health insurance premiums will pay a 5 percent co-premium, and the University will pay the remaining 95 percent. Employees who now pay a co-premium most likely will see no change in the proportion of the contribution they make toward their insurance premium. As always, if rates increase, both University and employee will see a dollar increase in their contributions (see chart 4). The recommendations of the committee regarding co-premiums will take effect in 2005 and will supersede the 2004 arrangement. The more immediate change will not affect all staff at once because of existing collective bargaining agreements, some of which have specific provisions governing co-premiums. In general, when changes such as these are enacted for non-represented staff, the University negotiates to incorporate similar changes during future contract talks. In addition to the change in co-premiums, the University will eliminate a $6 per month flex credit that was initiated in 1995 when U-M went to a flexible benefits system. The Flex credit was intended to share savings that resulted from going to the new program, but it has more than paid back any savings to employees.

Chart 1:

Five years of annual increases in the cost of health and drug coverage