Benefits update addresses current patterns, future course
The introduction of two new health plans and an additional tier of coverage in 2005 have resulted in cost savings for employees as many have shifted to less expensive coverage options, Laurita Thomas, associate vice president and chief human resource officer, told the Board of Regents April 21.
In a benefits update to the board, Thomas said the migration of faculty, staff and retirees from higher premium plans to lower-cost comprehensive care options was expected when the University introduced the M-Care and Blue Cross/Blue Shield (BCBS) preferred provider organizations (PPO).
"The addition of the PPOs created affordable alternatives to plans like the Blue Cross/Blue Shield traditional plan," Thomas told regents. "They offer comprehensive coverage and nationwide access to care so we expected to see a migration, and we hope retirees, especially those who live outside the area, will continue to consider the cost savings of these PPO options."
The addition of a fourth tier of coverage to include one adult plus any number of children also resulted in savings to employees, reflecting the lower cost of insuring children.
Although the overall cost to employees increased this year under a new premium-sharing model adopted in December 2003 to stem the tide of increasing health care costs, Thomas said employees would have paid significantly more were it not for the new coverage options and tier. Under the plan, the University contribution this year for employees is 95 percent of the average premium for the two lowest-cost comprehensive plans, and 85 percent of the total aggregate premium for employees, retirees and covered dependents.
Highlights of the health insurance analysis Thomas presented to the board include:
• 1,889 active and retired employees chose BCBS PPO and 1,705 selected the M-Care PPO, the two newest offerings;
• Enrollment in the M-Care Health Maintenance Organization (HMO), one of the lowest-cost comprehensive plans, increased by 3 percent. For the 6,500 enrollees with single coverage under this plan, the monthly employee contribution dropped from $16 to $9;
• 4,276 employees elected coverage in the new employee + child(ren) tier. Of this group, the 2,585 who went from 2 adult coverage to the employee + child option will each save about $323 this coverage year, and the 1,691 who went from family coverage to the employee + children option are expected to save $911;
• The Comprehensive Major Medical plan cost went from $15 per month to $0, but 18 percent fewer employees enrolled in the plan that has higher deductibles than the others.
These and a number of other changes to the benefits plan also resulted in a lower rate of cost increase for the University.
Under the prescription drug plan implemented in 2003, the University experienced cost savings and avoidance last year of $8.7 million. The majority of the savings came from restructuring the program to a co-pay model that encouraged use of generic drugs, and an increase in mail orders of maintenance drugs by staff that allowed the negotiation of lower prices from vendors. Thomas said ongoing quality review of the plan by an internal committee also contributed to the savings.
Elimination of an opt-out incentive for dual career couples at the University also resulted in savings of $630,000. The University pays cash to a faculty or staff member insured as a dependent through another employer's plan as an incentive for the member not to enroll in separate coverage, but some employees previously were able to receive opt-out cash even if their spouse or same-sex domestic partner also was insured by U-M.
As employees increased their use of Flexible Spending Accounts (FSA), the University saved $122,000 in federal income tax payments. FSAs allow employees to set aside a designated portion of their paychecks for tax-free reimbursement of uncovered medical costs.
Overall University costs for health care are projected to be up $10.6 million or 4.9 percent at the end of the calendar yearconsiderably better than the national trend of 12-14.5 percent. After applying the savings achieved by the prescription drug plan as an offset to health care premiums, the rate of overall increase was further reduced to 2.5 percent.
Thomas said the measures taken to control costs have proven effective, but the University, like other employers, must brace for costs that are projected to continue rising.
"The rates of annual increase for medical plans is a great concern for virtually all employers and employees because of the challenges to an organization in absorbing such steady growth in cost," she said.
For 2006, Thomas said the University will continue the current premium-sharing formula, keep the four-tier coverage, and offer the same number of plans, while monitoring enrollment patterns.
"One year of data on enrollment patterns after introducing new plans is not enough to make accurate predictions or to see clear trends," she said. "We will be vigilant in watching and responding to cost and enrollment trends over a longer time period, so that we can adjust, as needed, for an optimal mix of cost-effective plans for employees and retirees."
Thomas said the University will encourage retirees in 2006 not to enroll in Medicare Part D, a plan for prescription coverage that takes effect in January. The University's prescription drug coverage is more comprehensive than the Medicare plan and results in lower out-of-pocket expenses for most retirees, with the possible exception of those Medicare considers low-income.
Other plans include looking into an additional tax-deferred retirement vehicle (a 457 (b) plan), seeking competitive bids on prescription drug and life insurance plans, and expanding the use of online benefits enrollment and other uses of technology for information sharing and self-service.