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Updated 8:45 AM March 24, 2009
 

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Health care and retirement savings plan changes
Learn more about:
• What this means for you
• The Benefits Information Forums in Ann Arbor, Dearborn and Flint
• The committee reports

Go to www.benefitsstewardship.umich.edu >


Faculty and staff colleagues,

Early last fall, we charged the Committee on Sustainable Health Benefits (COSHB) and the Committee to Study Retirement Savings Plan Vesting Options to devise the means to maintain our highly competitive health care and retirement benefits while helping to control the unsustainable growth in the university's health care costs, which threatens our ability to carry out our core missions in education, research and patient care.

COSHB, which included members of our faculty, staff and retirement communities, was specifically charged to make recommendations on how to achieve a new aggregate cost-sharing ratio for health care of 70 percent contribution from the university and 30 percent contribution from employees and retirees. This ratio is closer to that of peer universities and health systems. The retirement savings committee was charged to recommend waiting periods and/or vesting options for future employees.

What leaders are saying about the need for change
"The committee developed a set of recommendations that work together to help control the unsustainable growth in university health care costs that we've experienced for quite a long time," says Executive Vice President and Chief Financial Officer Tim Slottow. "Health care costs are increasing more rapidly than any other item in the university's budget. Coupled with university contributions to the retirement savings plan, the cost of those benefits was $422 million last fiscal year. Without a change of direction, the cost would continue to grow as high as $2.2 billion within 20 year."

Provost and Executive Vice President for Academic Affairs Teresa Sullivan describes the cost as an increasing threat to the university's ability to succeed in its missions of education, research and patient care, making priorities like keeping tuition rates down much more challenging.

"The changes are necessary to help control the costs. Careful planning, including financial analysis and benchmarking, and the guidance of the committees has ensured that university benefits will stay highly competitive with a generous retirement program and a choice of high-value, comprehensive health plans." Sullivan says.

"Simply put, our health care costs will paralyze the University of Michigan unless we take action," President Mary Sue Coleman said in opening remarks to the Board of Regents March 19. "I want to be clear about one essential fact in this new approach: We are not changing benefits for employees or retirees. We will continue to provide comprehensive, quality care through a variety of health care plans."

"We are being particularly sensitive to ensuring that these changes are more affordable for employees who provide coverage for their children, as well as employees who earn lower wages," Coleman said.

The impact of changes on health care cost sharing

Once fully implemented, the university's overall contribution toward the health care of employees, retirees and dependents will be 70 percent of the total cost of premiums, co-pays and deductibles. Down from the current 80 percent overall contribution, the new target is more in line with average contributions of peer universities and health systems. The percentage applied to each individual depends on the plan choice and whether dependents are covered.

"The committee helped us safeguard some important principles," says Dr. Robert Kelch, executive vice president for medical affairs. "After implementation is completed, eligibility requirements for benefits will remain the same, health care coverage won't be redesigned or reduced as a result, and we will offer rates for the coverage of children that are lower than rates for dependent adults to help shield children and demonstrate that priority."

"We asked the committee to help us consider salary in the setting of premiums to help make costs more affordable to lower-wage employees," says Laurita Thomas, associate vice president for human resources "Salary bands will help achieve this by providing modest reductions in the amount of increase required of lower paid staff."

In devising a path forward, the committees were mindful of the need to make the transition as manageable as possible, and they made recommendations that will:

• Preserve access to U-M health plans for everyone who currently is eligible for benefits;

• Continue our choice of comprehensive plans without reducing or altering coverage;

• Help make the costs more affordable for those earning lower wages through a smaller increase in premiums;

• Protect children with rates lower than the rates for dependent adults;

• Maintain the current contribution percentage to retirement savings with no impact on current faculty and staff; and

• Keep our benefits at or above the market averages for our peer universities and health systems.

After careful study of the committee reports, we will adopt the following changes through a phased implementation beginning next year.

Retirement savings decisions

We will maintain the current 10-percent-of-salary contribution amount the university makes toward this important retirement savings benefit.

Faculty and staff hired on or after Jan. 1, 2010, will have a one-year waiting period before they begin to receive university contributions toward the U-M Retirement Savings Plan.

Health care decisions

The university will continue basing the contribution formula for health care on the two lowest-cost comprehensive plans and will continue our current tiers of coverage — employee, employee plus adult, employee plus adult and child(ren), and employee plus child(ren).

Employees and retirees will contribute more to their health care costs than they do today to achieve the new aggregate ratio for cost sharing. Half of the increase will occur in January 2010; the remainder in 2011. Although it is too soon to know the actual premium rates for 2010, we have created estimates to show what the employee and university contributions to U-M Premier Care would be if these changes were in place today, available at www.benefitsstewardship.umich.edu.

The university's contribution to premiums will be greatest for employees and retirees, and greater for child dependents than for adult dependents.

The university will use three salary bands to help make costs more affordable to lower-wage employees. Estimates of the salaries that fall into each band using 2008 data can be viewed on the site.

Part-time benefits-eligible employees will continue to have access to the full choice of U-M health plans, but will receive a university contribution toward premiums that will be 80 percent of the university contribution made for full-time staff in the lowest of the three salary bands (Band 1).

University contributions to premiums for retirees and their dependents will be the same as its contributions for active full-time employees in the lowest wage band (Band 1).

The co-pay amount for an office visit will change from $15 to $20 and emergency room visit co-pays will change from $50 to $75 (co-pay is waived when admitted to the hospital for care). Co-pay increases will become effective on Jan. 1, 2010.

The university will continue its commitment to creating a culture of health through MHealthy programs for prevention, early intervention and wellness.

Health care cost-sharing changes will be implemented in two phases

Jan. 1 2010: Changes to co-pays for office visits and emergency room visits will be made, along with one-half of the increases in employee premium contributions.
Jan. 1, 2011: The remaining one-half of the premium contribution increase will become effective.

Exact contribution amounts for U-M health plans will be available once annual rates are set, well in advance of open enrollment. Rates for 2010 will be posted on the Benefits Office Web site by Aug. 15, 2009. Health plan descriptions and rates also will be published in open enrollment material in October when faculty and staff choose their benefits for the following calendar year.

Actions to be deferred

COSHB recommended that the co-pay amount for name-brand prescription drugs in the third tier of the U-M Prescription Drug Plan be increased from $30 to $45. We feel this change warrants further study to ensure we safeguard patients who may require certain drugs in that tier; therefore, we have deferred a decision on this change until 2011 pending further analysis.

Benefits information forums

To help clarify these changes, information forums will be held March 30 on the Ann Arbor and Dearborn campuses and March 31 on the Flint campus. Time will be reserved at each venue for questions. For those who are unable to attend, the March 30 Ann Arbor forum will be simulcast on the Web, and a video of the forum will be available on the Stewardship of Benefits Web site after the event concludes.

We encourage faculty, staff and retirees to learn more about these changes by visiting the updated Stewardship of Benefits Web site or participating in one of the Benefits Information Forums. For more information and forum dates, times and locations, go to www.benefitsstewardship.umich.edu.

Questions for the forums may be submitted in advance by sending e-mail to campusbenefitsforum@umich.edu.

We understand that adjustments such as these are never easy, particularly during a turbulent economic climate. We are grateful to the members of both committees for their individual and collective expertise, analysis and guidance in devising a thoughtful and realistic approach that balances the imperative to manage costs with our long-standing commitment to meeting the needs of our community.

In partnership,

Robert P. Kelch, executive vice president for medical affairs
Timothy Slottow, executive vice president and chief financial officer
Teresa Sullivan, provost and executive vice president for academic affairs
Laurita Thomas, associate vice president for human resources


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