New committees to recommend future benefit changes
Citing increasing concern over the escalating cost of the health care and retirement savings plans, University leaders have appointed two new committees to recommend changes aimed at reducing the overall rate of increase.
The bill for health care coverage for employees and retirees coupled with contributions to the University's retirement savings plan totaled almost $422 million in fiscal year 2007.
"If left unchecked, that cost is projected to top $2.2 billion dollars in the next 20 years," says Tim Slottow, executive vice president and chief financial officer. "The rate of growth in costs is greater than the rate at which our funding increases. It is not sustainable for the long term if we want to preserve the quality of our benefits, safeguard our ability to compete for premier faculty and staff and alleviate the upward pressure on tuition. We need to tackle this issue with thoughtful changes made gradually."
Health care cost sharing
When health care premiums and out-of-pocket co-pays and deductibles are included, employees and retirees currently contribute an aggregate of 20 percent toward total health care costs, and the University contributes an aggregate of 80 percent. Over time, the University plans to change the cost-sharing ratio to an aggregate 30-percent contribution from employees and retirees and 70-percent University contribution. The University's executive vice presidents and associate vice president for Human Resources have appointed the Committee on Sustainable Health Benefits to study ways to reach that goal.
"Organizations sometimes reduce the quality of their health plans to reduce cost we reject that approach," says Robert Kelch, executive vice president for medical affairs. "We believe health coverage is simply too important to the welfare of our faculty, staff, retirees and their families."
Even with a change to the ratio of cost sharing, Kelch says the financial efficiency of U-M will do much to help keep the contribution amounts affordable compared to peers. A recent study by the consulting firm Hewitt and Associates compared U-M's financial efficiency the effectiveness of delivery of health care to employees and retirees to peer universities and health systems. The study found U-M to be almost 8 percent more efficient on average than peers in higher education, and 13 percent more efficient than the Fortune 500 companies in the study.
Kelch credits the efficiency of the U-M health plan, prescription drug plan and Health System for helping to keep University average rates of health care cost increase to about 10 percent a year versus a national average closer to 12 percent.
"Our efficiency has helped us keep our rich benefits package intact, but we need to make adjustments to ensure this continues," Kelch says. "The challenge of escalating costs is a long-standing one, and it is not likely to subside."
The University reports almost 90 percent of eligible staff and faculty members were enrolled in the U-M Retirement Savings Plan in 2007, receiving about $191 million in University contributions toward retirement. Projections show this number could reach more than $703 million within 20 years.
"If we become complacent, these expenses coupled with the rising cost of health care could affect our ability to recruit and retain top faculty, and will put increasing pressure on tuition" says Teresa Sullivan, provost and executive vice president for academic affairs. "We have a benefits package that rivals employers across the country, and we want to protect that for the long term."
The Committee to Study Vesting Options for the Retirement Savings Plan has been appointed to recommend changes to apply to future University employees hired after any modifications became effective. The committee will focus on cliff vesting, in which employees would forfeit their University contributions if they terminated before the end of specified number of years of continuous service, and waiting periods for receiving University contributions.
"In either case, the changes would apply only to future employees and would not prevent employees from contributing their own funds during the vesting or waiting periods," says Laurita Thomas, associate vice president for human resources. Although U-M's 10-percent-of-salary contribution rate toward retirement savings is greater than the average of the University's higher education and health system peers, Thomas says, the University is not considering changing the contribution amount. "The overall goal is to make health care and retirement savings plan changes that bring the University closer to its peers."
"We know we have some room to adjust, to help curb the overall rate of our increases, and still remain highly competitive with affordable, comprehensive benefits," Sullivan says. "Health care and retirement savings are two of our most valued and valuable benefits. Taking steps now at a measured pace will better protect our benefits much further into the future."
Both committees are slated to begin meeting this month and make recommendations by the end of December. By spring 2009, the University's executive officers will determine which recommendations to enact. The University plans to implement changes in 2010, which may be phased in over a two-year period.
There is no impact on the upcoming Benefits Open Enrollment period or health plan rates for 2009, which now are available on the Benefits Office Web site.
A new Stewardship of Benefits Web site offers more information including cost projections, committee charges and membership, questions and answers and a form for comments and questions. For more information go to www.benefitsstewardship.umich.edu.