The University Record, May 10, 1993

AAUP, benefits experts discuss health care costs

By Mary Jo Frank

—Flexible benefit plans;

—Projected health cost increases associated with an aging faculty;

—M-CARE’s role in controlling the University’s employee benefit costs.

Those were a few of the issues raised at the April 22 meeting of the U-M Chapter of the American Association of University Professors (AAUP) by a trio of benefits experts: Craig M. Jorgeson, manager of staff benefits; Roy Penchansky, professor of health services management and policy; and Dean G. Smith, assistant professor of health services management and policy.

Noting that University representatives are talking with outside advisers about shifting to a cafeteria or flexible benefit plan, Jorgeson said such a plan may be in place by January 1995.

It was announced in the Record in December that members of the Benefits Office and members of the Advisory Committee on University Budget would begin work winter term to determine the advisability of offering a flexible benefits plan to faculty and staff.

Smith, who teaches a course on health insurance, said it is clear that health care costs are high for the U-M and for other employers and that those costs are increasing at a faster rate than other costs. The University traditionally has born the largest portion of annual health care premium increases of 10 percent to 15 percent, Smith noted.

Staff benefits cost the University $221.5 million in 1992 and have been increasing as a percentage of salary, now standing at 24.4 percent.

With revenues from the state decreasing, there is a lot of talk about shifting more of the costs of health care from employers to employees, Smith added. He predicted there will be many fights in the next several years over flexible benefits.

A related issue at the University, according to Smith, is the fact that the payor of health care insurance premiums also is the provider of health care benefits. One alternative to local spiraling health costs is that the provider—U-M Hospitals—take less. He said that the M-CARE health maintenance organization made $6 million last year. If that profit had been used to lower premiums, health care premiums would have been reduced by $200 per person.

Penchansky noted that 60 percent of M-CARE enrollees are U-M employees “so 60 percent of M-CARE’s profit was generated by us.”

Penchansky said he doesn’t think health care costs at the University are very high although, he added, “they certainly could be cheaper.”

Premiums for University employees are much lower than premiums paid by other employers or even other universities, Penchansky said, because of the low utilization of medical care by U-M employees. This reflects the character of

U-M employees and the fact that the University is located in a community with a high quality of life, he noted.

Recalling that the idea of flexible benefits was discussed and rejected several years ago, Penchansky said the previous attempt was a subterfuge because it would have transferred $24 million in benefit costs from the University to employees over a three-year period.

Penchansky hypothesized that the major objective of a shift to flexible benefits is again to transfer costs to employees.

He warned his colleagues to “watch carefully in the next year or two for this. The pressure from benefit costs is pushing in this direction.”

Jorgeson said that one advantage of flexible benefits is that “as costs get transferred to us, we’ll become more vocal, putting more pressure on providers to control costs.”

Now that faculty no longer are required to retire by age 70, additional health care costs for older faculty, who previously would have received their primary coverage through Medicare, are adding to the University’s financial burden, Penchansky noted.

Annual health premiums jump from about $5,500 for a couple age 65 to $7,500 for a couple over age 70, Penchansky estimated.

Jorgeson agreed that picking up the tab as the primary insurance provider for faculty over age 65 is expensive. He noted that many faculty enjoy a substantially higher income after they retire.