University takes measures to reduce health care expenditures
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 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
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 also will 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 September,
followed by a period for campus discussion. Final decisions are slated
for the end of the Fall 2003 semester, with implementation as soon as
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
the University and employees will see an 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 the share
savings that resulted from going to the new program, but it has more than
paid back any savings to employees, Courant said.
Click for accompanying charts>