University searches for remedy to mounting health care costs

Daily Staff Reporter
Published September 9, 2008

With high health care costs plaguing colleges and businesses across the country, University officials are searching for a remedy to its own increasing health insurance bills.

The major challenge facing the administration is figuring out how to pay the escalating bills while remaining competitive with its peer institutions in attracting the best faculty and staff by offering high-quality benefit plans.

“We’re trying to curb the rate of increase and not do anything that would jeopardize our competitive position,” said David Reid, Director of Communications at University Human Resources.

In 1997, health care costs accounted for about 7 percent of the University’s total operating budget, according to the University’s Benefits Stewardship website. Today that figured has increased to 9 percent and is projected to stand just under 12 percent by 2017 and 15 percent by 2027.

Laurita Thomas, the University’s Associate Vice President and Chief Human Resource Officer, said the substantial drain on the overall budget for healthcare could soon affect tuition prices at the University.

“If you’re spending 15 percent of your operating budget, than we have to continue to raise tuition at a much higher rate than would normally be appropriate,” she said.

The most recent solution proposed by the University to combat the mounting health care costs, announced in a press release distributed this week, is to increase the percentage of health care costs paid by University employees and retirees from 20 percent to 30 percent, which would decrease the University’s financial responsibility from 80 percent to 70 percent of the total costs.

Thomas said that while the University understands the cost increase “has an impact on families,” they are necessary to sustain the academic programs and faculty.

“If we continue to have this kind of trend (in health care costs), then the academic, the core mission of the university, will be impacted,” she said. “We won’t be able to provide some of the researchers and quality faculty that we do.”

The University brought in Hewitt & Associates, a consulting firm, to examine the current state of health care coverage at comparable higher education and health care institutions.

In its comparison between the University and 27 other competitive universities including Brown University, Northwestern University, and the University of Virginia, the consulting firm found that the University’s health care plan for employees and retirees is “greater than those of university and health system peers, both in terms of the quality of benefits offered and in the amount of the University’s financial contribution.”

Thomas said the funds saved from taking some of the cost burden off the University can now be used to “keep student tuition affordable and to have the ability to invest in other programs to support our academic mission.”

By sharing the costs with its employees, the University can preserve the quality of their health care coverage as opposed to reducing its quality to shave costs, as other comparable universities and companies have done, Thomas said.

The mechanics of how to orchestrate the cost shift will be examined by the newly-formed Committee on Sustainable Health Benefits, which is set to begin meeting later this month.

The committee includes various heads of University departments, like Marty Eichstadt, Director of the Benefits Administration Office, and professors, like the committee’s chair Kyle Grazier, a professor of Health Management and Policy in the School of Public Health. The committee hopes to make a recommendation to the University administration by the end of December.

The University’s executive officers will decide which recommendations to implement in the spring of 2009. Changes will affect faculty and staff health coverage starting in January of 2010.

One major concern of University officials is that faculty and staff members on the lower end of the pay scale will struggle to pay the increased share of health costs.

“The question is how to spread that burden across different members of the community,” said David Potter, chair of SACUA, the faculty’s top governing body.

Potter said the University should consider tying the health care premiums to salary levels, so that lesser-paid faculty are not being disparately affected by the new policy.

“We have to be aware of the fact that these increases will have very different impacts depending on where somebody is situated in University,” he said.

Potter said SACUA will meet with Laurita Thomas in the next few weeks to discuss the changes and hold an open forum about it at a Senate Assembly meeting.

Thomas said the administration is “very concerned about our staff on the lower-end of the pay scale” and that the committee has been asked to give the University leaders recommendations that “specifically address” the impact on lower-wage employees.

David Reid of University Human Resources said the University might consider using a tiered system in which the premium’s reduced, or give those employees a supplement from the University to offset the cost of the premium.

University officials also announced the formation of the Committee to Study Vesting Options for the Retirement Savings Plan in hopes of lowering retirement plan costs that also put a heavy strain on the University’s total operating budget.

In addition to the shift in the health care cost ratio, Thomas said that the University has implemented several other programs in an attempt to reduce high health care costs.

One such program, ActiveU!, aims to increase participation rates of faculty and staff in physical activities, as a prevention strategy.

The University also uses a prescription drug management program, providing faculty members with high-quality prescription drugs at a reduced price.