Committees to Study Health Care and Retirement Benefits
MEMO TO: Faculty and Staff Community
FROM: Robert Kelch, Tim Slottow, Teresa Sullivan and Laurita Thomas
SUBJECT: Committees to Study Health Care and Retirement Benefits
Faculty and Staff Colleagues,
The University is committed to providing high-quality, market-competitive and affordable benefit programs. We believe these offerings are vital to the health and well-being of our community.
Health care coverage, together with a generous matching contribution retirement savings plan are two core components of our exceptional benefits package.
These two offerings also represent the University's largest areas of benefit expense, however. Costs for these two benefits totaled almost $422 million in FY2007. If left unchecked, the cost is projected to top
$2.2 billion within 20 years -- a growth rate greater than the rate of funding increases — making it unsustainable if we are to preserve the quality of our benefits, safeguard our ability to compete for premier faculty and staff and diminish the upward pressure on tuition rates. To protect the long-term viability of these benefits, we must slow the rate of cost increases in our health care and retirement savings plans, and this message outlines the way we will achieve this goal. Although benefits issues are complex, our most basic goal remains the same — preserving high-quality benefits with shared responsibility for cost.
Health care cost-sharing must change in the next several years for faculty, staff and retirees, with all contributing a larger portion than they do today. Currently, when we consider health care premiums and out-of-pocket co-pays and deductibles, employees contribute an aggregate of 20 percent toward health care costs, and the University contributes an aggregate of 80 percent. We will carefully study the ways we can adjust our cost-sharing ratio over time to an aggregate 30-percent employee and 70-percent University contribution. This cost-sharing ratio brings us closer to that of peer universities and health systems. (Definition of aggregate contribution: www.hr.umich.edu/benefitsstewardship/qa.html#4.)
While some organizations reduce plan quality to help control costs, we reject this approach. Health coverage is simply too important to the welfare of our faculty and staff and their families. Therefore, we also will study various ways to factor in employee salary levels when setting premium rates. Options to consider will include, for example, setting lower premiums when salary falls below a specified threshold or providing a premium supplement based on salary.
We are fortunate to have some of the nation's leading experts in the delivery and economics of health care, insurance design, policy and administration as members of the University community. To draw on those resources for the careful study and solid planning necessary, we have appointed the new Committee on Sustainable Health Benefits.
This committee will recommend specific cost-sharing mechanisms (premiums, co-pays, and deductibles) to achieve our new cost-sharing ratio. The committee membership and charge can be viewed online at:
www.benefitsstewardship.umich.edu/hccs-charge.html. While this new committee will recommend methods to achieve our new cost-sharing ratio, the existing MHealthy Advisory Committee will continue to draw on the broad-based intellectual resources of the University to develop innovative, long-range solutions for improving overall community health and wellness (www.mhealthy.umich.edu).
The U-M Retirement Savings Plan is an important source of retirement income. In calendar year 2007, almost 90 percent of eligible faculty and staff were enrolled in the retirement savings plan and received approximately $191 million in University contributions toward retirement. By 2027, this number could reach more than $700 million.
Although U-M's 10-percent-of-salary contribution rate is greater than the average of our higher education peers and much greater than our health system peers, we are not considering adjustments to the contribution amount toward this important benefit. Rather, we will investigate options for vesting periods and waiting periods to receive University contributions for future employees. Current faculty and staff will not be affected by these changes.
For this important work we will utilize the economic, financial and administrative expertise of our community with the establishment of the Committee to Study Vesting Options for the Retirement Savings Plan. This committee will evaluate impacts and recommend changes for new employees hired after any adjustments are implemented. The options to be studied for future employees include:
- Cliff vesting, in which an employee receives 100 percent of the U-M contribution after a specified number of years of continuous employment, but is ineligible for the U-M contribution if s/he leaves the University before that term.
- Waiting periods before an employee is eligible to receive U-M
The committee membership and charge can be viewed online at:
WHEN WILL WE ACCOMPLISH THESE GOALS?
- Both committees will begin meeting in September and will make their final recommendations by the end of December.
- The University's executive officers will make final decisions about the recommendations by the spring of 2009.
- The implementation of any recommendations that are adopted will
begin in 2010, and 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.
In the interim, we will continue to communicate about our progress. A Web site also has been created where you will find detailed background information, the committee charges, questions and answers, and an online form for sending comments and questions. We recognize the importance of these benefits to current and future members of our community and encourage all faculty and staff to take the time to be fully informed.
In partnership for the stewardship of benefits,
Robert P. Kelch, Executive Vice President for Medical Affairs
Timothy P. Slottow, Executive Vice President and Chief Financial Officer
Teresa A. Sullivan, Provost and Executive Vice President for Academic Affairs
Laurita Thomas, Associate Vice President for Human Resources