Background & Charge of the Committee
The University of Michigan has a long history of providing retiree health care benefits (medical, prescription drug, and dental benefits) for eligible retirees who meet the prerequisite age and service requirements for U-M retiree status with benefits. Health care benefits are provided for retirees’ dependents, surviving spouses and for other dependents of deceased eligible retirees.
Currently, University contribution guidelines for retiree health care benefits are complex with varying contribution amounts based on the date of hire, retirement date, and age of the retiree. For example, pre-1987 U-M retirees receive University contributions equal to 100% of the premium. The contribution formula for post-1986 retirees follows the same cost-sharing parameters as those set for active faculty and staff. However, faculty and staff hired on/after July 1988 who retire do not receive a University contribution towards health benefits until they reach age 62. Contribution differences also exist for retirees who are less than 65 and those who are more than 65 years of age. Upon reaching age 65, retirees and their Medicare eligible dependents have Medicare as primary coverage and the University plan provides secondary coverage with lower medical premium costs than pre-65 retirees.
U-M’s retiree health benefit design and contributions significantly exceed the market average. In 2009, the findings from a benefits market study and analysis of 27 U-M peer institutions found that U-M has by far the richest retiree health benefits of all institutions in the study. Even after full implementation of the health care cost-sharing changes from the Committee on Sustainable Health Benefits report are completed in 2011, the University will still be providing more than double the market average for retiree health benefits. This misalignment of U-M’s retiree health benefits with the market for retiree health benefits needs to be addressed. It is part of the University’s continuing effort to more effectively balance responsible financial stewardship with safeguarding our ability to attract and retain premier faculty and staff, protect the overall competitiveness and long-term viability of U-M’s benefit programs, and keep student tuition affordable. Changing U-M demographics and projections show that the U-M retiree population is growing at a faster rate than our faculty and staff population. Estimates indicate that the number of U-M retiree health care contracts could double within the next 20 years. Expenses associated with the U-M retiree population are estimated to increase from $37 million in FY2008 to $89 million in FY2017 and to $186.6 million in FY2027.
The Committee on Retiree Health Benefits (CORHB) is charged with making recommendations on eligibility requirements for retiree health benefits, and the retiree contribution levels for current and future faculty and staff and their dependents.
A market analysis conducted by Hewitt identified a variety of health benefit approaches that would ensure the University’s overall benefit package remains at or above market for higher education. These approaches resulted in significant recurring cost savings to the university in both the short and long term. The Committee will consider a combination of retiree health benefit strategies including eligibility, access, and contributions to achieve a plan that results in a position at or above market and recurring savings to the university in the range of:
- $7 million to $20 million by 2020; and
- $80 million to $120 million by 2040
Principles and considerations that guide the Committee’s recommendations include the following:
- Align retiree health benefits changes so that the overall market competitiveness of U-M’s benefit programs is retained at or slightly above market.
- Consider the financial impact of implementing a range of options from adjustments to who has access to changing the balance of cost sharing for current and future retirees (includes future hires).
- Monitor and consider any legislative or other changes with broad impact on health care that are likely to affect our projections.
- Consider changes that will include gradations of individual impact with the greatest affect on new hires, followed by faculty and staff not yet eligible to retire, then faculty and staff who could retire now, and the least impact on current retirees.
- Address the ability of current faculty and staff and retirees to plan for and manage changes in eligibility and contributions.
- Address the implications of the proposed recommendations on faculty and staff decisions to retire.
The Committee may decide to take into considerations differences in their recommendations for faculty and staff who have already retired and those who have not yet retired from the University.
Richard Hirth, Committee Chair and Professor of Health Management and Policy, School of Public Health
Tom Buchmueller, Waldo O. Hildebrand Professor of Risk Management and Insurance and Professor of Business Economics and Public Policy, Ross School of Business and School of Public Health
Ken Langa, Associate Research Scientist, IoG, Associate Professor, Division of General Medicine, Medical School, Faculty Associate, Survey Research Center, Institute for Social Research, Investigator, Center for Practice Management and Outcomes, VA Medical Center
Richard Lichtenstein, Associate Professor of Health Management and Policy, School of Public Health
David Weir, Research Affiliate, Population Studies Center; Research Professor, Survey Research Center
Dearborn: Don Bord, Associate Provost for Academic Affairs and Professor of Physics, Department of Natural Sciences, College of Arts, Sciences and Letters, University of Michigan-Dearborn
Flint: Betty Velthouse, Associate Professor of Management and Communications, School of Management, University of Michigan-Flint
Anne Berens, Assistant Vice Provost, Office of the Provost and Executive Vice President for Academic Affairs
Pat Butler, Vice-President, Retirees' Association
Mary Cardwell, Clinical Nurse II, Cardiology, U-M Health System; member, Voices of the Staff
Ed Rothman, Professor of Statistics, Adjunct Professor of Economics, College of Literature, Science, and the Arts and Director, Center for Statistical Consultation and Research
Marty Eichstadt, Director Benefits, Benefits Administration Office
Content experts will attend meetings as needed.
Subcommittees or working groups drawn from areas representing the issues may be formed (see Objectives).
Rich Holcomb, Director, Total Compensation, UMHS Human Resources
Etta MacDonagh-Dumler, Associate Director, UHR Strategic Initiatives and CORHB Project Manager
Brian Watson, Financial Analyst, Benefits Administration Office
Support Staff – To Be Confirmed