January 8, 2007
To: The University Community
Few employee benefits are more valued than health care insurance. Because of this University's awareness of the importance of health care insurance to our employees, we have long provided quality health care insurance options, often at very low cost to all who work here.
Health care costs are responsible for an ever increasing share of University expenditures. Between 1998 and the current academic year, 2007, health insurance costs have increased from $17 to $64.5 million, dramatically outpacing all other major cost components in the University budget. Approximately 30 percent of the increase was due to increases in staff, but even when this amount is subtracted from the total, health care costs have grown from $17 million to approximately $45 million or approximately 265 percent.
Read a Q&A on health insurance with Associate Vice President for Human Resources Chuck Murphy.
Because the cost increase is so steep and could potentially reduce significantly the resources available for the University's primary missions, the University began work some months ago with a consultant, Mercer Health and Benefits, to calculate the likely future magnitude of increasing health care costs and to study ways of approaching this very serious issue.
The University's primary goals in this area remain to continue offering a competitive health benefits package while prudently managing the related costs.
Mercer has recently estimated that if no changes are made in our health insurance plans, medical and prescription drug costs continue to rise at recent annual rates, and there is no increase in the number of University employees, the University component of health insurance costs will grow to $114 million by 2012. If we assume normal growth in the number of employees, the University's component of health insurance costs will grow to $135 million by 2012.
Mercer's analysis highlighted a number of differences between the health insurance plans offered by peer institutions and University of Rochester. These differences include:
The last time the University systematically reviewed health insurance costs was 1995, when President Jackson's Commission on Benefits made proposals in several benefit areas that were later largely adopted. Those proposals contemplated that the University's share of the premium would be reduced from 81 to 77 percent for single coverage and from 62 to 60 percent for family coverage. Instead, the University share of health care insurance costs has increased steadily from 70 percent in 1997-1998 to 81.6 percent in 2005-2006.
The percentage of the premium that is paid by the employee varies widely. Today single employees in aggregate bear approximately 3 percent of the costs of their health insurance while families bear approximately 21 percent. Not only do these data raise significant questions about how costs should be allocated, but there are also separate issues concerning whether the current design of our health insurance plans best encourages the healthiest behavior on the part of our employees.
The University has taken some steps in recent years to mitigate the costs of escalating health insurance costs, including our shift to self-insurance which has saved approximately $4 million a year, and our commitment to competition among self insurance administrators which we expect will add further cost savings.
As you know, in December I approved a 9.7 percent increase for health insurance premiums but with no changes in health insurance plan design for the 2007 calendar year. I did so because I wanted there to be time for a University wide review of how to design health insurance plans that would be financially sustainable for a minimum of the next five years, and I wanted this process to involve representatives of all relevant constituencies.
Today I am appointing Bradford C. Berk and Ronald J. Paprocki to co-chair a Task Force on Employee Health Insurance Plans and make recommendations to me by April 30, 2007. No changes will be made in health insurance costs or plan design until the 2008 calendar year.
The other members of this Task Force are:
I have sought to create a Task Force that has both relevant health-care expertise and that represents each relevant employee constituency. It will be able to draw on data gathered by Mercer to expedite its work. I will ask the Task Force itself to create mechanisms such as town hall meetings to ensure that faculty and staff have the opportunity to be briefed on the deliberations of the Task Force and have their comments heard.
Specifically, I am charging the Task Force to address the following:
I am grateful to the members of the Task Force for accepting this assignment. Health care is important to all of us. I am confident that they will address these challenging issues thoughtfully through a process that includes listening to the concerns of the University community. I look forward to receiving their recommendations.