Letter to the Faculty and Staff Community

TO: U-M Faculty and Staff Community
FROM: Paul N. Courant, Dr. Robert P. Kelch, Timothy P. Slottow
SUBJECT: Adoption of Recommendations on Health Insurance Premium Design

January 20, 2004

As described in the Jan. 12 University Record, the three of us reported last month to the Board of Regents on our plans to move ahead with nearly all of the recommendations made by the faculty and staff Committee on Health Insurance Premium Design (CHIPD). The committee was given the narrow charge of recommending changes in the structure of premiums paid by the University and co-premiums paid by employees for health and drug insurance coverage, while maintaining both choice and quality of plans. We support the fundamental cost-sharing principles outlined by the committee, as do the Regents.

The University will pay a greater share of the cost of coverage for employees and retirees than for dependents, and will pay a larger portion of the premium for our lower-cost comprehensive plans than for the more expensive plans that are also available to employees.

We also support the recommended change from our current three-tier structure of coverage to a four-tier system. The added tier, which covers one adult plus any number of children, will reflect the lower cost of insuring children and pass that savings on to the employees electing that coverage level.

There were two areas, however, where we differed with the committee's recommendations. First, the recommendations called for calculating prescription drug and health insurance co-premiums separately. We believe calculating them together will simplify plan administration and allow the lowest cost plans (Comprehensive Major Medical and Grad Care) to have little or no cost to the employee in the single-person tier. Secondly, we did not endorse the recommendation that the University maintain an aggregate contribution of 85% toward premiums for three years. We will work to stay at or as close as possible to that percentage, but it may not be possible in the current health care environment to make accurate cost predictions for a three-year period.

When the recommendations were issued last semester, several important concerns were raised by faculty and staff members during the five special sessions held on all campuses and in the approximately 100 e-mail messages received through the CHIPD informational Web site. A common sentiment was that the premium-sharing redesign placed a greater burden on our lowest-paid staff. We discussed this at length and concurred with the committee's assessment that trying to design a viable solution for various income levels raises difficult issues of fairness, consistency, and benefits administration. We continue to believe that the University must address issues related to our lowest-paid staff more comprehensively. Although the current financial climate presents real and pervasive challenges for the University, we will continue to work, as we have over the past few years, to provide additional targeted salary programs and supplements.

Another important concern was raised about the portability of plans for faculty, staff, and retirees who leave the area or live beyond the limits of an HMO service area. While we currently offer one comprehensive plan that is completely portable, its cost is significant to both the employee and the organization. Human Resources & Affirmative Action is actively pursuing another portable health insurance option and hopes to make this additional option available by 2005.

We want to thank all of you who have followed the public discussion of this challenging situation. The path we are now on reflects the reality of our national health care landscape. Our premium-sharing plan represents our recognition of the financial realities of health insurance today while remaining true to our commitment to offer a robust benefits package, which is vital to recruiting and retaining superior faculty and staff.

Please remember that medical insurance elections made during our last open enrollment period are effective for the full 2004 calendar year -- your choices and premiums for 2004 are not affected by the changes announced in December. These recommendations will be implemented in January 2005.
The exact amount enrollees will pay for each plan in 2005 will not be known until after the University has negotiated with insurance providers, a process that will begin soon. We will continue to provide you with advance notice before the implementation of any changes and to seek your input with any further plans to address rising health insurance costs.

Details about CHIPD's work can be found on this website. As always, you can find important information and updates about your benefits at: www.umich.edu/~benefits.