These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
238A Morrill Hall
Present:
Charles Speaks (chair), Prince Amattoe, Jean Bauer, Charles
Campbell, David Chapman, Tom Gilson, Gary Jahn, Thomas Klein, Joseph Konstan, Brittny
McCarthy Barnes, Kathleen O'Brien, Richard Pfutzenreuter, Sue Van Voorhis,
Warren Warwick, Susan Carlson Weinberg
Absent:
Stanley Bonnema, Tim Church, Robert Cudeck, Abu Jalal,
Michael Korth, Tim Nantell, Daniel O'Connor, Thomas Stinson, Terry Roe, Michael
Volna
Guests:
Vice President Kathryn Brown, Professor Art Erdman
(Advisory Committee on Athletics), Professor Laura Coffin Koch (Faculty
Academic Oversight Committee on Intercollegiate Athletics); Senior Vice
President Frank Cerra, Professor Fred Morrison (Benefits Advisory Committee)
[In these minutes: (1) institutional support for Twin Cities intercollegiate athletics; (2) health care
benefits changes]
1. Institutional Support for Twin Cities Intercollegiate
Athletics
Professor
Speaks convened the meeting at 2:20 and noted that he had provided copies of
three items: a draft statement from the
Committee concerning institutional support for the Twin Cities intercollegiate
athletic program, an email from Professor Borgida (chair of the Advisory
Committee on Athletics) concerning the language of the resolution, and a
message from President Bruininks concerning the draft statement.
The Committee held a lengthy,
off-the-record, discussion about institutional support for Twin
Cities intercollegiate athletics.
2. Health Care Benefits
Professor
Speaks turned next to Senior Vice President Cerra and Professor Morrison for a
discussion of health care benefits.
Senior
Vice President Cerra distributed copies of a multi-page handout of PowerPoint
slides containing data and information that had been presented to the Committee
at one of its previous meetings. He
briefly reviewed the data with the Committee.
The
major challenges to the UPlan are the rising cost of health care, tailoring
health benefits, with the Benefits Advisory Committee, to better meet the needs
of University employees, promoting wellness and improvements in the health
status of University employees, and providing quality, cost-effective health
benefits during a major budget challenge.
The
guiding principles for the UPlan are these:
-- Provide
quality, cost-effective benefits
-- Offer a basic "basket" of
benefits and consider changes in coverage and eligibility after consultation
with the Benefits Advisory Committee
-- Continue to offer several choices of
health plans
-- Consider a variety of mechanisms to
reduce the rate of rise of premium costs
-- Give strong consideration to
affordability and to the continuity of care
-- Promote wellness and improvements in
health status for the University community
Basic covered benefits are employee medical and dental
coverage and employee life and AD&D insurance. Optional benefits include family medical and
dental coverage, optional life and AD&D insurance, disability insurance,
long-term care coverage, and reimbursement accounts for health and dependent
care.
Dr. Cerra reviewed the four options for medical coverage
as well as improvements in wellness and health status. The latter included providing flu shots for
3.661 employees, assessment of wellness program opportunities for employees,
and recruitment of a Wellness Program Manager.
The effects of a disease-management program on premium costs will not be
evident for several years, and for longer for a health promotion program.
Dr. Cerra next reviewed cost projections for the UPlan
2002-2005. With no changes in the
program, the cost to the University is projected to increase from $97.2 million
in the current year (89% of the total cost) to $111.6 million next year (87.5%
of the total cost) and to $129 million the following year (also 87.5% of the
total). Employee costs would increase
from $11.9 million to $16 million to $18.5 million. There is a "double squeeze"
occurring, Dr. Cerra said: employer
costs are rising, from $97.2 million to $129 million while University revenues
are shrinking. The response will be
thoughtful management and cost reductions, including cost-sharing with
employees.
The framework for the cost reductions will consist of
several elements. Current covered
medical services will be maintained. The
University will implement a wellness/prevention program which should show a
benefit in the next biennium. The
current four medical programs will be maintained. There will be alterations in the health plan
designed to control costs. The health
plan design will be moved to Big Ten and public-sector benchmarks. (All changes will be subject to bargaining
for bargaining-unit employees.) Was one
goal a reduction in the consumption of services, Professor Konstan asked? One could say that the intent was to decrease
utilization by X dollars next year and X+ dollars the following, Dr. Cerra
said, and to accomplish that reduction by increasing co-pays, etc. But that would be difficult to achieve and it
would be better to put in incentives and identify where the University will
shift costs to employees in order to keep the same basket of services. They have looked at a lot of alternatives;
the cost-avoidance and cost-reduction proposals came from that
consideration. Even with increased
employee contributions, the University would be paying most of the cost of
health care.
Is this an across-the-board cut, Professor Konstan
asked? It is, he concluded; employees
will be worse off and must pay more out-of-pocket expenses. One can debate whether consuming less health
care will improve health. But it is not
a cut; the University is avoiding spending some money in order that it has
money to send to colleges for academic purposes.
If the University is to maintain services there are two
approaches that can be taken, Dr. Cerra said.
One is to shift cost to employees, the other is to provide incentives to
reduce utilization. There are very poor
data on any relationship between utilization and health.
Another goal is to get people on to other health care
plans, Professor Konstan observed. Dr.
Cerra agreed. The proposal includes
moving to a tiered system (for single coverage, single plus one, family, etc.)
that will require a lot of discussion.
Dr. Cerra next discussed comparative data for Big Ten
public universities, the State of
Employee cost for dependent coverage varies widely. The dollars per month are about as follows:
University 45
Big Ten 90
State 50
Henn Cty 270
TC pub 140
survey 190
The percentage of the family
coverage premium paid by the employer varies accordingly as well, from about
95% at the University to 90% in the Big Ten to about 78% in the Twin Cities to
about 70% in the national survey.
Dr. Cerra also reviewed similar benchmark standards for
the costs of prescription and office visit co-pays and out-of-pocket maxima for
prescriptions and health care expenditures in general.
The administration has developed a framework for cost
reductions by altering the plan design.
Some are administrative: changing
the stop-loss insurance, standardizing prescription amounts, increase the
waiting period for new employees, improve benefits coordination, and remove
University of Minnesota Physicians (UMP) from the base plan. Operational changes are to increase co-pays
for office visits and prescriptions and to make them geographically uniform,
raise the maximum out-of-pocket limits, eliminate lab co-pays, change prescription
coordination of benefits, offer the option to opt out of coverage, all
employees pay a portion of the premium, and dependent/family share increases.
The UMP care system is more expensive than others in the
system. About 49% of the UMP patients
use UMP Family Practice and 49% use Boynton.
The Committee discussed the UMP system briefly; Dr. Cerra commented that
it does support the
Dr. Cerra then reviewed the initial proposals to change
the health care system at the University, entitled "Moving Toward Benchmarks."
-- The University would pay 90% of single coverage
low-cost-provider costs (compared to 100% now, 94% in the Big Ten, and 92.5% in
the
-- The University would pay 85% of family coverage (compared
to 94% now, 90% in the Big Ten, and 79% in
These two items together are projected to save about $12
million next year.
-- Prescription co-pays would increase from $10 to $15
(compared to $8.70 in the Big Ten, $10.30 in the
-- The out-of-pocket maximum for prescriptions would increase
from $500/1000 (single/family) to $1000/2000 (compared to 1000/1600 in the Big
Ten, 300/600 in
These two items together are projected to save about
$670,000 per year.
-- The office co-pay would increase from $5 to $10 (compared
to $10 in the Big Ten, $8.70 in
This item is projected to save about $3.1 million per
year.
Professor Konstan commented that the plan overshoots the
goal; it represents a strange definition of "toward" (i.e.,
"moving toward benchmarks").
The numbers do get into a gray range, Dr. Cerra agreed; it is not a good
idea for the University to be on the lower end of the standard. If the private sector were included, the
University's benefits would look much more generous. The numbers would also be different if one
used the top 30 research universities as a benchmark.
Dr. Cerra reviewed briefly the cost savings from
administrative changes in the medical plan as well as the benchmarks for dental
coverage. (The University would pay 89%
of single base plan dental coverage, compared to 100% now and 60% in the Big
Ten; the University would pay 50% of family coverage, compared to 69% now and
54% in the Big Ten.)
The overall effects of the proposed
changes decreases the rate of increase in University health care
expenses. Instead of the costs
increasing from $97.2 to $129 million (if there were no change), they would
increase from $97.2 to $108 million in 2005 (and actually decrease to $95.1
million in 2004). The cost to employees,
instead of going from $11.9 to $18.5 million (if there were no change), would
increase from $11.9 million to $31.7 million.
The brunt of the change in costs would be paid by the employee in 2004
but by the University in 2005. It is
also estimated that the total cost of the plan would decrease slightly over the
next two years, by $4.5 million next year and by $8.5 million in 2005. Presumably some parts of the system would not
be used, Dr. Cerra said, because of behavioral changes. It is in part behavioral changes and in part because
employees will be paying more, Professor Morrison added.
The next graph the Committee looked at showed the
projected costs for medical plans with and without the proposed changes. The cost to the University in 2004 will
decrease by $16.4 million compared to the projected costs with no changes in
the system (and cost the University $2.2 million less than the year
before). So one element of the cut in
funding from the state is that the University will shift costs to employees in
the amount of $16.4 million, Professor Speaks concluded. There will also be $2.2 million in savings,
Dr. Cerra said. The total savings in
health care for the University will be about $17 million, Professor Speaks
said, is that both cost-avoidance and savings?
It is, Dr. Cerra said.
Has all of this solved anything or is this a one-year
solution that will come back again next year, at which time the University will
have to say it must again increase employee costs, Professor Konstan
asked? Will the University be in the same
position in 2006? Dr. Cerra said it
might be and that the University has bought itself two years. The inflation in health care costs is not
likely to change. A wellness program
could lead to a reduction in disease, but that is a low-probability event
because the change takes 8-10 years to have an effect. He said he saw no forces in the health care
marketplace to control costs.
The
University can reduce its costs but if one is a user, one will pay more. They are also trying to contain costs, but the
issue will be back in the next biennium.
There will be serious questions in the next two years that need to be
addressed. Should the University change
benefits? Should there be a defined
contribution plan? Should the University
offer its own pharmacy program? Should
it mine its own data on disease prevention?
Long-term there may be a different approach to health care. The University must struggle with these
questions and he would like to engage the minds of those involved in health
care at the University to see what can be done.
Is
anything being done to increase email physician consultation, Professor Konstan
asked? There is, Dr. Cerra said. There is at present no mechanism to
compensate the physician for the time, but email consultation is coming.
Professor
Speaks asked if (1) there had been any calculation of the actual dollar impact
of these proposals on employees, and (2) in a year when there will be salary
freezes, will there be an effort to protect low-income employees? The dollar impact varies substantially by
medical plan, Professor Morrison said.
In the base plan, the premium increase for individual coverage will be
about $350 per year. For family coverage,
the increase will be about $800 per year.
The Benefits Advisory Committee (BAC) takes the position that no one
should see a premium increase that is more than 2% of salary and that the
University should offset any larger increases, at least until the next time
there is a salary increase. He said he
did not know how the University would cover the 2% cap on increases in costs
for employees.
The
BAC also recommends that the University not move to a 90/85 plan (the
University will pay 90% of single coverage and 85% of family coverage), as
proposed, but rather to a 90/90 plan, so the increase is only about $350 to
$400 for families.
The BAC also recommended holding the out-of-pocket cap
for pharmacy at $500/$750 the year after next.
This is insurance, in its view, and pharmacy costs should not be loaded
on sick people but should be averaged across the University. $750 is 50 standard prescriptions, which is a
lot (more than four per month, which means one likely has a problem and
insurance should assist with the cost).
With respect to dental insurance, the BAC recommended the University pay
for 60% of the family coverage, not 50%, but this is so inexpensive that it is
not a large number.
What is the impact of these changes from the original
proposal, Professor Bauer asked? Several
million dollars to the budget, Professor Morrison said. Dr. Cerra said the BAC did "an
incredible job" of analyzing the data and its recommendations are very
close to what the administration proposed.
The administration will return to the BAC on May 15 to present a
response. The administration agreed with
the proposal to go to 90% for family coverage, not 85%, with the possibility of
going to 85% in 2005 once it sees the data for 2004.
Ms. Weinberg asked what the total increased cost to an
individual would be, not just for premium increases but also including
co-pays. Professor Morrison said that is
difficult to say. The cost is smaller
for an individual and larger for a family.
The BAC calculated that expenditures beyond the premium cost increase
would go up by about $55 per person on average (based on seeing a doctor four
times per year and receiving seven prescriptions). Once they have the final numbers, Dr. Cerra
said, they will do an analysis by premium and increases in co-pays. They operate on the principle that each
carrier is self-sustaining, Professor Morrison added, so if one is less
efficient, the premium will go up; as a result, there are different adjustments
with each provider.
Professor Jahn asked if there is a surplus in the fringe
benefit pool. There is; if so, could not
the surplus be exhausted to reduce the cost increases, he asked? Ordinarily the surplus is distributed to the
schools and colleges, Dr. Cerra said, to in order to drop the fringe benefit
rate. The University, however, has
chosen to use the money because each dollar means fewer lay-offs or program
cuts.
For the long term, the only solution is a structural
change nationally or behavioral changes, Professor Konstan said. Is any modeling being done to achieve
behavior change? Dr. Cerra responded
that if employees are given money to spend on fringe benefits, it could be
taxable. In addition, they can obtain
answers to the questions but always in retrospect (e.g., the effect of raising
co-pays). It will be three or four years
before they have a robust enough database to provide answers. The actuary working with the BAC reported
that higher co-pays for employees doe not change
behavior, Professor Morrison reported, because people get their prescriptions
in any event. With office visits,
however, behavior does change. They did
see an effect from raising co-pays in the past, Dr. Cerra added, but may not
see it in the future.
Professor Speaks thanked Dr. Cerra and Professor Morrison
for their report, and adjourned the meeting at
--
Gary Engstrand