March 22, 2012 - Health Insurance

Dear fellow UAFT Faculty Members,

You have probably already heard and read that the 2012-13 health care rates will be increasing dramatically. In fact, these increases will negate all of the $1668 pay raise that we will receive next year for anyone selecting any plan other than employee only. Here are the current rates, next year's rates, and the amount of your pay raise left over should you pick that plan:

"500 Plan Current

Next year

$ Increase % Increase $ of Raise Left Over
Employee $2,547 $3,886 $1,339 52.57% $329
Employee + Spouse $5,094 $7,772 $2,678 52.57% -$1,010
Employee + Children $4,584 $6,995 $2,411 52.60% -$743
Family $7,131 $10,881 $3,750 52.59% -$2,082
"750 Plan          
Employee $1,116
$2,280 $1,164 104.30% $504
Employee + Spouse $2,232 $4,560 $2,328 104.30% -$660
Employee + Children $2,009 $4,104 $2,095 104.28% -$427
Family $3,125 $6,384 $3,259 104.29% -$1,591
HDHP Plan          
Employee $395
$1,465 $1,070 270.88% $598
Employee + Spouse $790 $2,930 $2,140 270.88% -$472
Employee + Children $711 $2,637 $1,926 270.89% -$258
Family $1,106 $4,102 $2,996 270.89% -$1,328

How did we get here?

The overall increase in health care costs next year can be broken down into two parts: unavoidable increases to the cost of health care (about 60% of the overall increase) and a recovery of an estimated $3,500,000 in under-recovered employee contributions from this current year (about 40% of the overall increase). Over the past 4 or 5 years we experienced similar increases in health care costs; however, employees had accumulated an overpayment in the amount of about $13,000,000 that was used to temper these increases. The projected $3,500,000 under recovery is attributable to two main reasons: 1) not increasing employee rates this year (FY12), along with not including a $50 per month "surcharge" on tobacco users (accounts for about $1,500,000) and 2) gross underestimation of employee reactions to the drastic increases in deductibles this current year (FY12), (accounts for about $2,000,000). Let me address these further.

Reason 1 – not increasing employee rates/not implementing the tobacco surcharge ($1,500,000 total)

You should have recently received a letter from Donald Smith, Interim Chief Human Resources Officer regarding FY13 Health Plan Costs (a copy is available at: http://www.alaska.edu/files/benefits/DSletter2.pdf). In the fourth paragraph of this memo Mr. Smith states "Recall that the decision to not raise the FY12 rates was made by the Joint Health Care Committee in order to keep rates low while other health plan changes were simultaneously enacted." What really happened was that Beth Behner, the Chief Human Resources Officer at the time, in paragraph numbered 1 on page 2 of a January 21, 2011 memo to President Gamble states when describing the drastic increases that employees will absorb this current year "Because of the significant savings to the University from implementing these changes, the total amount of employee recovery needed will not change from FY11 to FY12. Therefore, UA will not seek an increase in total employee contributions…" This memo can be found at: http://www.alaska.edu/files/benefits/(3) 1834_0001-1 bbmemo FY12 Plan.pdf The memo additionally states in paragraph labeled C. on page 4: "C. This plan change permits us not to have to increase the total amount of employee contributions for health care in FY12."

Reason 2 – underestimation of employee actions

The remaining $2,000,000 shortfall in employee recovery came from the underestimation by the University's hired consultants of the employee reactions to the drastic deductible increases this current year (FY12), (recall that these deductible increases shifted almost $7,000,000 directly to the employees, which President Gamble touts as a "cost avoidance" to the Alaska Legislature). The consultants estimated that less than 10% of the employees would shift to the HDHP. In reality there was about a 40% shift. Additionally, the consultants estimated that very few additional employees would "opt-out" of the health care plan. In reality an additional 4% of the employees on the plan chose to opt-out. (Explanation: Opt-out means to decline to participate in the plan. In order to make this choice an employee must be able to show proof of health insurance elsewhere such as a spouse's plan. The end effect of opting out is that our plan does not get the approximately $13,000 university contribution, nor the employee's contributions).

Where can you find out more?

Erika Van Flein, UA Director of Benefits (ervanflein@alaska.edu, 907-450-8227) has compiled a Q&A document that can be found at: http://www.alaska.edu/files/benefits/HealthCareFY13Q_A.pdf

Health care costs in FY 13 will be painful. Those of you that participate on FSAs will experience an additional hit as the federal law reduced the FSA limit from $5,000 to $2,500 which does not even cover the family deductible for the HDHP.

Health care costs in FY 14 will also be painful. The negotiated University/employee split is currently 83%/17%. That will be reduced to 82/18 which will shift about $800,000 to employees. The rates in FY 13 are estimated to only recover about 80% of the overall under- recovery leaving about $700,000 to be collected. Health care costs are anticipated to increase by 7-10% ($5-$7 million).

I welcome input from anyone that might have ideas on how to address these anticipated cost increases (tim.powers@uaft2404.org).

Tim Powers
President UAFT