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>> In late 2009, the university's Executive Vice Presidents and I asked the Committee
on Retiree Health Benefits also known as CORHB to propose a means
to maintain the university's competitive retiree health benefits,
while helping us to control the unsustainable cost growth.
The committee's work was another part of our overall effort to spend responsibly
and protect our ability to carry out our core missions
and education research and patient care.
An analysis of 27 peer institutions found that U
of M's retiree health benefits were among the most generous of the institutions in the study
and significantly exceeded the market average.
The committee included members of our faculty, staff and retiree communities.
We asked them to propose specific short and long term cost reduction actions and to do
so with the least amount of impact on those who are already retired or nearing retirement.
Their work was guided by these key principles: To continue to provide quality programs
at affordable cost, to continue to offer market competitive programs, to recruit
and retain our faculty and staff, to be responsible in stewarding the fiscal resources
of the university, to continue to offer a choice of plans,
and to enable informed decision making.
Finally, to leverage our internal and external expertise
and developing innovative benefit design and programs to promote our culture of health.
As the committee began this work, meetings and focus groups were held on all of our campuses
to gather feedback and advice from faculty, staff and retirees.
Hundreds of you participated in the focus groups
and hundreds more contacted us with comments and suggestions.
There were four frequently sided priorities we heard from you: The importance of providing time
for planning before changes take effect, the need to continue to cover dependents
after retirement, the desire to minimize any financial burden on those already retired
and general support for offering a greater university contribution to employees
with more years of service at the time of retirement.
Thanks to faculty, staff and retiree participation in the process,
the committee was able to develop its recommendations with community priorities
in mind and each of these four objectives was met.
After careful consideration, all of the committees recommended changes
to retirement eligibility rules and university contribution amounts have been accepted
by the university's executive leadership
but with an accelerated timeline for long term implementation.
Because we fully support the principle of advanced notice,
we will wait nearly two full years before changes begin to take effect on January 1, 2013.
This will allow important planning time for faculty, staff and retirees.
We are grateful to the members of the committee for their individual and collective expertise,
analysis and guidance in devising a thoughtful long term approach that balances the imperative
to manage cost with our long standing commitment to meeting the needs of our community.
Here is some background that will be helpful in understanding the need for change.
The number of retiree contracts is expected to increase 50% over the next 10 years.
Retiree health contribution costs are projected to double over that same period,
from 40 million dollars in 2010 to over 88 million dollars in 2020.
By 2040, those costs are projected to reach as much as 359 million dollars.
The committee was charged to make recommendations on these key factors:
Eligibility requirements for retiree health benefits, retiree contribution levels
for current and future retirees, short and long term savings.
The principles guiding the committee's recommendations included the following:
Recommend changes that are market competitive, consider the financial impact of a range
of options, consider changes with gradations of impact with the greatest affect on future hires,
followed by faculty and staff not yet eligible to retire, then faculty and staff
who could retire now and with the least impact on current retirees.
We needed to address the ability of current faculty and staff and retirees
to plan for and to manage changes.
Insurance coverage for eligible faculty, staff and retirees currently includes:
Medical insurance, prescription drugs, dental insurance, vision insurance and life insurance.
Here are some things about your benefits and retirement that are not changing:
Coverage from medical, prescription drug and dental and vision in affect at the time
of your retirement will continue.
Group life insurance in affect at the time of retirement also continues.
Only the eligible persons covered under medical insurance, prescription drug and dental plans
at the time of retirement can remain on the coverage.
Covered dependent children remain on your benefits
until they no longer meet eligibility requirements,
up to the end of the month in which they turn 26.
The ability to add persons such as a spouse or other qualified adult
to retiree coverage is severely restricted once a faculty or staff member has retired.
Each year, during the open enrollment period, retirees may change their health plan to one
of the other health care plans offered by the university.
Here's a quick summary of what the changes mean to you,
depending on whether you are already retired or planning to retire within the next 10 years.
There is no change to university contribution for those who retired before the year 2000.
For most retirees that means a 93% university contribution for you,
75% for any dependent children, and 66% for your spouse or other qualified adult.
If you retired after January 1, 2000, or are planning to retire before now and the end
of 2012, there will be no change until January 1,
2013 when you will receive a university contribution of 90% of the premium
and 70% for any covered dependent.
Starting on January 1, 2013, the university will begin using a 76 point retirement eligibility
system so that employees will be eligible to retire with benefits when the sum
of an individual's age and years of service equals 76
and they have at least 10 years of service.
Beginning in 2015, one point will be added to the eligibility requirements every two years
until 2021 when 80 points will be required to retire with benefits.
80 points will continue to be required from that point on.
Also, effective beginning in 2013,
the percentage contribution toward retiree health benefits being made
by the university will be gradually reduced.
The university will continue to pay a greater percentage toward the coverage of the U
of M retiree than the percentage paid for coverage of the retiree's dependents.
The university's contribution to retiree health benefits will remain a percentage
of the total cost of coverage so that the dollar amount of university contribution will grow
as health insurance costs increase over time.
Beginning in 2021, age and years in service eligibility will be a combined 80 points
with a minimum of 10 years of service.
A minimum of 10 years of service will be required to receive a university contribution
and the amount of that contribution will increase
with greater years of service to the university.
50% of the full university contribution will be provided for those who retire with 10 years
of service and the contribution will increase 10% for every additional 2 years of service.
An employee with 20 or more years of service
at retirement will receive the full university contribution of 80% for the retiree
and 50% toward the coverage of dependents.
Benefit eligible part time employees 50% to 79.9% appointments will accrue .8 years
of credit toward eligibility per full year worked.
This better aligns the credit towards eligibility
of part time employees with their percent of effort.
Those with appointments of 80% or more will receive the same credit toward retirement
as full time faculty and staff.
Also effective January 1, 2013, newly hired faculty
and staff will receive a maximum university contribution
of 68% toward the retiree contribution at a maximum
of 26% toward the dependent contribution.
This illustration shows the expected difference and retiree contributions for retirees age 65
and under through January 2019, based on today's rates.
This illustration shows the expected dollar cost for Medicare eligible retiree contributions
through January 2019, based on today's rates.
These adjustments will work together over time to help control the growing cost
of retiree health benefits while preserving this important benefit
for current and future retirees.
>> Thank you Laurita.
As we review the adjustments that have been adopted,
it's important to understand the overall economic landscape
of our peer institutions and higher education.
Of a select group of 27 of our peer institutions,
11% offer no retiree health care benefits at all.
33% or 1/3 did not make employer contributions toward health care premiums for their retirees
and 41% did not contribute toward the coverage of their retirees dependents.
Unlike many of these institutions, U of M has devised a solution
that continues our retiree health care benefits for current and future retirees,
preserves university contributions for current retirees, and continues coverage
for current and future retiree's dependents.
The policy changes that will be implemented in phases
over the next ten years will help the university to better align our retiree health benefits
with the market while maintaining our overall competiveness and our ability to recruit
and retain the best faculty and staff.
It also minimized the impact on current retirees and provides advanced notice and a phase
in approach to implementation for current faculty and staff.
Lastly, the changes help us to achieve significant cost reduction goals
with annual recurring savings of over 9 million by 2020 and 165 million by 2040.
As we move forward with the planned to implementation of these changes,
we will continue to monitor the effects of national health care policy on the market,
monitor any other changes in the market,
and also investigate potential tax advantage savings plans for new hires.
Lastly, we plan to conduct a comprehensive review
of where we stand relative to the market in five years.
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The Benefits Office understands that adjustments like these can be challenging,
so we've developed a number of resources to help faculty, staff,
and retirees understand and plan for these changes.
For more information about retiree health benefit policy changes,
please visit the Stewardship of Benefits website.
That website provides background information, the committee report, along with questions,
answers and a place to submit any unanswered questions you may have.
For help in estimating the impact of planned changes on your plans for retirement,
we've prepared a retirement health benefits estimator that is available online.
It will help you determine your earliest date of retirement eligibility and give you a summary
of the changes we expect to be in affect at that time.
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