Increase in FY10 UA employee health insurance costs explained

Dear UAA community:

Yesterday, Mike Humphrey of UA Statewide Benefits issued the following memo regarding the increase in UA employee health insurance costs for FY10 (begins July 1). You will have likely received this e-mail in your employee inbox, but we wanted to make sure you had another opportunity to review this information. Below, you will find a chart with the FY10 health insurance costs, as well as the FY09 actual costs per pay period for UA employees. This link will take you to a PDF of this same chart.

Here is Mike Humphrey's memo:
Date: April 8, 2009
To: All University of Alaska Benefits-Eligible Employees
From: Mike Humphrey, Statewide Director of Benefits
Re: Increasing Healthcare Costs

Health care costs nationally are increasing at an annual rate of six percent. In Alaska, the rate is even higher -- over 15 percent. The University of Alaska's health care costs also are increasing. In FY2006, UA's actual claims costs were $41.4 million. For FY2010, projected health care claims costs will reach $56.8 million.

These amounts include health care, dental and pharmacy costs. UA is self insured, which means that all costs for the health care and pharmacy plans for employees and their dependents are paid through university and employee contributions. As a result, increased costs from providers and hospitals, increased usage by employees and catastrophic claims have a direct impact on UA's annual health care costs. Currently, there are 4,200 employees covered under UA's plan. Including spouses, partners and dependents, the total number of people covered is 9,300.

The good news is that UA's costs for health care are not growing at the same high level as the overall rate of health care inflation in Alaska.

We have experienced an increase in plan costs of approximately $4 million annually, or less than 10 percent of total plan costs. Some of this lower than expected growth could be due to our robust wellness program, careful plan use by employees, participation by eligible employees in the disease management program, the change to Caremark for pharmacy plan management and employees' increased use of generic rather than brand-name drugs.

Because UA's plan costs have increased more slowly than expected in prior years, the university used prior years savings to help reduce the rate of increases employees must pay. For example, due to the application of these funds in FY09, employee rates within the economy plan were kept the same as they were in FY08, and employee rates within the standard and deluxe plan were held to a 10 percent increase. This pool of funds has helped moderate the amount employees must pay for the benefit, despite steep increases in total plan costs from one year to the next.

Due to the projected plan cost increases for FY10, however, the application of prior years' savings will not offset the increases needed in employee contributions to the same extent we've recently seen. For FY10, UA's Joint Health Care Committee recommended using $4 million (over 40 percent of total prior years' savings) to moderate employee charges for FY10. This recommendation is rooted in the belief that an increase spread over several years is better than keeping employee rates static for FY10, only to have them dramatically spike in FY11 and future years. UA management has accepted the committee's recommendation.

The employee rates for FY10 that were established after review and consideration of the committee and the UA administration are broken out by pay period in the chart below:

UA's medical and pharmacy benefits have long been recognized as a valuable part of employees' total compensation. Even with the increase in employee contributions for FY10, the UA plan continues to be an excellent value compared to plans offered by other public or private employers.

UA and the Joint Health Care Committee will continue working to manage plan costs, encourage wise utilization of the plan and to help increase wellness levels of all employees. Please contact any of the members of the committee directly to ask questions you may have or to discuss ideas regarding health care issues.

In addition, there is more information available about UA's health care accounting posted on the Benefits Web site. Also at the Benefits Web site, a PDF is available that compares UA Choice with other public employers.

The Joint Health Care Committee Members are:
Beth Behner -- snbeb@email.alaska.edu
Colin Clausson -- ancgc@uaa.alaska.edu
Heather Swanson -- heather.swanson@uas.alaska.edu
Jacob Joseph -- ffjj@uaf.edu
Jay Sowell -- mjpsowell@gci.net
John O. Riley -- afjor@uaa.alaska.edu
Rick McDonald -- rick.mcdonald@uas.alaska.edu
Tim Powers -- tim.powers@uas.alaska.edu
Yvonne Boyce -- yvonne.boyce@alaska.edu
Alternate: Jennifer Madsen -- jenni@pobox.alaska.net
Alternate: Wendy Tisland -- wendy.tisland@alska.edu
Alternate: Lisa Sporleder -- lisa.sporleder@alaska.edu