Retiree Health Benefit Task Force Recommendations

1
Retiree Health Benefit Task Force Recommendations

• UK Employee Benefits

2
Overview of Retiree Health Benefits

• Discuss current retiree health plan
• Why does the University have to make changes?
• Proposed changes
• What do I need to do?

3
Recommendations of the Health Care Task Force
July 1, 2001

• Additional funding for dependent subsidy
• Additional plan choices
• A proactive strategy for the management of health
  care and benefits

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Response

• FY 2003 10.4 million funding for health plans
• FY 2004 Central Funding of health care cost
  increase
• New plan options were introduced
• New health and wellness programs were put in
  place (e.g., Healthtrac)

5
Health Care Costs to UKs Budget

• 17 million increase over the past two years
• 57 million in the current budget

6
Retiree Health Care Issue

• Not an accounting problem
• Retiree health care costs are escalating in sync
  with national trends
• People are living longer
• Health care costs increase significantly more
  than inflation
• Health care is most expensive for the young and
  the old
• A growing retiree base is being supported by a
  relatively static employee group

7
Retiree Health Care Task Force

• Appointed March 14, 2003
• Professor Tom Samuel (Chair)
• Report Issued August 12, 2003
• Recommendation move from a defined benefit to a
  defined contribution plan

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Issue

• Limited dollars
• Increasing demands

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Retiree Health Benefits Task Force

• Focus of the Task Force was the GASB exposure
  draft that will require some type recognition of
  the unfunded liability of the retiree health
  benefit.

Brad Canon University Senate Shelia Brothers
Staff Senate Jean Cox Retiree Bruce Miller
Retiree Jean Pival Retiree Nancy Ray
Retiree Karen Stefaniak EBC Joey Payne
Director, University Benefits Henry Clay Owen
Controller and Treasurer Tom Samuel Chair
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Effects of Private Employers Recording Unfunded
Liability

• gt500 employees offering retiree health benefits
  to current and future employees
• gt 1,000 employees offering pre-65
• retiree health benefits
• gt 1,000 employees offering Medicare eligible
  retirees health benefits

• 1992 2002
• 46 29
• 89 72
• 80 61

Note Based on responses from private-sector
firms with 1,000 or more employees that offer
retiree health benefits.Source Kaiser/Hewitt
2002 Retiree Health Survey, December 2002.
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Ratio of Working Age Population (20 to 65) to
Retirement Age (over 65)
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Benchmarks (information on 17)

• Retiree has zero contribution
• Retiree contribute between 50 and 223 per
  month

• Number Percent
• 6 35
• 11 65

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Cost in Millions
Year
14
Cost in Millions
Year
15
Cost in Millions
Year
16
Cost in Millions
Year
17
Cost in Millions
Year
18
Estimated Real Growth 2002-2014Contributions to
Kentucky Public Employee Pension Programs
2002 dollar contribution 453 (2003 dollars)
million 2014 dollar contribution 898 (2003
dollars) million LOW Estimate 2014 dollar
contribution 1.142 (2003 dollars) billion HIGH
Estimate
Source Kentucky Long Term Policy Research
Center, No. 14, October 2003
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Current Retiree Health Benefits

• Eligibility for health benefits
• Rule of 75 Age Years of service
• Must have 15 consecutive years of service
• (if hired after March, 1997)
• Example Tim is 52 years old and has worked at UK
  for 27 years.
• 52 27 79, so Tim can retire with health
  benefits

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Current Retiree Health Benefits

• Retiree under 65
• Retiree receives single-credit towards any
  University Health Plan
• UK pays 275 towards any plan
• Retiree over 65
• Retiree receives the single-credit towards UK
  Medicare Carveout Plan
• UK pays 249
• Retiree pays 21

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Current Retiree Health Benefits

• Credit is the monthly amount the University
  pays towards an individuals health plan
• Surviving Spouse Credit
• Surviving spouse receives half of credit
  towards health plan
• UK pays 125

22
National Average Monthly Premiums for Retirees
and Spouses, 2002
Note Based on responses from private-sector
firms with 1,000 or more employees that offer
retiree health benefits. Premiums for full-time
employees retiring on or after January 1, 2002,
in plans with the largest number of enrolled
retirees. Source Kaiser/Hewitt 2002 Retiree
Health Survey, December 2002.
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University of Kentucky Average Monthly Premiums
for All Retirees and Spouses
Source University of Kentucky Employee Benefits
Booklet, 2003-2004
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Why does the University have to make changes?

• Change in governmental accounting standards
• The University must set aside enough money to pay
  for all employees future retiree health benefits
• Current retiree health benefit costs 351 million
• 46 million annually for 30 years
• Proposed retiree health benefit will cost 256
  million
• 32 million annually for 30 years

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Why does the University have to make changes?

• To account for high costs and funding of future
  retiree health benefits, the national trend has
  been to drop health benefits for retirees.
• 38 of all firms offer retiree health benefits in
  2003, as opposed to 66 who offered retiree
  health benefits in 1988
• 85 of State and Local government organizations
  currently offer retiree health benefits
• 91 of large employers (10K employees or more)
  offer retiree benefits

Source Kaiser/HRET Survey of Employer-Sponsored
Health Benefits 2003
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44
36
29
17
14
Note Based on responses from private-sector
firms with 1,000 or more employees that offer
retiree health benefits.Source Kaiser/Hewitt
2002 Retiree Health Survey, December 2002.
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14
13
7
Note Based on responses from private-sector
firms with 1,000 or more employees that offer
retiree health benefits.Source Kaiser/Hewitt
2002 Retiree Health Survey, December 2002.
28
82
76
75
22
5
Note Based on responses from private-sector
firms with 1,000 or more employees that offer
retiree health benefits.Source Kaiser/Hewitt
2002 Retiree Health Survey, December 2002.
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Government Effect on Employers Offering Retiree
Health Benefits

• Employers Have Capped the Contribution toward
  Retiree Health Benefits
• 45 of firms that offer pre-65 benefits have
  capped Employer Contribution
• 49 of these firms have already reached the cap
• 50 of firms that offer over-65 health benefits
  have capped Employer Contribution
• 57 of these firms have already reached the cap
• Source Kaiser/Hewitt 2002 Retiree Health
  Survey, December 2002

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Proposed Changes for UK

• Those retired prior to Jan 1, 2005
• Continue to receive single-credit health credit
• Single-credit has a monthly cap UK will pay up
  to 625 a month (7,500 annually)
• Once the cap is reached, the employee will pay
  100 of the annual cost increase over 625 to
  continue coverage

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Proposed Changes for UK

• Those retired prior to Jan 1, 2005
• Year 1 Year 5
• Total Annual Premium 3,240 4,916
• UK Annual Credit 2,988 4,534
• Your Annual Cost 252 412

Premium includes national healthcare trend
between 5.25 - 13
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Proposed Changes for UK

• Those retired prior to Jan 1, 2005
• Year 15 Year 20
• Total Annual Premium 8,636 11,155
• UK Annual Credit 7,500 7,500
• Your Annual Cost 1,136 3,655

Premium includes national healthcare trend
between 5.25 - 13
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20 Year Contribution Projection
Cap has been reached
Cap has been reached
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How does this affect me?

• You will pay more money for your health premiums
  after the cap has been reached
• Cap placed on single-credit
• Projected cap will be reached within 14 years
  based on actuarial projections

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Proposed Changes for UK

• Jan 1, 2005 and after
• All employees who retire after Jan 1 will receive
  a Health Credit Account
• Money from Health Credit Account will be used to
  pay the single-credit for your health plan
• When your Health Credit Account reaches 0, you
  will begin paying your entire health premium

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Proposed Changes for UK

• Health Credit Account
• Health Credit Account starts with 50K in 2005
  and is increased 4 each year.
• Health Credit Account will earn 4 annually on
  the balance after your retire until account is
  depleted.
• Health Credit Account will last approximately 13
  years based on actuarial projections

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Health Credit Account Index
16,035
90,047
74,012
13,179
74,012
60,833
60,833
10,833
50,000
50,000
X 4
X 4
X 4
Jan 1, 2005
Jan 1, 2010
Jan 1, 2015
Jan 1, 2020
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Health Credit Account During Retirement
2,988
1,880
48,892
48,892
3,376
50,000
1,820
47,336
47,336
3,781
1,742
45,297
45,297
4,159
1,645
42,783
X 4
X 4
X 4
43,555
41,138
47,012
45,516
Dec. 31, 2005
Dec. 31 , 2006
Dec. 31, 2007
Dec. 31, 2008
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Proposed Changes for UK

• Jan 1, 2005 and after
• Year 15 Year 20
• Total Annual Premium 8,636 11,155
• Your Annual Cost 8,636 11,155

Premium includes national healthcare trend
between 5.25 - 13
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How does this affect me?

• You will pay your entire health premium after
  your health credit account reaches 0
• Projected health credit account will be depleted
  within 13 years (based on actuarial projections)

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What do I need to do?

• Prepare to begin paying a larger portion of your
  health benefit
• Save extra money in your voluntary retirement
  account 403(b) and 457(b) to help cover your
  health plan premium
• Encourage your co-workers to become involved in
  their health to help the University control
  health care cost

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What do I need to do?

• Become aware of your health to help control
  healthcare cost
• Participate in UK Healthtrac Rewards
• Participate in the UK Wellness Program
• Use the tools and resources provided by the
• Health Literacy Project and REACH program
• Make lifestyle modifications to live a healthier
  life and to save money

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Contact Information

• Retirement Planning
• Benefits Office 257-9519 press 1
• Wellness and Health Resources
• Wellness Program 257-9355
• Health Literacy 257-6215
• REACH 323-1493
• Elder Care 323-4600

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Contact Information

• www.uky.edu/HR/benefits/retireetask