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August 29, 2002


A problem regarding the University's health insurance benefits looms less than a year from now. I believe that considerations that should affect the University's decision-making concerning these benefits need to be widely assessed within the University community.

Currently the University is in the third year of a health benefits contract with UPMC Health Plan that turned out to be fairly advantageous for the University and its faculty and staff. The contract limited premium increases in years two and three to a percentage increase less than the percentage premium increases of many employee health benefits plans for those years. The problem on the horizon exists because of two developments. One is the rather large recent increases in the cost of health care and health insurance premiums; the other is the commonwealth's financial difficulties that have adversely affected state appropriations to the University already, and are likely to continue in the coming years.

Some University representatives already have indicated that the likely increase in premiums for 2003-2004 would be in the vicinity of 25 percent over current premiums. The University now pays varying percentages of employee health insurance premiums, based on the plan selected by the employee (participant) and whether the participant is obtaining individual, parent/child, husband/wife or family coverage. A participant who elects individual coverage under the HMO plan pays nothing and the participant who selects individual coverage under the Point-of-Service plan pays only a small part of the total premium. At the other end of the coverage options, a participant purchasing family benefits may pay as much as 30 percent of the total premiums for coverage under the Point-of-Service plan.

Total health insurance premiums this year for the University's participating employees probably will be between $32 million and $33 million. If premiums, on average, are to rise 25 percent, that will mean the total premiums for 2003-2004 will be around $40 million and, because of financial constraints caused in part by little or no increase in the state appropriation, the allocation of the increase in health insurance premiums, approximately $8 million, between the faculty and staff participants on the one hand and the University on the other, is of concern. This assumes approximately the same number of employees will desire health insurance next year and that covered services under the current plan will remain essentially unchanged.

Consider the following illustration: Assume the total premium for a family in the HMO plan rises 25 percent, from $480 to $600 per month, and the University decides to share the increase in premium equally with the participating employee. The employee would face an increase in out-of-pocket cost of $60 per month. Currently the University pays 77 percent of the premium for the family with the HMO plan. Equal sharing of the premium increase would mean that the percentage of the premium paid by the University would decrease to 72 percent and the percentage paid by the employee would rise.

For a low wage employee, a $60 per month increase is a substantial one. The increases in employee shares for individuals, parent/child, husband/wife and family in the Point-of-Service plan would be even greater if the University shared the premium increase equally with the participants.

My prime concern is that some current health insurance plan participants, other than those with individual coverage, because of premium increases, might elect not to continue coverage for spouses and/or children, and choose only individual coverage, in order to have money available for other family needs. I believe most readers would agree that for some family members to be without health insurance coverage is a very risky course. Paradoxically, for every Pitt employee who would make such a change, the University would save close to $200 per month based on current premium allocations, because the University contributes approximately twice as much to the total insurance premium for a unit (parent/child, husband/wife and family) as it does for an individual.

University administrators frequently have said that salary and fringe benefits are elements of total employee compensation, and the allocation of increases in total compensation each year should take both salary and fringe benefits into consideration. Thus, if a fringe benefit, e.g. University contribution to health insurance premiums for employees, were to increase substantially because of a large increase in premiums, the amount available for salary increases would have to be diminished.

The challenge for 2003-2004 is to provide opportunities for faculty and staff to express their views to University administration on the allocation of any increase in the compensation pool between University health insurance premium contributions and salary increases. Important and complex economic, social, institutional and moral fairness issues are present in this context. Salary increases are subject to federal, state and local income taxes, and Social Security taxes, which can amount to from 15 percent to 35 percent, or even more, of any salary increase, depending on a particular employee's salary. Increases in University contributions to health insurance premiums do not increase employee tax obligations. Note also that health insurance premium increases are the same for all employees who elect the same plan and coverage, regardless of the size of each employee's salary. Salary increases, on the other hand, are usually granted on a percentage of salary basis; thus a 3 percent increase for a faculty member with a $100,000 salary is 300 percent greater than a 3 percent increase for an employee with a $25,000 salary. A lower paid employee ordinarily benefits more from an increase in a fringe benefit, paid on a fixed amount basis for all, such as the University's share of health insurance premiums, than a percentage increase in salary, as long as he/she can afford his/her share of the benefits cost, if any.

Those who have views on how to allocate the increase in the compensation pool for 2003-2004, assuming there will be an increase, between salary and health insurance premiums, should inform their representatives in the Faculty Assembly and Senate Council, members of the benefits and welfare and the budget policies committees of the University Senate, and the Staff Association Council leadership. While the administration is not bound by advice any of the above might offer, I have little doubt that the administration would be interested in faculty and staff sentiment on the subject.

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