UC employees face steep rise in health-care costs
Negotiations with providers helped limit increases, while some costs remain stable

09 October 2002 | UC employees will face health-care cost increases between 16 and 22 percent higher than last year’s figures — a dramatic rise, though less than UC officials first predicted — and the university has responded with new steps to cushion the financial impact on employees already stung by lower-than-usual salary increases for 2002-03.

Falling state revenues and a rise in health-care costs nationally delivered the one-two financial punch to university employees, prompting UC to take new actions to help employees — especially those earning $40,000 or less annually — meet the costs. Among the cost-mitigating steps taken:

• A new “flexible spending” account for out-of-pocket health-care expenses. This account will let employees set aside pre-tax salary dollars to pay for certain health-care expenses, including co-payments and deductibles, eyeglasses, orthodontia, and prescription drugs. Dollars deposited in these accounts are not subject to state or federal taxes. (However, employees must estimate upcoming expenditures carefully, since unused funds in such accounts at year-end are forfeited.)

• Additional UC contribution for employees earning $40,000 or less. The university will contribute an additional $8 to $23 monthly allowance to cover premiums for those in this pay range, “to help keep costs affordable for lower-paid employees,” officials say.

• New rate structure for single-parent families. UC is adding a new rate option designed for single employees with children. This will better align premiums with costs and will be less expensive than covering two adults or a family with two adults and children.

• Out-of-state-tuition increase to offset employee health-care costs. A recent increase in fees for nonresident students will be partially allocated to help offset the rising cost of health benefits. (K-12 outreach programs, severely affected by cuts in the new state budget, will also benefit from the fee increase.)

As it has in the past, the university will still pay the majority of employees’ medical premium increases — now approximately two-thirds of the average monthly premium increase for each employee. This contribution is comparable to what the state of California is covering for state employees.

The rise in costs does mean, however, that for the first time in recent memory, UC cannot offer its employees a fully employer-paid HMO as a health-care option.

First bids from UC’s health-plan providers had put the health-care premium increases between 20 and 34 percent over last year’s figures, but UC officials spent the summer in what they said were “extensive and aggressive negotiations” with the health plans to bring the prices down. The negotiations hinged on technical issues as well as the long-term partnerships UC has built with the plans.

Cost increases for health-care benefits will kick in on Jan. 1, 2002, once employees make their benefit selections during November’s Open Enrollment period. Open Enrollment will last this year from Nov. 1 though 30.

UC benefits officials noted that the impact of the increase on employee take-home pay will be reduced because health-care premiums are paid from employees’ gross, pre-tax salary.

The university will continue to offer employees fully employer-paid dental and vision coverage and retirement benefits, a good deal compared to benefits for state and many corporate employees. The costs of certain other benefits (including life and disability insurance) “are actually dropping,” said human resources officials.

In a joint letter to faculty and staff this week, Vice Provost for Academic Affairs and Faculty Welfare Jan de Vries and Assistant Vice Chancellor for Human Resources David Moers outlined the health-care issues for UC employees and confirmed earlier news that state funding will allow for only modest salary increases for faculty and staff. Staff will receive a 1.5-percent salary increase this year, effective Oct. 1 (and subject to collective-bargaining requirements where applicable); faculty merit increases will be fully funded under the July 2002 program, but with no provision for an academic range adjustment.

In previous years salary increases for eligible staff were included in Nov. 1 paychecks, but timing of budget news this year precludes that. The pay increase will appear in Dec. 1 paychecks, and a separate payment for the increase earned in October is scheduled to be made in December.

The cost-control challenges facing the university’s benefits managers were substantial, de Vries and Moers noted. “Rising drug prices, carrier consolidations and closures, and a host of other factors are causing health-care plan costs to soar for both public and private employers,” they said.

They acknowledged that the cost increases that employees face, along with the lower salary increase most will receive, will be “challenging” for many. But, they said, “the university has been working very hard to find ways to offset these [benefits-cost] increases for staff and faculty as much as possible.”