University Faculty Senate Presentaiton: Overview of Contributions Report March 2015

FACULTY BENEFITS COMMITTEE OVERVIEW

OF CONTRIBUTIONS REPORTMARCH 17, 2015

RECOMMENDATIONS 1REFINE DEFINITION OF EMPLOYEE CONTRIBUTION

Insurance Coverage Overall

Include New Fees as Part of the Employee Contribution

• Out of Pocket Expenses• Deductibles• Coinsurance• Surcharges

Penn State Contribution

73%

Employee Contribution

18%

Employee (Other)

9%

• Recommendation 1 provides that the university will include non traditional expenses (out of pocket expenses, deductibles, coinsurance and surcharges) in its calculation of employee contributions.

RECOMMENDATIONS 2REITERATING 1998 JOINT COMMITTEE ON BENEFITS AGREEMENT

Penn State Contribution

80%


20% Penn State Contribution

70%


30%

Insurance Coverage for Employees Insurance Coverage for Dependents

• Recommendation 2 asserts that the university should continue to support faculty benefits consistent with the principles established in the 1998 Joint Committee on Benefits agreement.

RECOMMENDATIONS 3: END STEEP SALARY INDEXINGFLAT BENEFITS CONTRIBUTIONS MODEL (2010)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

No Indexing (2010)

$0

$50

$100

$150

$200

$250

No Indexing (2010)

• In 2010 all employees paid a set contribution to participate in the university healthcare system.

Monthly Contribution Contribution as a Percent of Income

MODEST SALARY INDEXING BASED ON THE AUGUST 30, 2011 SENATE REPORT

• Employee contribution for healthcare based on annual base salary;

• Those making $45,000 or less will contribute the flat percentage as indicated on the chart;

• Those making over $45,000 will contribute a percentage that has been modeled by actuarial experts; the basic premise of the model is that the more an individual earns, the more the individual will pay toward healthcare;

• This model provides for a cap of the employee contribution at an annual base salary of $121,000;

• Monthly and annual savings for employees would be significant for the majority of faculty and staff based on this model.

• In August of 2011, the Faculty Benefits committee reported on a plan to index contributions to income.

RECOMMENDATIONS 3: END STEEP SALARY INDEXINGMODEST SALARY INDEXING MODEL (2012)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

No Indexing (2010) Modest Indexing (2012)

$0

$50

$100

$150

$200

$250

No Indexing (2010) Modest Indexing (2012)

• The August 2011 modest indexing plan was implemented in 2012.


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Modest Indexing (2012) Steep Indexing (2014)

$0

$50

$100

$150

$200

$250

Modest Indexing (2012) Steep Indexing (2014)

RECOMMENDATIONS 3: END STEEP SALARY INDEXINGSTEEP SALARY INDEXING MODEL (2014)

The university adopted a steep indexing plan based on a flat percentage of income. This led to noticeable spikes in contribution rates in PPO Blue. (The committee has no evidence that the administration consulted either the Senate or the Faculty Benefits Committee before applying the steep salary indexing to university employees.)


RECOMMENDATIONS 3: END STEEP SALARY INDEXINGCALLS FOR A RETURN TO MODEST INDEXING PLAN

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Modest Indexing (2012)

$0

$50

$100

$150

$200

$250

Modest Indexing (2012)

• Recommendation 3 calls on the university to return to the modest indexing agreed to in 2011.


• Over the summer, the committee became aware of possible cost shifting as the increases on the higher income employees seemingly exceeded the decreases in lower income employees.

RECOMMENDATIONS 4: EQUITABLE COMPENSATIONCONCERNS ABOUT COST SHIFTING

Income 25K 30K 35K 45K 50K 60K 70K 75K 85K 100K 140K Total

PPO Blue

Employee Only -$40,000 -$50,000 -$130,000 -$57,000 -$31,000 $46,000 $37,000 $78,000 $108,000 $203,000 $196,000 $360,000

Employee + Spouse -$22,000 -$37,000 -$116,000 -$55,000 -$24,000 $43,000 $44,000 $96,000 $159,000 $405,000 $395,000 $888,000

Employee + Child(ren) -$15,000 -$30,000 -$81,000 -$29,000 -$19,000 $26,000 $21,000 $45,000 $73,000 $128,000 $76,000 $195,000

Family -$62,000 -$92,000 -$295,000 -$130,000 -$78,000 $130,000 $104,000 $290,000 $449,000 $870,000 $675,000 $1,861,000

Subtotal -$139,000 -$209,000 -$622,000 -$271,000 -$152,000 $245,000 $206,000 $509,000 $789,000 $1,606,000 $1,342,000 $3,304,000


PPO Blue

Employee Only

-$1,393,000.00 $4,697,000.00

360,000

Employee + Spouse 888,000

Employee + Child(ren) 195,000

Family 1,861,000

Subtotal (139,000) (209,000) (622,000) (271,000) (152,000) 245,000 206,000 509,000 789,000 1,606,000 1,342,000 3,304,000

RECOMMENDATIONS 4: EQUITABLE COMPENSATIONINCREASES DID INDEED EXCEED DECREASES IN PPO BLUE

• HR confirmed that in 2014, the University raised rates in the PPO Blue plan by $3.3 million.


PPO Blue

Employee Only

-$1,393,000.00 $4,697,000.00

360,000

Employee + Spouse 888,000

Employee + Child(ren) 195,000

Family 1,861,000

Subtotal (139,000) (209,000) (622,000) (271,000) (152,000) 245,000 206,000 509,000 789,000 1,606,000 1,342,000 3,304,000

RECOMMENDATIONS 4: EQUITABLE COMPENSATIONWHERE DID THE MONEY GO?

PPO Savings

Employee Only

-$760,000.00 -$2,310,000.00

(503,000)

Employee + Spouse (416,000)

Employee + Child(ren) (172,000)

Family (1,979,000)

Subtotal (36,000) (63,000) (234,000) (151,000) (276,000) (318,000) (176,000) (318,000) (376,000) (651,000) (471,000) (3,070,000)

Total (175,000) (272,000) (856,000) (422,000) (428,000) (73,000) 30,000 191,000 413,000 955,000 871,000 234,000

• The $3.3 million in new contributions was offset by $3 million in cuts to those in the new PPO Savings Plan.

Roughly $3 million in higher premiums paid by most PPO Blue members is effectively subsidizing (with artificially low contribution rates) the 17% of university employees in the PPO Savings plan.

PPO BlueTraditionalInsurance

83%*

PPO Savings

High DeductibleInsurance

17%*

RECOMMENDATIONS 4: EQUITABLE COMPENSATIONTHE IMPACT OF THE COST SHIFTING

$

*Approximate percentage of employees in each health insurance system.

Employees Earning $140k PSU Employee

Plan Type True Cost Contribution Contribution

Individual only $515.04 $310.87 $204.17

Two Person $1,159.25 $663.42 $495.83

Parent/Child(ren) $1,115.78 $656.11 $459.67

Family $1,494.18 $860.68 $633.50

CALCULATING PENN STATE’S TRUE CONTRIBUTION

True Cost = $515.04 per month

Employee Contribution = $204.17 per month

PSU’s Contribution = $310.87 per month

• To assess the cost shifting, the committee calculated the university’s per person contribution by subtracting the employee contribution from the true cost of the insurance.

PROVIDING FOR EQUITABLE COMPENSATIONPlan by Income Bracket

Employees Earning $25,000Plan Type

Individual only

Two Person

Parent/Child(ren)

Family


Individual only

Two Person

Parent/Child(ren)

Family


Individual only

Two Person

Parent/Child(ren)

Family

Employees Earning $140kPlan Type

Individual only

Two Person

Parent/Child(ren)

Family

PSU Employee

True Cost Contribution Contribution Emp %

$515.04 $478.58 $36.46 7.1%

$1,159.25 $1,070.71 $88.54 7.6%

$1,115.78 $1,033.70 $82.08 7.4%

$1,494.18 $1,381.05 $113.13 7.6%

PSU Employee


$515.04 $427.54 $87.50 17.0%

$1,159.25 $946.75 $212.50 18.3%

$1,115.78 $918.78 $197.00 17.7%

$1,494.18 $1,222.68 $271.50 18.2%

PSU Employee


$515.04 $369.21 $145.83 28.3%

$1,159.25 $805.08 $354.17 30.6%

$1,115.78 $787.45 $328.33 29.4%

$1,494.18 $1,041.68 $452.50 30.3%

PSU Employee


$515.04 $310.87 $204.17 39.6%

$1,159.25 $663.42 $495.83 42.8%

$1,115.78 $656.11 $459.67 41.2%

$1,494.18 $860.68 $633.50 42.4%

PPO Blue (Current)

PSU Employee


$461.62 $451.20 $10.42 2.3%

$1,030.67 $1,005.46 $25.21 2.4%

$994.52 $971.19 $23.33 2.3%

$1,309.18 $1,276.89 $32.29 2.5%

PSU Employee


$461.62 $436.62 $25.00 5.4%

$1,030.67 $970.17 $60.50 5.9%

$994.52 $938.52 $56.00 5.6%

$1,309.18 $1,231.68 $77.50 5.9%

PSU Employee


$461.62 $419.95 $41.67 9.0%

$1,030.67 $929.84 $100.83 9.8%

$994.52 $901.19 $93.33 9.4%

$1,309.18 $1,180.01 $129.17 9.9%

PSU Employee


$461.62 $403.29 $58.33 12.6%

$1,030.67 $859.50 $171.17 16.6%

$994.52 $863.85 $130.67 13.1%

$1,309.18 $1,128.35 $180.83 13.8%

PPO Savings (Current)

• Looking at employees at the same income level, the committee compared the university’s insurance contribution between the two plans.

• From $25k-$60k there is relatively little difference.

• Over $60k, the university is providing extra support for those enrolled in the PPO Savings plan.

INCENTIVIZING EMPLOYEES TO ABANDON TRADITIONAL HEALTH INSURANCE


Individual only

Two Person

Parent/Child(ren)

Family

PSU Employee

True Cost Contribution Contribution

$515.04 $310.87 $204.17

$1,159.25 $663.42 $495.83

$1,115.78 $656.11 $459.67

$1,494.18 $860.68 $633.50

PSU Employee


$461.62 $403.29 $58.33

$1,030.67 $859.50 $171.17

$994.52 $863.85 $130.67

$1,309.18 $1,128.35 $180.83

PSU Contribution PSU Contribution

Blue vs. Savings Blue vs. Savings

-$92.42 -$1,109.04

-$196.08 -$2,352.96

-$207.74 -$2,492.88

-$267.67 -$3,212.04

PPO Blue (Traditional) PPO Savings (High Deductible)


Individual only

Two Person

Parent/Child(ren)

Family

• The greatest gap falls at or above the $140k level. The university is providing an extra $1100-$3200 compensation for those enrolled in the PPO Savings plan.

Diff Monthly Diff Yearly

PROVIDING FOR EQUITABLE COMPENSATION

4.3 Eliminating the Differences in Penn State Contributions by Health Plan and Income*

Plan by Income Bracket Monthly Difference Annual Difference

Employees Earning $25,000 PSU Employee PSU Employee PSU Contribution PSU Contribution

Plan Type True Cost Contribution Contribution Emp % True Cost Contribution Contribution Emp % Blue vs. Savings Blue vs. Savings

Individual only $515.04 $476.14 $38.90 7.6% $461.62 $476.14 -$14.52** -3.1% $0.00 $0.00

Two Person $1,159.25 $1,064.90 $94.35 8.1% $1,030.67 $1,064.90 -$34.23** -3.3% $0.00 $0.00

Parent/Child(ren) $1,115.78 $1,028.13 $87.65 7.9% $994.52 $1,028.13 -$33.61** -3.4% $0.00 $0.00

Family $1,494.18 $1,371.78 $122.40 8.2% $1,309.18 $1,371.78 -$62.60** -4.8% $0.00 $0.00



Individual only $515.04 $429.14 $85.90 16.7% $461.62 $429.14 $32.48 7.0% $0.00 $0.00

Two Person $1,159.25 $950.87 $208.38 18.0% $1,030.67 $950.87 $79.80 7.7% $0.00 $0.00

Parent/Child(ren) $1,115.78 $922.26 $193.52 17.3% $994.52 $922.26 $72.26 7.3% $0.00 $0.00

Family $1,494.18 $1,224.26 $269.92 18.1% $1,309.18 $1,224.26 $84.92 6.5% $0.00 $0.00



Individual only $515.04 $384.07 $130.97 25.4% $461.62 $384.07 $77.55 16.8% $0.00 $0.00

Two Person $1,159.25 $841.63 $317.62 27.4% $1,030.67 $841.63 $189.04 18.3% $0.00 $0.00

Parent/Child(ren) $1,115.78 $820.77 $295.01 26.4% $994.52 $820.77 $173.75 17.5% $0.00 $0.00

Family $1,494.18 $1,082.20 $411.98 27.6% $1,309.18 $1,082.20 $226.98 17.3% $0.00 $0.00



Individual only $515.04 $343.60 $171.44 33.3% $461.62 $343.60 $118.02 25.6% $0.00 $0.00

Two Person $1,159.25 $732.86 $426.39 36.8% $1,030.67 $732.86 $297.81 28.9% $0.00 $0.00

Parent/Child(ren) $1,115.78 $729.68 $386.10 34.6% $994.52 $729.68 $264.84 26.6% $0.00 $0.00

Family $1,494.18 $955.47 $538.71 36.1% $1,309.18 $955.47 $353.71 27.0% $0.00 $0.00

PPO Blue (Revised) PPO Savings (Revised) • Recommendation 4 proposes that the university provide equitable compensation to all employees within the same income bracket.

• Regardless of their chosen plan, the university would provide identical support for employees at the same income bracket.

• Table 4.3 estimates the impact of ending the indirect subsidy of the PPO Savings plan.

PSU Employee


$515.04 $343.60 $171.44

$1,159.25 $732.86 $426.39

$1,115.78 $729.68 $386.10

$1,494.18 $955.47 $538.71


Individual only

Two Person

Parent/Child(ren)

Family

PSU Employee


$461.62 $343.60 $118.02

$1,030.67 $732.86 $297.81

$994.52 $729.68 $264.84

$1,309.18 $955.47 $353.71


Individual only

Two Person

Parent/Child(ren)

Family

PSU Contribution PSU Contribution

Blue vs. Savings Blue vs. Savings

$0.00 $0.00

$0.00 $0.00

$0.00 $0.00

$0.00 $0.00

PPO Blue (Traditional) PPO Savings (High Deductible)

Diff Monthly Diff Yearly• Ending the indirect subsidy of

the PPO Savings plan would permit contributions to reflect market prices.

• Without the subsidy, the PPO Savings plan would increase in price, but still remain less expensive overall.

RECOMMENDATIONS 4: EQUITABLE COMPENSATIONENDING COST SHIFTING BETWEEN PPO BLUE AND PPO SAVINGS

Plan by Income Bracket


Individual only

Two Person

Parent/Child(ren)

Family


Individual only

Two Person

Parent/Child(ren)

Family


Individual only

Two Person

Parent/Child(ren)

Family


Individual only

Two Person

Parent/Child(ren)

Family

PSU Employee


$515.04 $478.58 $36.46 7.1%

$1,159.25 $1,070.71 $88.54 7.6%

$1,115.78 $1,033.70 $82.08 7.4%

$1,494.18 $1,381.05 $113.13 7.6%

PSU Employee


$515.04 $427.54 $87.50 17.0%

$1,159.25 $946.75 $212.50 18.3%

$1,115.78 $918.78 $197.00 17.7%

$1,494.18 $1,222.68 $271.50 18.2%

PSU Employee


$515.04 $369.21 $145.83 28.3%

$1,159.25 $805.08 $354.17 30.6%

$1,115.78 $787.45 $328.33 29.4%

$1,494.18 $1,041.68 $452.50 30.3%

PSU Employee


$515.04 $310.87 $204.17 39.6%

$1,159.25 $663.42 $495.83 42.8%

$1,115.78 $656.11 $459.67 41.2%

$1,494.18 $860.68 $633.50 42.4%

PPO Blue (Current)

PSU Employee


$461.62 $451.20 $10.42 2.3%

$1,030.67 $1,005.46 $25.21 2.4%

$994.52 $971.19 $23.33 2.3%

$1,309.18 $1,276.89 $32.29 2.5%

PSU Employee


$461.62 $436.62 $25.00 5.4%

$1,030.67 $970.17 $60.50 5.9%

$994.52 $938.52 $56.00 5.6%

$1,309.18 $1,231.68 $77.50 5.9%

PSU Employee


$461.62 $419.95 $41.67 9.0%

$1,030.67 $929.84 $100.83 9.8%

$994.52 $901.19 $93.33 9.4%

$1,309.18 $1,180.01 $129.17 9.9%

PSU Employee


$461.62 $403.29 $58.33 12.6%

$1,030.67 $859.50 $171.17 16.6%

$994.52 $863.85 $130.67 13.1%

$1,309.18 $1,128.35 $180.83 13.8%

PPO Savings (Current)

• Using the table (Left) as a model, Recommendation 5 requires HR to provide an annual report on the per dollar support for health insurance by income bracket and by health plan.

• This creates transparency, revealing if the university is providing extra compensation to employees enrolled in a favored insurance plan.

RECOMMENDATIONS 5: REPORTING REQUIREMENTREQUIRES HR TO REPORT ON PER DOLLAR SUPPORT

Business

University Faculty Senate Presentaiton: Overview of Contributions Report March 2015