Retiree Health Benefit Task Force Recommendations

Retiree Health Benefit Task Force Recommendations

UK Employee Benefits

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?”

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

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)

Health Care Costs to UK’s Budget

$17 million increase over the past two years

$57 million in the current budget

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

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

Issue

Limited dollars

Increasing demands

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 SenateShelia Brothers Staff SenateJean Cox RetireeBruce Miller RetireeJean Pival RetireeNancy Ray RetireeKaren Stefaniak EBCJoey Payne Director, University BenefitsHenry Clay Owen Controller and TreasurerTom Samuel Chair

Effects of Private Employers Recording Unfunded Liability

>500 employees offering retiree health benefits to current and future employees

> 1,000 employees offering pre-65

retiree health benefits

> 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.

Ratio of Working Age Population (20 to 65) to Retirement Age (over 65)

Ratio of Working Age Population (20 to 65) to Retirement Age (over 65)

Year 20 to 65 – workers Over 65 - retirees

1950 7.3 1

2003 4.7 1

2035 2.7 1

Benchmarks (information on 17)

Retiree has zero contribution

Retiree contribute between $50 and $223 per month

NumberPercent

6 35%

11 65%

Current Plan with 50% Continuing to Surviving Spouse

$$9

$17$26$34$43$51$60$68$77$85$94

Current Plan with 50%Continuing toSurviving Spouse

Year

Cos

t in

Mill

ions

Revised Scenario Includes Expected Retirements and Stable Population

$$9

$17$26$34$43$51$60$68$77$85$94

Revised Scenario D,Includes ExpectedRetirements

Year

Cos

t in

Mill

ions

Current Plan and Revised Scenario D Including Expected Retirents

$$9

$17$26$34$43$51$60$68$77$85$94

Current Plan with 50%Continuing to SurvivingSpouse

Revised Scenario D,Includes ExpectedRetirements

Year

Cos

t in

Mill

ions

Revised Scenario D Includes Expected Retirements

$

$9$17

$26$34

$43$51

$60

$68$77

$85$94

Revised Scenario D,Includes ExpectedRetirements, No New HiresEligible

Year

Cos

t in

Mill

ions

All Three Scenarios

$

$9

$17

$26

$34

$43

$51

$60

$68

$77

$85

$94

Current Plan with 50%Continuing to Surviving Spouse

Revised Scenario D, IncludesExpected Retirements

Revised Scenario D, IncludesExpected Retirements, No NewHires Eligible

Year

Cos

t in

Mill

ions

Estimated Real Growth 2002-2014Contributions to Kentucky Public Employee Pension Programs

% increase # times low assumption employer contribution to retiree benefits – General Fund and Road Fund

# times high assumption employer contribution benefit – Personal Income increase

General Fund and Road Fund State of Kentucky

27%

Personal Income – residents of Kentucky

46%

Employer (LOW) Contribution Retirement State System

98% 3.6 times 2.1 times

Employee (HIGH) Contribution Retirement State System

152% 5.6 times 3.3 times

Source: Kentucky Long Term Policy Research Center, No. 14, October 2003

2002 dollar contribution $453 (2003 dollars) million2014 dollar contribution $898 (2003 dollars) million LOW Estimate2014 dollar contribution $1.142 (2003 dollars) billion HIGH Estimate

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


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


“Credit” is the monthly amount the University pays towards an individual’s health plan

Surviving Spouse Credit:• Surviving spouse receives half of “credit”

towards health plan• UK pays $125

National Average Monthly Premiums for Retirees and Spouses, 2002

Weighted Average Monthly Premiums for New Retirees and Spouses, 2002

$241

$115

$401

$212

$165

$79

$328

$153

$- $100 $200 $300 $400 $500 $600 $700 $800

Retiree + Spouse

Retiree Only

Retiree + Spouse

Retiree Only

65+

Ret

iree

Pre

-65

Ret

iree

Employer Contribution to Premium

Retiree Contribution to Premium

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.


University of Kentucky Average Monthly Premiums for All Retirees and Spouses

University Of Kentucky Weighted Average Monthly Premiums for All Retirees and Spouses

$249

$249

$275

$275

$291

$373

$48

$21

$- $100 $200 $300 $400 $500 $600 $700

Retiree + Spouse

Retiree Only

Retiree + Spouse

Retiree Only

65+

Ret

iree

Pre

-65

Ret

iree

Employer Contribution to Premium

Average Retiree Contribution to Premium

Source: University of Kentucky Employee Benefits Booklet, 2003-2004


Change in governmental accounting standards:

• The University must set aside enough money to pay for all employee’s 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


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

0%

10%

20%

30%

40%

50%

Increased RetireeContributions to

Premiums

Increased Cost-Sharing

IncreasedDependent

Contributions toPremiums

Added or ImprovedCoverage orBenefits for

Retirees

OfferedMedicare+Choice

as an Option

Percentage of Large Private Employers That Made Changes to Retiree Health Benefits Within the Past Two Years



44%

36%

14%17%

29%

0%

10%

20%

30%

40%

50%

Provided Access-Onlyto Health Benefits with

Retiree Paying 100% ofCosts

Terminated AllSubsidized HealthBenefits for Future

Retirees

Shifted to a DefinedContribution Approach

Percentage of Large Private Employers That Made Changes to Retiree Health Benefits Within the Past Two Years



14% 13%7%

0%

10%

20%

30%

40%

50%

60%

70%80%

90%

Increased RetireeContributions to

Premiums

Increased Cost-Sharing

IncreasedDependent

Contributions toPremiums

Terminated AllSubsidized HealthBenefits for Future

Retirees

Terminated AllSubsidized Health

Benefits for AllRetirees

Percentage of Large Private Employers Who Are "Very Likely" to Make Changes to Retiree Health Benefits Within Two Years



82%76%

5%

22%

75%

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

“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



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%



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


20 Year Contribution Projection

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

Your Contr

University Contr

Cap has been reached

Cap has been reached

“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


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


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

Health Credit Account Index

$50,000

X 4%

$50,000

$10,833

$60,833

X 4%

$13,179

$74,012

X 4%

$60,833

$74,012

$16,035

$90,047

Jan 1, 2005 Jan 1, 2010 Jan 1, 2015 Jan 1, 2020

Health Credit Account During Retirement

$50,000

$2,988$1,880

$47,012$48,892

$48,892

X 4%

$3,376

$45,516

$1,820

$47,336$47,336

X 4%

$3,781

$43,555

$1,742

$45,297 $45,297

X 4%

$4,159

$41,138

$1,645

$42,783

Dec. 31, 2005 Dec. 31 , 2006 Dec. 31, 2007 Dec. 31, 2008

“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


“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)

“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

“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

Contact Information

Retirement Planning Benefits Office 257-9519 press #1

Wellness and Health ResourcesWellness Program 257-9355Health Literacy 257-6215REACH 323-1493Elder Care 323-4600

Contact Information

www.uky.edu/HR/benefits/retireetask

Documents

Retiree Health Benefit Task Force Recommendations