Come January 1, cuts are going to hit University of Minnesota employees hard in the form of pricier health care benefits.

Spurred by an impending slash in state funding, the administration is looking to compensate by cutting $12.7 million from employee health care.

The nearly 18,000 employees on the UniversityâÄôs plan could face hikes in premiums or co-pays. The University will pass about 5 percent of UPlan costs for 2012 over to employees, said Dann Chapman, director of employee benefits.

ItâÄôs not attractive, but the alternative âÄî reducing health benefits and coverage, which the University isnâÄôt considering âÄî is even uglier.

The UPlan does not include undergraduate or graduate student health plans or resident/fellow plans.

Only 500 to 600 of the 18,000 eligible employees opt out of the UPlan. With medical premium and co-pay increases imminent, that number may increase.

âÄúThereâÄôs a very intentional cost shift happening between the university and its employees,âÄù Chapman said.

How to slice the pie

Gavin Watt chairs the Benefits Advisory Committee, a group with representatives from all classes of benefits-eligible employees âÄî employees whose primary function at the University is work, not school.

On April 21, the committee sent President Bob Bruininks a letter admonishing a permanent cut in employee benefits to address âÄúa budget shortfall that may well be temporary.âÄù

Watt phrased it another way during an interview with the Minnesota Daily.

âÄúWhy are you, the University, taking this out of employeesâÄô hides?âÄù he asked.

The letter goes on to propose that the decreases should be distributed evenly, so the burden does not fall disproportionately on sick people. It recommends raising premiums, which are the same for everyone, instead of raising co-pays, which are paid at individual doctor visits.

As of now, the University pays 90 percent of the employee-only premium. It pays 85 percent of the cost of family coverage for the basic medical plan, according to the Office of Human Resources.

One proposal would be to decrease the 90 percent to 86.5 percent, and the 85 percent for families to 80 percent. In this scenario, premiums would go up by about a third.

Another model would be to divide the UPlan budget shortfall by the number of employees and take the dollar amount out of everyoneâÄôs paycheck.

The fixed cost turns out to be about $26 a pay period or $670 a year for each employee, Watt said.

Currently, single employees in the UPlan pay $25.40 per pay period, so their cost would more than double. Employees with a spouse or partner and children would pay $135.30 a pay period, a 24-percent increase with the $26 addition.

No cost-shifting proposal has been finalized, Watt said. The proposals are based on current projections of state cuts to higher education, though.

Discussion continues, pending the stateâÄôs final budget decision and collective bargaining.

The out-of-pocket costs go up more with medical care inflation, which has increased by about 3 percent in the last 12 months, according to the Bureau of Labor Statistics.

Chapman, a key participant in the UPlan cost shift, said the persistent increases in health care costs and medical inflation is out of control.
âÄúItâÄôs eating us alive,âÄù he said.

Medica holds the aces

Another change around the bend is the UniversityâÄôs decision to hire a single company, Medica, for the next six years to run the administrative side of its health benefits program.

Unlike some of the other Big Ten schools, the University of Minnesota is self-insured. It acts as its own insurance company, assuming the risk and designing its own benefits packages.

The University contracts an administrative company that processes insurance claims, handles billing and forms contracts with hospitals, clinics and doctors.

The University expects to save $14 million over the six-year contract.