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Managing the Faculty of the Future:
Retiree Health Insurance
TIAA-CREF Institute, NACUBO and ACE
November 10, 2004
INTRODUCTION:Health Insurance in Higher
Education
Dr. Robert ClarkProfessor, North Carolina State UniversityTIAA-CREF Institute Director of Research
Challenges Facing Higher Education
• Budgetary Shortfalls
• Aging Faculties
• Rising cost of health and retirement benefits
Budgetary Shortfalls
• Declines in state appropriations
• Declines in endowment earnings
• Affect of economy on giving
Faculty Age Structure
0
10
20
30
40
50
60
1987 1998
younger than 4040-5455 and older
Causes of Faculty Aging
• Slow growth in faculty size
• Low turnover rates
• Low retirement rates
Health Insurance
• Virtually all faculty have health insurance
• Many institutions provide retiree health insurance
• But costs of health insurance are soaring
Health Insurance
• Rapidly rising health care costs are placing financial pressure on colleges
• Faculty pay more but still institutional costs are rising
National Health Care Issues
• The cost of health insurance is influenced by national trends
• Medicare is important to faculty as a benefit, and as a cost
National Health Care Issues
• Cost of employer provided health insurance rising by over 10 percent per year
• Projections of the cost of Medicare are so large that they are not sustainable
Health Insurance
• Private sector firms are quickly dropping and scaling back RHI
• Many organizations are finding the costs unsustainable
• Need for policy changes and the development of RHI savings accounts
Today’s Program
1. Describes the national health insurance environment
2. Examines the future of Medicare
3. Highlights changes in RHI among non-educational employers
4. Presents evidence on health insurance trends at universities
Today’s Program
We begin with presentations by two nationally prominent experts on health insurance
• Dr. Marilyn Moon• Dr. Sylvester Schieber
Today’s Program
• Presentations will be followed by short replies then, by taking your questions.
Polling Question #1
• Does your institution provide retirees with health insurance benefits?
• Yes, past and present retirees• Yes, but only for prior retirees• No, retiree health insurance is not provided• Unsure
SECTION ONE:An Overview of Healthcare Costs and Medicare Trends
Marilyn Moon, Ph.D.Vice President and Program Director
American Institutes for Research
A Brief Overview of Medicare
• Has changed over time• Reliance on many kinds of supplemental coverage• Rising costs
Compares well with private insurance growth Higher burdens on beneficiaries over time
Medicare Expenditures by Type of Service: 1966 and 2003
1967: 70% Part A; 30% Part B2003: 46% Part A; 41% Part B; 13% Part C (Medicare+Choice)
Source: Health Care Financing Administration, 2000 and MedPac 2004
Source: MedPac analysis of Medicare Current Beneficiary Survey, Cost and Use file, 2001
Sources of Supplemental Coverage
Among Noninstitutionalized Medicare Beneficiaries,2001
Out-of-Pocket Spending as a Share of Income Among Elderly Beneficiaries
Source: Urban Institute Calculations Using NHE, CPI, CPS, and Trustees Report, MCBS
Cumulative Growth RatesCumulative Growth in Per Enrollee Payments for
Comparable Services, Medicare And Private Insurers, 1970-2000*
0
500
1000
1500
2000
2500
Year
Gro
wth
(%)
Private health insurers
Medicare
Private Insurers
Medicare
Source: Boccuti and Moon 2003; Based on Marilyn Moon’s calculations
31.1%
68.9%
8.2%
85.2%
22%
78%
4.6%
89.9%
Health Fair or Poor
Health Excellent, VeryGood, or Good
3 or More ADL Limitations
No ADLs
Non-HMO Enrollees HMO Enrollees
Source: HCFA/Office of Strategic Planning: Data from MCBS, 1998
Relative Health Status of HMO Enrollees, 1998
New Drug Legislation
• Not help by as much as many think
• The donut hole
Beneficiary & Government Share of Spending in 2006, at Individual Expenditure Levels, Under the
New Medicare Drug Benefit
Source: Boccuti and Moon 2003; Based on Marilyn Moon’s calculations
The Future
• Demographics
• Higher costs of care per capita
• Unsustainable?
Growth in Medicare Spending as a Share of GDP and in Beneficiaries as a Share of Total
Population
Affordability
From 2003 to 2040• Increase in GDP per worker - 63%• Increase in GDP per worker if take out Medicare
burden - 55%• To do this requires tax increase
Hold Line on Spending?
• No tax increase approach 42% cut
• Growth proportional to income 33% cut
SECTION TWO:The Future of Retiree Health
Benefits in Higher Education in the United States
Sylvester J. Schieber, Ph.D.Vice President
Watson Wyatt Worldwide
Overview
• Background• Context for considering employer-sponsorship
of retiree health benefits• Health benefits for retired faculty from
institutions of higher education• Conclusions
Background
Personal Health Care Expenditure Patterns, 1960 through 2002
0
10
20
30
40
50
60
1960 1965 1970 1975 1980 1985 1990 1995 2000
0
2
4
6
8
10
12
14
% out-of-pocket
Spending as % of GDP
55.2 %
15.9 %
Percentage of expenditures from out-of-pocket
Personal health expenditures as percentage of GDP
Source: Office of the Actuary, Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services.
Total Health Care Expenditure Patterns, 1960 through 2002
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1960 1965 1970 1975 1980 1985 1990 1995 2000
Personal health expenditures
Out-of-pocket expenditures
Percent of GDP
2.5 %
2.0 %
5.1 %
14.9 %
Source: Office of the Actuary, Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services.
Employer-Sponsored Retiree Health Benefits in Perspective
The Private Sector Story
• Retiree health benefits were not carefully thought out • During the 1970s and 1980s, inflation soared • During the 1980s accounting standards raised
awareness of the costs• Also during the 1980s tax laws effectively precluded
funding
The Private Sector Story, Cont’d
• From 1980 to 1997—medium and large firms offering benefits dropped from 80 to 40 %
• In 1984, 90 % of plans required 5 years or service or less–by 2001 85 % required 10 years or more
• About 30 % of current retirees have service related premiums—for future retirees it is 65 to 70 %
• About one-quarter of current retirees face premium caps, 40 % of those close to retirement do & nearly 50 % of new hires do
Polling Question #2
• Has your university increased the share of retiree health care costs paid by faculty or are you considering it?
• Yes, already increased the share• Yes, we’re considering it• No, not considering at this time• Unsure
Why Should Employers Care About Health Care Benefits Costs?
0
20
40
60
80
100
1948 1958 1968 1978 1988 1998
Percent
Share of GDP paid as compensation
Employers' health benefit expenditures as % of wages
Source: Bureau of Economic Analysis, U.S. Department of Commerce, National Income and Product Accounts.
Increases in Employers’ Health Benefit Costs & Wages for Recent Years
Health cost WageYear increases increases Difference
2001 10.9 % 4.1 % 6.8 %
2002 12.9 3.2 9.7
2003 13.9 3.1 10.8
2004 11.2 2.3 8.9
Source: The Kaiser Foundation and Health Research andEducational Trust, Employer Health Benefits 2004 Annual Survey.
Employer Contributions to Private Health Benefit Plans as a Percent of Wages
(Assuming Wages Grow 4 % a Year)
0
5
10
15
20
25
30
1950 1960 1970 1980 1990 2000 2010
Per
ecen
t of
Wag
e s
Employer costs grow 10 percent per year more than wages.
Employer costs grow 6% per year more than wages.
Projection assumes health plan cost growth exceeds wage growth by 6 or 10 percent per year.
Rough Characterization of Health Care Utilization Under Typical Employer Plan
~ 75 % ofcovered lives
Occasional useof health careservices
~ 15 % ofplan costs
~ 25 % ofcovered lives
Chronic users ofhealth-care services
~ 60 % of plan costs
< 1 % ofcovered lives
Catastrophicuse of health-care services
~ 25 % ofplan costs
Health Benefits for Retired Faculty
Issues Facing Colleges and Universities Different than Those for Private Employers
• Accounting issues FASB does not have domain on public entities GASB adopted rules for recognizing costs and obligations to
take effect for periods after December 15, 2006
• Funding issues Tax limitations on for-profit sector do not apply Still there has been little funding
• Benefit security issues Implications of failure to recognize costs Assuring benefits that are not funded
Private Schools in Survey Providing Retiree Health Benefits to Retired Faculty
Current Eligible New retirees to retire hires
Pre-65 coverage Retiree 34 34 27 Spouse 34 34 27
Post-65 coverage Retiree 30 29 21 Spouse 30 29 21
Source: Watson Wyatt Worldwide.
Public Schools in Survey Providing Retiree Health Benefits to Retired Faculty
Current Eligible New retirees to retire hires
Pre-65 coverage Retiree 21 21 20 Spouse 21 21 19
Post-65 coverage Retiree 21 21 19 Spouse 21 20 19
Source: Watson Wyatt Worldwide.
Sharing of Health Insurance Premiums for Pre-65 Retired Faculty
Pre-65 plan Current retirees Eligible to retirePrivate Public Private Public
Number reporting 31 18 32 18
Percent of total Percent of totalRetiree pays all 16.1 27.8 18.8 27.8
Share expenses 54.8 37.9 65.6 44.4
Employer pays all 29.0 33.3 15.6 27.8
Source: Watson Wyatt Worldwide.
Sharing of Health Insurance Premiums for Post-65 Retired Faculty
Post-65 plan Current retirees Eligible to retirePrivate Public Private Public
Number reporting 29 20 29 19
Percent of total Percent of totalRetiree pays all 13.8 20.0 13.8 21.1
Share expenses 51.7 45.0 65.6 47.4
Employer pays all 34.5 35.0 20.7 31.6
Source: Watson Wyatt Worldwide.
Level and Sharing of Health Insurance Premiums for Pre-65 Retired Faculty
Pre-65 plan Current retirees Eligible to retirePrivate Public Private Public
Number reporting 31 18 32 18
Average spending Average spendingRetiree pays all $5,030 $5,030 $4,890 $5,030
Share expenses Retiree share 2,023 950 1,958 1,432 Employer share 2,717 3,480 2,574 3,345
Employer pays all 4,006 4,134 4,508 4,274Source: Watson Wyatt Worldwide.
Level and Sharing of Health Insurance Premiums for Post-65 Retired FacultyPost-65 plan Current retirees Eligible to retire
Private Public Private Public
Number reporting 31 18 32 18
Average spending Average spendingRetiree pays all $3,725 $3,562 $3,725 $3,562
Share expenses Retiree share 1,817 679 1,866 679 Employer share 1,781 3,062 1,735 3,062
Employer pays all 3,625 3,513 3,644 3,644
Source: Watson Wyatt Worldwide.
Polling Question #3
• How does your institution budget for the cost of retiree health insurance?
• Costs commingled with active employees• Separate line item in budget • Unsure
Other Results
• Retiree health benefits for faculty are being curtailed but not as rapidly as in the for-profit sector
• Private institutions use service requirements to greater extent than public
• Public institutions vary premiums by service to greater extent than private ones but neither do so at rates that exist in the profit sector
• Ten to 15 percent of private institutions have implemented premium caps compared to one quarter of public ones, comparable to for-profits
Looking to the Future
• Retiree dependency ratios will increase in the future—driving up pay-as-you-go costs
• GASB rules signaling and budgeting effects in the public sector
• Rationalization issues the same in higher education as elsewhere Recognizing costs as they accrue Securing obligations with funding
• The implementation of the Medicare drug benefit will alter the needs and benefits from employer-sponsored retiree health insurance
Additional ResourcesAvailable on Resource Page
• Research Dialogue #81 TIAA-CREF Institute:“The Outlook of Retiree Health” by Dr. Syl Schieber
• Recruitment, Retention, and Retirement in Higher Education: Building and Managing the Faculty of the Future Edited by Robert L. Clark and Jennifer Ma Forthcoming, Summer 2005, Edward Elgar Publishing www.e-
elgar.co.uk Chapters of the manuscript are available on the TIAA-CREF
Institute’s Web site (link on Resource Page)
Managing the Faculty of the Future:
Retiree Health Insurance
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