Health plan stretches to cover rising costs

By Elizabeth Kiem

With U.Va. employees braced for the third consecutive year of stagnant salaries, news that they will be charged more for monthly health insurance has met with some concern. But while the freeze on salaries reflects a state budget crisis, the benefits situation mirrors a national trend.

Virginia is not alone in experiencing higher prices for hospital fees and prescription drugs and for increased consumer use of those services and medicines. Last year, average premiums for employer-provided health care rose anywhere from 13 to 27 percent, according to commissioned studies.

For employees of the commonwealth — but not U.Va. Employees— that spike translated to an increase in 2003 premiums to $33 per month for individuals and $272 per month for families.

In contrast, U.Va., the only state agency with an independent health plan, set monthly premiums for 2003 at $17 for individuals and $206 for families. The benefits included in the plan have been amended slightly but are still rated above the state’s premier Key Advantage Plan by actuaries and consultants.

"We pay less and get more," said Linda Way-Smith, director of employee benefits. "I would stack our health plan against just about anyone."

The total projected cost of covering 24,000 University employees and dependents under the plan will be $79 million in 2003. With a self-insured plan, administrators can only fund the claims through the premiums collected. Although the projected cost is 16 percent higher than the previous year, employee contributions were raised just 5 percent, totaling about $13.5 million. The remainder of the increase will be absorbed by the University.

“We have a benefit pool where we collect expenses and then allocate them among the institutional units. It’s up to each paying unit to come up with additional benefit charges,” said Yoke San Reynolds, vice president for finance.

In addition, plan developers found ways to reroute cost savings from changes in the policies to ensure wide coverage with minimal premium increases.

“We tried to do whatever we could to keep the plan as secure as it is and keep the cost for people as low as possible,” said Way-Smith.

Higher costs will be most apparent for hospital services at the level called Option 1, which now requires copayments of $100 for inpatient and $50 for outpatient or ambulatory care. Also, certain drugs have been upgraded to a higher copayment bracket. The University will continue adjusting the drug formulary just once a year.

Some changes will save the University money without drawing on the wallets of the insured. Adopting the national Private Healthcare System’s network for the Approximately 500 retired employees and out-of-state dependents ensures maximum coverage at a big savings, said Way-Smith. Another alteration is to reduce the number of free mental health visits to eight, after which a $10 copayment will be levied. With the average course of treatment running Just six visits, the change will not affect most users.

Benefits administrators also found that some policyholders have bypassed standards on referrals for specialists, draining additional funds from the plan, a tactic that is barred under the new guidelines.

“If we close some of these loopholes, we’re able to keep the benefits as rich. By keeping the plan more true to its original intent we’re able to save several million dollars that can be spent on reducing people’s premiums,” said Way-Smith.

Administrators expect 2004 will bring a comparable increase in health costs (15 percent). Leonard W. Sandridge Jr., executive vice president and chief operating officer, has already warned of the impact of keeping premiums artificially low, saying there is a “delicate balance” between deferring fees now and imposing large increases later. Financial officers say that if U.Va. Employees continue to use health care at a rising rate, premiums may have to be adjusted by more than 5 percent next year.

Reynolds said the University had committed all the reserves in the benefit pool (about $1.2 million) to help cover next year’s anticipated $65 million shortfall, but that creative budgeting on the part of each paying unit will still be necessary.
“We’re using up all the reserves we have at this point. So this is something we can only do this one year,” she said.

Ironically, because the state subsidizes the employer contributions of U.Va.’s plan according to its own rates, higher premiums for state employees in the future could help keep University workers’ insurance affordable.

“When we say we’re increasing the employer portion, part of that is paid by the state,” said Reynolds. “The more they raise premiums in July, the larger the subsidy for us.”

It’s a slender silver lining on the great gray state budget cloud.