Iowa State University

Inside Iowa State
October 3, 2000

University, employees to split ISU Plan cost increases

by Anne Krapfl
Participants in the ISU Plan will face higher health insurance premiums next year and, in most cases, higher out- of-pocket costs when they seek health care. However, the university proposes to soften the blow by increasing its contribution to employee premiums.

Proposed changes, which would take effect Feb. 1, 2001, go to the Board of Regents, State of Iowa, later this month for approval.

As developed by the University Benefits Committee (an employee committee) and endorsed by ISU administrators, the ISU Plan still will offer four health insurance options: catastrophic coverage, indemnity plan, an HMO and a preferred provider plan (PPO). The PPO replaces the point of service option and eliminates the requirement for referrals before participants may visit specialists.

No changes in coverage are proposed for the catastrophic plan, and a prescription drug co-payment is the only change proposed in the HMO plan. The most significant change in the indemnity and PPO plans is in deductible and co-insurance levels. Details of each plan will be spelled out in an Oct. 16 newsletter from the University Benefits Committee and in enrollment packets that will be in campus mail Oct. 31.

The time period during which employees may make changes to their health insurance runs from Nov. 1 to Dec. 6.


Cost sharing, budget reallocations
Mark Power, finance department and chair of the University Benefits Committee, said affordable premiums and maintaining a choice of plans were the committee's goals as it considered changes to the ISU Plan. Rising health care costs was a prime reason the committee sought changes in insurance options. Another was the difficulty employees outside central Iowa face using in-network health care providers.

"Plan choice is important in a diverse university community, where one health insurance plan couldn't possibly fit everyone's needs," Power said. "Affordable premiums ensure that ISU retains and attracts high quality employees in a competitive university labor market."

Power said higher out-of-pocket charges to participants when they receive care will lower premiums by more than $1 million each year. However, even with the increase in out-of-pocket expenses, health insurance premiums will increase 13 to 18 percent, depending on the plan.

As proposed to the regents, Iowa State would increase its contribution to employee premiums by 14 percent. The employee's portion of the monthly premium for health insurance would increase an estimated $4 to $40, depending on the health plan. With the university picking up a large portion of the premium increases and employees bearing higher costs when they receive medical care, Power said the total cost increase will be split almost evenly.

"The university administration recognized the added financial burden that plan changes would have on ISU employees, and appropriately decided to contribute more to health insurance than was originally budgeted," he said. "I think the 50-50 split in the 2001 health insurance cost increase is a clear signal our administration wants to continue offering high quality and competitively-priced employee benefits."


What happened
Power said a number of factors contributed to the need for budget reallocations and a larger cost-sharing burden on employees in the ISU Plan. Factors such as availability of new therapies and drug treatments, general aging of the population and a declining ability by "managed care" systems to hold down costs has led to higher claims. At the same time, neither the state's budget nor Iowa State's budget for this fiscal year provided for double-digit increases in the university's contribution to health insurance premiums.

As a result, covering the increase will require $1.5 million in internal reallocations for the university's state-funded units. (Federally-funded and self-supporting units have increases for their employees to cover as well.) About half of the $1.5 million will be absorbed from centrally allocated funds; the rest will come from operating units based on the size of their respective budgets.

Part of the budget shortfall has to do not with the ISU Plan, but with state employment contracts covering Iowa State's merit employees. Those contracts require the university to fully cover health insurance cost increases for merit employees. Premiums for their health insurance options rose an average of 17 percent this summer, with an additional increase of at least 17 percent expected in January. The budget shortfall this obligation creates at Iowa State is more than $1 million -- or about two-thirds of the $1.5 million eyed for reallocation.

ISU controller Johnny Pickett said the increased cost of health insurance creates problems for the next budget year as well. The $1.5 million in reallocations will cover less than half a year (February-June) of higher costs; the price of health insurance for a full year is much higher. Pickett said Iowa State also needs to make the increases part of its base budget and ask the Legislature to fund next year's salary increases based on the higher benefits costs.


Key changes to ISU Plan options

Catastrophic

Indemnity

Preferred Provider Option (formerly Point of Service)

HMO

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