Copyright © 2014 Albuquerque Journal
University of New Mexico regents are wrestling with a looming decision involving millions of dollars in health care costs, benefits and premiums – a complex and difficult-to-grasp issue even for those board members who know something about insurance.
The most troublesome question concerns the status of some 750 former employees who retired before reaching the age of 65 – some reportedly as young as 50 – and who are covered under UNM’s retiree health plan.
Two years ago, facing a massive projected unfunded liability of $162 million for its overall health care plan in 30 years – and a scolding by UNM auditors for failing to act – the regents removed the pre-65 retirees from the employees’ 6,350-member insurance pool and placed them into their own pool with different, higher premiums. The move was seen as a way to reduce costs.
But the retirees want back into the active employees’ pool. And a committee charged with coming up with ideas for consolidating and integrating UNM’s various health plans, including the pre-65s, is recommending just that. The committee’s plan would include a 20 percent decrease in premiums paid by the pre-65 retirees while all active employees would see a roughly 2.5 percent increase.
In addition to higher premiums for active employees, the unfunded liability would increase from $94 million to $101.5 million if the pre-65s are placed back into the general pool.
“Where would we get the money?” asked Regent Jamie Koch. “Tuition? Fees? The Legislature won’t pay for it. We’d have to raise tuition.”
The committee was empaneled to come up with a reduced-cost, high-quality plan that is affordable, sustainable, contemporary and attractive to former, current and future employees. Even if the regents don’t go along with the recommendations, UNM’s cost for providing health care coverage for the pre-65s is projected to increase by $1.5 million this year.
The matter is scheduled to go before the board next week, just 19 days before the new year when four of the seven regents are either due to be replaced or plan to step down.
But if it is held over until later in the new year – a definite possibility – four new members then would be called on to vote on the insurance measure that includes what one regent called a “gold plated” health plan that no private business would offer.
Carol Stephens, president of the UNM Retiree Association, said that when the pre-65s were removed from the general pool, they had to pay a “significantly higher percentage of the much higher premiums.” The percentage was increased by 10 percent to 20 percent, depending on when they had retired, she said.
“Because this increased percentage is applied to the total premium, it actually increases the retiree’s share of the premium by an additional 20 percent to 50 percent by 2016,” she said.
Koch, however, said UNM pays 55 percent of those premiums. The university’s cost for the pre-65s last year was $3 million, a considerable amount. This year, it is $4.5 million.
“Retirees appreciate and are encouraged by the University’s efforts toward correcting an ethical and legal wrongdoing that resulted from efforts to reduce the accrued actuarial liability in 2013,” Stephens said in an email to the Journal . “The retirees have always contended that UNM has legally obligated itself to provide the post-retirement benefits it promised to retirees when they accepted offers made by UNM in connection with their employment and retirement.”
Others believe otherwise.
“I totally disagree,” said Koch, president of Daniels Insurance in Santa Fe. “We have no legal obligation.”
Regents under pressure
The issue, especially cost to the university, has been lurking in the shadows for years, with little action by the regents.
Koch, perhaps the regent who best understands complex insurance issues, is leaving the board at the end of the year or shortly thereafter. He said the regents are under pressure to adopt the committee’s proposal for the pre-65s.
“If we do, I don’t want to be blamed for it,” he said.
His objection is that if the pre-65s are placed back into the general pool, as the committee is recommending, and their premiums decrease while those for the active employees rise – it would amount to, in essence, a subsidy, he said.
At the November regents’ meeting, Koch asked Faculty Senate President Pamela Pyle and Staff Council President Reneé Delgado-Riley to provide written feedback from the faculty and staff on how they feel about subsidizing the pre-65s.
On Wednesday, the Staff Council voted unanimously to have the pre-65 retirees rejoin pool. And earlier in the week, Pyle said she sent a survey to all 70 members of the Faculty Senate, asking them just that question. Of the 35 who had replied, 32 favored the agreement, two were opposed and one abstained.
Koch’s response is that the views of 35 or even 70 senators do not constitute anything near a majority of the much larger faculty.
Active employee issue
UNM offers employees, past and present, three different plans: One is through Presbyterian, another through Blue Cross/Blue Shield, and the third a university-based program, LoboCare.
“The richest plan is Presbyterian’s,” Koch said. “It offers the best coverage. It’s the Cadillac plan.”
And because they haven’t had to pay for their health insurance – or at least not all of it – an overwhelming majority of the pre-65s have opted for that top-shelf plan.
“This is a very, very gold-plated plan,” said Gene Gallegos, another regent whose term is ending. “No private business could afford it. It’s too expensive.”
Premiums under the Presbyterian plan depend on the insured’s salary, with the university paying as much as 80 percent of monthly costs for employees who earn less than $35,000 a year to 60 percent for those earning more than $50,000.
That means, for example, that for a single employee with no dependents who earns less than $35,000, UNM pays $460.80 per month. For an employee and spouse, the cost to the university rises to $946.40, and for a family the monthly cost to the university is $1,343.20. In each instance, the employee pays the remaining 20 percent.
About 1,400 employees belong to the Presbyterian plan, along with 1,440 dependents and 300 retirees and their dependents. The cost to UNM in FY 2015 is expected to be $12.5 million.
Blue Cross/Blue Shield is UNM’s most popular plan. Almost 4,000 active employees and a like number of dependents are covered, along with more than 500 retirees and dependents. The projected cost to the university for FY 2015 is close to $24 million.
The university plan, LoboCare, insures just under 2,000 people. The FY 2015 cost to UNM is projected to be nearly $5.8 million.
Employees over age 65 have less impact on the UNM budget because they are covered by Medicare. It’s the younger retirees who are at the core of the problem, Gallegos said. A better alternative to the committee recommendation would be to adjust benefits to remain revenue neutral, he said.
The committee’s proposal is tiered, with two different scenarios for three different salary ranges. The proposal also looks at scenarios under Presbyterian and Blue Cross/Blue Shield.
Additionally, the committee came up with several other recommendations, including one that over the next two years would seek to increase participation in LoboCare. The cost to UNM for that proposal would be $900,000.
“It is complicated,” Koch said. “I understand the insurance business inside and out, yet I’m having a hard time explaining it.”