1/9/97 Contact: Gary North, vice president for administration, 593-2555

ATHENS, Ohio -- A dramatic increase in expensive medical claims and a changing demographic mix among faculty and staff are primary reasons for a projected $4.6 million -- 30 percent -- increase in Ohio University employee health care between this fiscal year and the projected increase for 1997-98, according to Vice President for Administration Gary North. The 30 percent increase is the consequence of a 13 percent deficit in the current year plus a 17 percent projected cost increase in the next fiscal year.

North said the university will hire an outside firm to analyze the university's own projections within the next few weeks, then will review with employee groups consideration for future plan design changes to deal with the projected budget shortfalls. All employee groups will be informed of the results of the independent analysis, and meetings will be scheduled with the Benefits Advisory Committee, which includes representatives of Faculty Senate, the Classified Staff Advisory Council and Administrative Senate.

North said the problem actually runs over two years, this year and next. In 1996-97, health insurance costs are expected to run over budget by approximately $1,350,000.

The university established a large-claims reserve to deal with "bad claims years," and funds are available to handle this year's claims.

However, the university's self insurance plan requires it to reimburse the reserve fund to cover the university up to 120 percent of annual projected claims. Whatever funds are used from the reserve must be replaced going into the next fiscal year July 1.

North said the three main reasons for the dramatic health care cost increases are:

* Large medical claims, primarily for major surgery and other catastrophic cases. The university has 22 cases this year involving claims over $50,000 (including two over $200,000 and two over $100,000) -- double the number of last year's large claims. A high number of large claims is already projected for next year.

* The medical inflation rate for the traditional benefits plan used by Ohio University is increasing 11 to 12 percent annually both at the university and nationally.

* The demographic mix of university employees is changing. As older faculty and staff retire, younger employees with young dependents are being hired, increasing the numbers of people using the university health plan.

North said that the experience of two "bad" years in health claims is not unusual.

"You can't predict people's lives that precisely in a given year," he said. "Until last year, we had two consecutive years of good experience, and employees got money back in those good years through a 2 percent base salary increase one year and a cash rebate." The university has viewed salary and benefits as total compensation that employees receive.

"It is premature to discuss solutions for the projected shortfall," North said. "These recommendations will be made after the health insurance consulting firm is hired and makes an independent report, and after the Benefits Office staff and the Benefits Advisory Committee analyze information from the university and John Hancock, its health care management firm."

"Clearly this will be one part of the many pieces that go into the university's budget plan for next year," North said.