CONSULTANT VERIFIES INCREASES
IN UNIVERSITY BENEFITS COST PROJECTIONS

1/23/97 Contact: Gary North, Ohio University, 614/593-2555

ATHENS, Ohio -- A consultant has verified Ohio University projections for a steep increase in employee health care through June 1998, and predicts the increases will be higher than campus officials initially expected.

Columbus-based health benefits consultant William M. Mercer Inc. estimates a 37 percent increase during this fiscal year and next, compared to a 30 percent increase projected by Ohio University officials. According to campus officials, the projected 30 percent increase is the consequence of a 13 percent deficit in the current year (July 1, 1996-June 30, 1997) plus a 17 percent projected cost increase in the next fiscal year beginning July 1, 1997.

Mercer also projected that the increase translates into a $5.2 million budget increase for employee health care over the two years, compared to the university's $4.6 million budget increase estimate.

Mercer projects a total of almost $18.1 million in medical and dental claims during the 1997-98 fiscal year, and university officials project $17.4 million in claims during the same time period. For the 1996-97 fiscal year, Mercer projects nearly $15 million in medical claims, compared to a university projection of just under $14.4 million in medical claims; the university's projection for this fiscal year runs over the health care budget for 1996-97 by almost $1.4 million.

The university sought the consultant's analysis "to make sure we're looking at the problem as accurately as possible," Vice President for Administration Gary North said. He said the difference in projections may have resulted from the fact Mercer started the analysis with a different 12-month period -- resulting in a higher base figure -- and used a more conservative analysis methodology.

Mercer's figures and estimates compiled by benefits officials and representatives of John Hancock Insurance Co., the university's claims manager, will be forwarded to Provost Sharon S. Brehm to be evaluated for consideration during the budget planning process this winter and spring.

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 for up to 120 percent of annual projected claims. Funds used from the reserve must be replaced going into the next fiscal year July 1.

Mercer also is expected to provide recommendations for cost containment changes in the employee health care plan as part of its analysis. North said the university will review with employee groups consideration for future plan design changes to deal with the projected budget shortfalls for health care costs.

Joyce Predmore, University Human Resources assistant director for benefits, noted the university's current health care plan offers a deductible and out-of-pocket maximum that is lower than national industry standards, and does not restrict which health care providers are chosen by employees. The benefits plan is considered part of an employee's total compensation package, but costs for the plan are not deducted from base salary. Moreover, no additional payment is required for coverage of employees' spouses and children.

Predmore also said features are built into the package to reduce costs, including large case management offering guidance for health care choices in cases of major surgery and catastrophic illness, and a silent preferred provider organization offering discounts for services rendered by select health care providers. She added that a full managed care program, the type of health care experiencing a lower rate of inflation nationally, is difficult in Athens because of the lack of competition among a relatively small number of health care providers compared to larger cities.

"We currently are increasing the managed care component of our plan," Predmore said. "Our primary focus is to develop a provider network to meet the needs of Ohio University faculty and staff."

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 more than double the number of last year's large claims.
  • * The medical inflation rate for the traditional indemnity benefits plan used by Ohio University is increasing 11 to 12 percent annually both at the university and nationally.
  • * The total number of university employees has increased, and as older faculty and staff retire, younger employees with more dependents are being hired and increasing the number of people using the university health plan.

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