Editor's Note: Ball State, which is millions of dollars over budget in health care spending this year, is looking at ways to both cut costs and encourage healthier lifestyles among faculty and staff. This is the first of a two-part series on the tough - and sometimes expensive - choices facing both the school and its employees.
Ball State employees will see health insurance increases ranging up to $67 per month as part of a university plan to make up a $7.5 million budget shortfall caused by rising health costs.
University officials said it's the largest potential deficit they've seen in the last six years, and is due mainly to an increase in major and catastrophic claims caused by chronic illnesses. The most common are related to high blood pressure, obesity and stress, according to information obtained by the Daily News through a public records request.
Since the university is self-insured, just a few unexpected claims could put a dent in the budget, said Randy Howard, vice president of Business Affairs and treasurer.
"So when you can have one or two medical claims that can approach upwards of $1 million, it doesn't take too many claims to really change where you end up budget-wise," he said.
Some examples of expensive claims include organ transplants, renal failure, premature babies and certain types of cancer, Howard said in an email.
DECREASING THE DEFICIT
A big question is how to knock down the $7.5 million shortfall by the end of the fiscal year on June 30.
Howard suggested taking $2 million or $3 million from health care reserve funds, which in part are there to cover things like abnormally high claims in a given year, and using $800,000 from the university budget. That amount was already earmarked for health care but was not spent since the total premiums paid by the university and employees decreased as a result of migration to less expensive plans. The university will use its share of the savings to help solve the shortfall.
The school will also save $1.5 million because financial consultants have said the school doesn't need to contribute any money this year to the Volunteer Employee Benefits Association, which is a fund set aside to help pay for retiree health care. The contribution is not needed this year due to improved investment returns and a decreased actuarial estimate of the future liability.
"That's up to $5.3 million," Howard said. "We're just going to have to wait until the end of the year and see where we are. We'll still be a little short, unless this [shortfall] number changes."
And that is a possibility. The amount went down from $8 million in April to $7.5 million in May due to an increase in federal drug rebates. Since Ball State offers drug coverage through its retiree health care plan, the federal government gives the school some money back in the form of a rebate.
One option for making up the difference is to draw from other university resources and create something like an internal loan to the health care auxiliary budget. This is the account that takes in premiums and pays claims and expenses of the health care plans.
"After a period of years, the health care auxiliary would pay back those resources," Howard said. "It would just temporarily borrow funds to cover the shortfall."
EMPLOYEE CONTRIBUTIONS
Besides making up this year's setback, Howard created a 10-step plan to save the university an estimated $3.7 million moving forward. It includes suggestions like contributing more money from the university, implementing a tobacco-free premium discount and making changes to the insurance plan for spouses.
Already, the university has begun a plan to increase deductibles and out-of-pocket maximums for each of its three health care plans for employees. Doing this will save an estimated $1.7 million.
The low deductible preferred provider organization plan will have a 9.2 percent increase, or $67 per month in total employer/employee contributions. The high deductible wellness plan will see a 7.2 percent increase, or $34 per month. The high deductible/HSA qualified plan will have a 14.6 percent increase, or $58 a month.
HSA refers to health savings account plans, which allow employees to set aside pre-tax earnings for future health expenses. HSA's allow employees to save in advance for anticipated expenses and carry over unused funds to the next year. High deductible plans offer significantly lower premiums. Their relatively high deductibles and potential out-of-pocket expenses have been shown to encourage people to be smart consumers of health care by using in-network coverage, purchasing generic medications and using mail-order pharmacies, for example. However, based on an individual's claim experience an HSA could shift some expenses to the employee instead of making them part of the insurance coverage.
Ball State has saved money in recent years as more employees have chosen the high deductible and HSA plans, Howard said during the Board of Trustees meeting on May 4.
Howard said he hopes that more employees migrate to those two plans because they cost less for both the employee and the employer. In the last three years, the percentage of employees who use those plans has tripled, from 22 to 66 percent.
Ball State formerly contributed 75 percent of health insurance costs for employees regardless of which health care plan they were enrolled in. That meant the school's dollar contribution was much higher for employees who chose the more expensive low deductible plan than for the less expensive plans.
The difference in the university's share was as much as $9,000 - meaning the school paid that much more for each employee on the pricier, low deductible plan in 2009-10.
Beginning in 2010, however, in an effort to provide a financial incentive for employees who choose the less expensive consumer driven health care plans, the university agreed to pay 90 percent of the premium costs for the HSA plan and 80 percent of the premium for the High Deductible Wellness plan. In addition, the university agreed to provide funding for the employee's individual HSA account.
As a result, the school contributed $16,059 for those in the low deductible plan and $11,286 for those in the high deductible plan. The resulting "gap" is only $4,773, compared with the former difference the year before of $9,000.
"It's hard to do it all in one year, but that's where we're headed," Howard said of the cost streamlining. "We want to make it fair so that whichever plan you pick, we're willing to subsidize at a pretty reasonable amount."
Monday: In Part II of this series, why obesity and chronic medical conditions often drive rising health costs.
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