Retiree Health Benefits Update - Letter to Employees
August 31, 2006
Dear University of Kentucky Employee:
As you may know, a special committee made up of UK employees and retirees recently completed a two-year review of health benefits offered to University retirees. This review was undertaken by the University to examine the impacts of new funding requirements and rising health care costs, with the hope of preserving a retiree health benefit. Upon completing its review in December 2005, the committee issued a report, including recommended changes to retiree health benefits. I am pleased to inform you that our administration has adopted the committee’s recommendations, along with an additional enhancement recommended by the University community. We commend the committee for helping our institution arrive at what we feel is the best possible solution.
The pending changes effectively keep and, in many ways, improve retiree health benefits, especially for Medicare-eligible retirees. For starters, the Medicare supplement health plan’s annual $500 deductible will be eliminated completely effective January 1, 2007, which means eligible plan members will see a more immediate financial benefit for medical expenses.
Please note, retiring on or before a specific date will not reward employees with a richer benefit. The new plan design does not encourage employees to retire by a specific date. I encourage you to review this letter and invite you to join us for one of several retiree health benefit events in September (these events will be announced via e-mail, but you may also visit the UK Benefits Web site or view the August 28 issue of UK News for details).
How Will the Retiree Health Plan Changes Affect You?
Retiree health benefit changes will affect the following groups in different ways. Continued below are details on how changes will affect you.
Note: Employees already retired and those Eligible to Retiree (groups 1 and 2 below) as of July 1, 2007 have the same benefit. Employees eligible to retire on this date but still employed at the University may continue to work and take advantage of the same retiree health benefit at a future date.
1) Employees retired as of July 1, 2007:
Current retirees fall into two categories based on Medicare eligibility (see below).
Employees Retired as of July 1, 2007 Under Age 65 (Not Yet Eligible for Medicare)
Considered EARLY retirees (under age 65, not eligible for Medicare), this group will pay a monthly amount equal to 10% of the individual early retiree premium cost to the University , which is estimated to be at $60 per month beginning in July 2007 for UK-HMO members. The University will pay the remaining 90% of the early retiree premium cost.
Employees Retired as of July 1, 2007 at Age 65 or Over (Medicare-eligible)
MEDICARE-ELIGIBLE retirees will continue paying $25 per month for the next several years, while the University pays the remaining cost. When the premium’s total cost to the University reaches or exceeds $250 per month, this group will then pay 10% of the total Medicare-eligible plan monthly premium, which will be adjusted annually in January. From that point on, the University will pay the remaining 90% of the Medicare-eligible premium cost.
2) Employees eligible to retire (but still employed at UK) as of July 1, 2007:
Benefits for employees eligible to retire as of July 1, 2007 are exactly the same as those in group 1 above who are already retired on this date. PLEASE NOTE: Changes to the retiree health plan give employees in this group no financial incentive to retire before July 1, 2007 or by any specific date.
3) Employees not eligible to retire as of July 1, 2007:
Current employees NOT ELIGIBLE TO RETIRE as of July 1, 2007 fall into two categories based on Medicare eligibility (see below).
Employees Retiring After July 1, 2007 Under Age 65 (Not Yet Eligible for Medicare)
Retirees in this group (considered EARLY retirees) will pay a percentage of the early retiree group health plan premium’s total cost to the University. Retirees’ monthly premiums will be based on age at retirement and years of regular full-time service (see enclosed Age-Service table). Upon reaching age 65, all retirees in this group will pay 10% (or $25 per month, whichever is higher) of the MEDICARE-ELIGIBLE retiree rate, which is the same rate current MEDICARE-ELIGIBLE retirees pay.
Employees Retiring After July 1, 2007 at Age 65 or Over (Medicare-eligible)
Employees in this group will pay 10% (or $25 per month, whichever is higher) of the individual premium cost to the University, which is the same rate and percentage that current MEDICARE-ELIGIBLE retirees and employees eligible to retire as of July 1, 2007 will pay.
4) Employees hired January 1, 2006 or later:
Employees HIRED ON OR AFTER January 1, 2006 will have access to coverage, meaning they may participate in the UK health plans when eligible to retire, but pay 100% of the monthly group premium rate.
These changes are, at the administration’s urging, designed to avoid adverse financial impacts on retirees who may be more likely to find themselves living on a fixed income and current employees who may soon retire. Moreover, the revised retiree health benefits plan reflects the University’s commitment to its employees: As an institution, we will commit millions of additional dollars each year to fund current and future retiree health benefits. Under the plan being implemented in 2007, the University will set aside approximately $14.2 million annually (to fund current and future retiree health benefits). In the first year alone, this represents a funding increase by the University of more than 50 percent. While planned changes call for a significantly expanded funding on the part of the University, it also means that current and future retirees will eventually pay a higher share of the monthly health plan premium. At the same time, we have worked hard to ensure plan premiums remain as low as possible.
Thank you for time and consideration regarding this matter. We appreciate your support for a revised retiree health benefit designed to be sustainable well into the future. We are pleased that the coming changes will seek to preserve – and even enhance – UK’s retiree health benefit, including a full array of treatment, physician choice and wellness options.
Executive Vice President for Finance and Administration