QUESTIONS & ANSWERS
About the Changes to Retiree Health Care Benefits
What is the objective of changing retiree health benefits?
Our goal is to maintain high-quality, market-competitive and affordable health care coverage for active employees as well as retirees. Doing so contributes to our ability to attract and retain premier faculty and staff to carry out the university’s mission. Yet, we must slow the rate of cost increases in our health care benefits and we know that our retiree health benefits are well above the market average, In fact, our retiree health benefit was among the most generous of the 27 peers in a comparison study. Through the careful study of the Committee on Retiree Health Benefits, we now have recommendations for long-term adjustments to help us achieve the cost-reduction goal while maintaining excellent, market-competitive retiree health benefits.
Why must we make these changes during difficult economic times?
This is an extremely difficult economic time for organizations and for individuals. The economic challenges are precisely why it’s important to act now and to plan for the long term. The changes will be enacted over time and won’t begin taking effect until 2013, but the combined effect of the changes will accumulate, reducing university expenses by more than $12 million annually by the year 2020 – and that’s funding that will be important to pursuing our core mission and controlling the rate of tuition increases in the future.
How much does the university spend on retiree health benefits?
The university spent more than $39 million on retiree health benefits in fiscal year 2010. With projections that estimate that the number of U-M retirees could double within the next 20 years, adjustments are needed.
Will these changes reduce our ability to attract top faculty and staff?
We don’t think so. Our overarching goal is to maintain high-quality, market-competitive and affordable retiree health benefits so that we safeguard our ability to attract and retain premier faculty and staff. Comparisons to peer institutions nationwide indicate that the changes we are making will retain our competitive position among other top-tier universities and health systems.
Will these changes stop the rise in costs for retiree health care coverage?
Increases in the cost of health insurance are expected to continue, but these changes help us curb the rate at which we are affected by the continuing cost growth in health care nationwide.
When will these changes be effective?
Changes to retiree health benefits will begin to take effect on Jan. 1, 2013. Generally, changes that will occur over time will affect the number of years of service required in order to retire with benefits, the amount the university will contribute each month toward the coverage of a retiree and his or her dependents. The degree of impact on an individual depends on when they retire. Specific information about the changes and timing of implementation can be found on this website and on the Benefits Office website.
How are those who have already retired from the university affected by these changes?
There is no change to the percentage university contribution for those who retired before the year 2000. Beginning on Jan. 1, 2013, those who retired after the start of the year 2000 will receive a university contribution of 90% of the premium (currently 93%) for the retiree and 70% for any covered dependents, regardless of whether the dependent is an adult or child.
Did faculty and staff have input into the recommendations?
Yes, through several means. Many faculty and staff visited this website and sent comments to the committee and to University Human Resources. Additionally, focus groups were held on all campuses and included faculty, staff and current retirees. More than 400 people participated in the focus groups to share their requests, priorities and concerns. All of the feedback was given to the committee to help them weigh the benefits and challenges of each change they considered. The most frequently cited priorities we heard from campus were: (1) the importance of providing time for planning before changes take effect; (2) the need to continue to cover dependents after retirement; (3) the desire to minimize any financial burden on those already retired; and (4) general support for offering a greater university contribution for employees with more years of service at the time of retirement.
Are future employees affected differently from those who already work here?
Yes, future employees will experience changes to a greater degree than current employees. The committee was specifically asked to develop recommendations that had the greatest impact on future employees, lesser impact on current employees and the least impact on those who have already retired.
How will we compare with peer universities and health systems after implementing these changes?
Currently, we are well above the market average for retiree health benefits, which gives us room to make changes without jeopardizing our ability to effectively compete. Comparison modeling shows that we will maintain the market average for our retiree health benefits even after full implementation of the changes.
How can I tell when I will be eligible to retire under the new requirements?
Please use the new Retirement Health Benefit Estimator. This new online tool will help you apply the new requirements to determine your earliest date of eligibility to retire with benefits, and it’ll give you a summary of the changes that will be in effect at that time.
When should I retire?
There are many variables that each person should consider. If you retire earlier than age 62, it’s important to remember that those hired after July 1, 1988 pay the full cost of their monthly health care premiums until they reach age 62. Those hired prior to that date receive the university contribution at the time of retirement regardless of their age at that time. This is currently the rule, and it will remain in place even after the implementation of the CORHB recommendations. There are other important considerations so it’s vital to learn more and to see a U-M retirement counselor when considering retirement. More information is found on the Benefits Office website.
Where can I learn how to get ready for retirement?
Please visit the retirement section of the Benefits Office website.