Health Care Market

Limited time and resources did not allow for a complete market analysis. However, Mr. Maciejewski's report contains a great deal of information and allowed the Task Force to form a broad perspective of how other employers are dealing with problems similar to those facing the University.

The report of the market research is attached as an appendix. What follows is a brief summary of some of the relevant findings.

Other Universities

The health care market varies considerably from state to state, so it is very difficult to compare how University of Minnesota employees are faring relative to their colleagues at other Universities.

Detailed information was obtained for the University of Wisconsin and Penn State. Both of these universities offer their employees a range of options, including an HMO plan and a straight indemnity plan offering coverage anywhere in the country. As noted above, the University of Minnesota offers no such indemnity plan. Total monthly premiums for family plans at Wisconsin range from $505 to $752, with employee contributions ranging from $0 to $221. Total monthly premiums for family plans at Penn State range from $323 to $428, with employee contributions ranging from $16 to $101. By comparison, the corresponding figures at the University of Minnesota are total premiums from $404 to $593 and employee contributions from $24 to $213. It appears that Minnesota lies somewhere between Wisconsin and Penn State in terms of total health care costs and may be somewhat higher than both in terms of employee contributions.

Information about employer contribution to retiree health plans was obtained at seven major universities. Three had no contribution, while four had some contributions ranging from modest to substantial. It appears that the University of Minnesota is somewhat behind its peer institutions in this area, although certainly not alone in its policy.

Local Market

The local market has seen a great deal of consolidation in the past few years, with three big companies, Blue Cross, Allina, and HealthPartners, emerging with 85% of the market. A significant part of the 1998 increase in health care costs is due to an adjustment occurring as the market leaders move to recover from the price competition of the recent past.

A new force has also emerged in the recent past: the Buyer's Health Care Action Group (BHCAG). This coalition of local large employers has begun to bypass the large health care companies and to contract directly with providers, which are grouped together into units called "care systems." Since the State seems to be very interested in the possibility of either joining BHCAG or adopting this model, the Task Force focussed on trying to determine the cost of this approach.

The BHCAG plan design is constant across all providers. There are modest deductibles and copayments for service obtained through the primary care provider and associated referrals. There are substantial deductibles and copayments for out-of-network services, similar to those for the State Health Plan. In addition, subscribers can freely move among BHCAG care systems, so long as they stay within the level chosen each year during open enrollment. There are three levels, distinguished by cost and employee contribution. Subscribers can move at any time to any provider at or below the selected cost level. This structure has the property that employees can purchase maximum choice if they are willing to pay for it. Otherwise, they can pay the premium associated with the care system they choose. An additional advantage is that all members of a family can choose different care systems, although the total family cost is determined by the maximum level chosen by any individual.

It is difficult to get an accurate estimate of costs associated with BHCAG plans because the information is considered proprietary and the prices vary considerably among employers. The one employer where the Task Force was able to obtain non-confidential information is Jostens. Jostens offers its employees the choice of two options: a lower-priced indemnity plan with substantial deductibles and copayments and the BHCAG plans. Total monthly premiums for family plans at range from $509 to $564, with employee contributions ranging from $36 to $91. Recall that the corresponding figures at the University of Minnesota are total premiums from $404 to $593 and employee contributions from $24 to $213. Other information available to the Task Force led us to conclude that Jostens premiums are at the high end of BHCAG employers.

The Task Force was not able to determine conclusively whether the University would experience a net increase or decrease in costs if it were to adopt the BHCAG plan, either with the State or separate from the State. It does appear likely, however, that the cost difference between the high cost option the low cost option would diminish substantially under the BHCAG model.

To accurately assess the costs of moving to a different set of health plan options, more research is needed. As a first step, the University could gather the demographic data on its employees and engage an actuary to run the standard estimates. A more accurate assessment might be to ask BHCAG to make estimates based on the demographic data. Most accurate of all would be to request that the State Department of Employee Relations separate the University's experience data from the rest of the State. With these data, an actuary could make fairly accurate estimates of the costs of adopting a different model.