With increasing costs in employee benefits for fiscal year 2010-2011, Duke will consider changes to its health care package within the next two years, University administrators said Thursday.
Executive Vice President Tallman Trask said Duke’s current health care model is unsustainable and will likely undergo significant changes in the near future. The budget for next fiscal year projects a 14 percent increase in employee benefit expenses, largely resulting from rising health care costs.
Although administrators have not yet decided how to manage benefit costs, Trask said possibilities include restructuring salaries, raising co-payments, reducing insurance benefits and restructuring Duke’s retirement contribution.
“Up until now we’ve tried really, really hard to protect employee benefits,” Trask said. “We cannot continue to have that kind of increase. We’re going to have to change the way we pay for [health care] because we don’t have enough money to move forward.”
Benefit costs encompass everything from health care and retirement to educational assistance and employee discounts. The total employee benefit package for Duke costs approximately $384 million, according to the University’s 2008-2009 financial statements. About half of these expenses are federal and state taxes, and the other half largely results from health care and retirement costs, Trask said.
Vice President for Human Resources Kyle Cavanaugh said the cost of employee benefits rose by seven percent in fiscal year 2009-2010. He said a higher number of employees in the University and Duke University Health System combined with rising costs in health care contracts and prescription drugs increased expenses.
“A big driver last year was in our health care plans, which now cost for this year approximately $145 million,” Cavanaugh said. “Twenty-five percent of that is in prescription costs. There was an 18 percent increase in prescription costs just last year because more medications [and] more costly medications were utilized.”
Vice President for Finance Hof Milam said the University is primarily concerned with keeping the cost of health care affordable without compromising quality.
“It is certainly not sustainable at the current rate of increase,” Milam said. “And as far as what we’ll do to deal with it, it just involves an analysis of trade-offs. There’s only so much we can sustain with compensation and benefits…. We have to decide how to strike that balance.”
Although costs are rising, Cavanaugh said the University’s health care benefits are still “exceedingly competitive” compared with similar organizations.
Trask said Duke offers its health care and benefits package at about 25 to 30 percent less than comparable institutions. He attributed lower costs to the University’s “history, geography… brilliant management and a lot of luck.”
Cavanaugh said last year the University hired an external consultant to compare Duke’s health plans with those of other local and regional organizations as well as comparable universities. Continuing conversations with other universities also allow Duke to understand its responsibilities in light of new health care reform.
“As we start to look out for 2011 and beyond we are in the middle of doing quite a bit of planning,” Cavanaugh said. “Not only annual things, but all of the changes associated with national health care reform. We are working our way through how these changes will be managed for next year.”
Duke’s benefit plan continues to attract a high number of applicants for various positions at the University and DUHS, Trask said, adding that in bleaker times, people tend to understand and appreciate the quality of benefits Duke provides.
Last year, the University received a record number of applications for employment—approximately 124,000 applications for University and DUHS positions, according to Duke’s Human Resources website. That same year, the University hired about 2,151 new employees—537 fewer than the year before.
“At a time when we’ve gone through the current economic crisis, we’ve become even more attractive,” Cavanaugh said. “In some cases, we have dozens and dozens of highly competitive people competing for the same positions.”
Trask added that retirement benefits may also account for the increased number of applicants. Several local employers have stopped paying for retirement, and Duke’s plan guarantees a pension.