Penn State Intercom......October 19, 2000

Benefits costs rising for both
the University and its employees

Concerns for the rising costs of health care continue as a critical issue for both employers and employees. This is a national trend and is not limited to specific geographic areas. Unfortunately, the University's health care plans have not been immune from this national trend.

The University remains committed to providing high quality health-care plans that are affordable to both employees and the University. While Penn State is continuing to pay the lion's share of these increased costs, the University cannot absorb the entire amount. A portion must be passed on to employees. This is occurring with employers' plans across the country.

The University presently is paying more than 90 percent of the cost of health-care coverage for most faculty and staff. The goal, as recommended by the Task Force on the Future of Benefits, is for the University to pay 80 percent of the cost for all plans, or 74 percent if dependents are included in coverage.

While increases in University costs will vary by plan, HMO participants are reminded that the percentage of faculty and staff contributions toward the cost of HMO coverage is gradually being increased over a seven-year period and 2001 is the second year of this phase-in.

Specific costs for each of the health plan programs are currently being finalized.

Everything should be finalized within the next few weeks, and then the University will be mailing out the information and posting it to the Human Resources Web site.

Average HMO premium increases during the last few years were moderate, but generally will rise significantly for the 2001 plan year. Costs for the University's self-insured health plans (Plan A and the Healthpass PPO) have increased more dramatically than the HMOs. As was the case last year, the University again will be absorbing a significant portion of this cost increase. However, some of this increased cost will be passed on to employees as well.

As with other employer plans, there are multiple causes for the increases, but the major factor remains the dramatic and skyrocketing increases in the cost of prescription drugs.

Costs for Penn State's MPDP program for the first six months of 2000 were 26 percent higher than for the same period in 1999. Part of the reason for this is that information on new drugs, which have no lower-cost generic equivalent, is being targeted directly to consumers through the media by the drug companies. This puts pressure on the doctors to prescribe these new, higher-priced medications.

Additionally, the advantages of managed care in reducing costs are diminishing, because hospitals and physicians are demanding higher reimbursements to meet their rising costs. Rising costs also have been fueled by advances in medical technology and new methods of treatment.

For updated information, check the Office of Human Resources Web site. Go to and click on the link to benefits.