2 C&HR – OPEN – INFO 1-2 Retiree Medical Study Board of Curators Meeting June 25-26, 2015

C&HR – OPEN – INFO 1-3 June 25-26, 2015  Ensure retirees and university are getting the most for their dollar  Retiree medical benefits have changed considerably  Medicare Advantage plans are available with similar value at lower cost  Ensure university can continue retiree medical benefits over time  By 2019, university estimates an unfunded liability of $1 billion for retiree medical benefits  Could impact university’s financial statements and credit rating—same as for all employers—unless there is progress/plan Total Rewards Task Force Recommendations

C&HR – OPEN – INFO 1-4 June 25-26, 2015 Current Liability Projection (in millions)

C&HR – OPEN – INFO 1-5 June 25-26, 2015  Retiree-related goals  Preserve benefit and UM subsidy for current retirees and employees close to retirement  Reward long service  Financial goals  Stop growth of long-term liability  Reduce short-term liability to the extent possible  Ensure stability of medical plan for retirees Goals and Assumptions

C&HR – OPEN – INFO 1-6 June 25-26, 2015 Progress to Date Jan 2015FebMarAprMayJunJulAugSeptOctNovDecJan 2017 UM Retiree Medical Study Timeline Announce Study Launch Dedicated Website Review Current Plan Conduct Benchmarking and Marketplace Review Conduct Listening Tour Develop Potential Designs Conduct Focus Group Testing Develop Implementation/ Communication Strategy Finalize New Plan Announce Direction Guiding Coalition Meetings Website Updates Educational Resources New

C&HR – OPEN – INFO 1-7 June 25-26, 2015  Peer institutions:* Indiana University Iowa State University Michigan State University Ohio State University Pennsylvania State University Purdue University University of Alabama University of Florida Benchmarking Process: Peer Universities * Comparator list was used for other comparative studies such as the Benefit Index. University of Georgia University of Illinois University of Kentucky University of Michigan University of Minnesota University of Texas University of Wisconsin 7  Reviewed comparative results between UM’s retiree medical program and that of peer institutions  Survey information was supplemented by website searches and review of annual financial reports, as available

C&HR – OPEN – INFO 1-8 June 25-26, 2015  UM’s eligibility (age and service) for subsidized benefits is generous compared to peers  Some peer institutions have moved toward Medicare Advantage arrangements for Medicare-eligible retirees  Pre-Medicare retirees still have limited viable options in the market Benchmarking Findings

C&HR – OPEN – INFO 1-9 June 25-26, 2015  Only 6 million of 45 million Medicare retirees have coverage through an employer plan  Market plans for Medicare-eligible are robust and offer universal access  Significant federal subsidies are available to complement or replace Medicare  Enhanced Medicare pharmacy benefit by 2020 (provided through Affordable Care Act) will greatly reduce need for employer pharmacy benefits Other Market Considerations

C&HR – OPEN – INFO 1-10 June 25-26, 2015  Retiree Listening Tour  331 UM retirees out of 4,500 retiree medical participants attended sessions throughout the state  Employee Survey (age 60 and 10+ yrs of service)  690 out of 2,591 recipients (27%) responded to survey  Focus Groups  51 attended sessions Listening Opportunities

C&HR – OPEN – INFO 1-11 June 25-26, 2015  Don’t take away my benefits  Why now?  Make sure it’s affordable  The current plan is a motivator for staying long term  I don’t understand how medical coverage works  Give me a few clear options  What happens to people who move or travel a lot?  It’s fair to give a higher subsidy to long-service employees, but not to give them better benefits  Medicare Advantage is fair as a choice but don’t force me Common Feedback Themes

C&HR – OPEN – INFO 1-12 June 25-26, 2015  Eligibility and/or vesting (who gets benefits?)  Who receives the benefit (and for how long)?  How much of a benefit do they receive?  Are spouses covered; what about widow(er)s?  Plan design (what do they get?)  Cost sharing for medical expenses  Coinsurance, Copays, Deductible  Employer funding (how much does UM pay?) The “Levers” for Retiree Medical Program

C&HR – OPEN – INFO 1-13 June 25-26, 2015  Eligibility:  Preserve plans for current retirees and employees closest to retirement  Consider increasing service/age requirements  Close retiree plan to new hires and those not vested  Plan Design:  Evaluate market-based plans for Medicare eligible retirees  Explore pre-Medicare plan options Potential Solutions

C&HR – OPEN – INFO 1-14 June 25-26, 2015 Impact of Closing Plan: New and Non-vested

C&HR – OPEN – INFO 1-15 June 25-26, 2015  Next steps  Consider all data and feedback  Determine recommendations  Vet potential recommendations with constituency groups in August and September  Bring recommendations to Board of Curators at October 2015 meeting  Announce changes and begin education Fall 2015  Changes effective January 2017 Next Steps