Q. Although I recently received a raise, I also face increasing costs for medical coverage. In addition, I am making the mandatory contribution to the DC retirement plan now, and I understand I'll have to restart contributions to the UC Retirement Plan (UCRP) next year. How do all these factors impact my take-home pay for 2007?
A. UC is keeping a close eye on benefit costs in an effort to preserve the recent gains we've made in salaries. Toward that end, UC is paying a larger portion of the increased cost of medical coverage for 2007. Additionally, when UCRP contributions are restarted, it is intended that current DC Plan retirement contributions will be redirected automatically to the UCRP, which means there will be no reduction in take-home pay as a result of the contributions. However, everyone's financial situation will be different, depending on the medical plan they choose, which family members they cover, their marital status and their tax filing status. Many employees will still see a net gain in their take-home pay (although some employees may see a slight net loss depending on the medical plan they choose and the family members they cover). See examples.

Q. How can UC raise employee health insurance premiums and restart contributions when our salaries are not even keeping up with inflation, parking, and other living expenses? It doesn't seem fair.
A. UC is very sensitive to the financial challenges employees are facing. The University does not control the cost of living, the rising cost of health care or many of the other external factors that are driving expenses up. However, we are working very hard to manage those things that are within our control in order to preserve the recent salary gains and mitigate the net financial impact of rising costs on employees. Here are some of the actions we've taken:

We've continued a salary-based approach to health insurance to help employees maximize recent salary increases and help protect employees in the lower pay bands.

We've kept employee + child(ren) medical coverage cheaper than employee + adult dependent coverage to help those employees with children.

We intend to restart UCRP contributions by redirecting the contributions employees are currently making to their DC Plan to UCRP, so that there is no immediate impact on take-home pay.

Q. How can I minimize my medical benefit costs and maximize my take-home pay?
A. One very effective way is to put money aside in the Health Care Reimbursement Account (HCRA). You can draw on this tax-free money during the year to lower your taxes and keep more of your hard-earned salary. For example, you can finance your HMO copays or PPO deductible, as well as dental or prescription drug expenses. If you need to pay for day care so that you can work, also think about participating in the Dependent Care Reimbursement Account (DepCare). To find out more about these money-saving programs, visit At Your Service.

Q. How can I choose the medical plan that will be the most cost-effective for me?
A. When you consider your medical plan costs, think about the whole cost: your monthly contributions toward your coverage plus any amount you spend when you use health care services — for example, copays for office visits, prescriptions, etc. UC provides an effective tool to help you — the Medical Plan Chooser on the At Your Service Web site allows you to make informed decisions about the medical plans that are most cost-effective for you.

Q. How else can I save money on my health care costs?
A. Consider alternative medical plan options available to your family members' for example, your spouse or domestic partner's medical benefits through his or her employer. Compare the cost of coverage for each family member under each plan available, and do the math to find the most cost-effective approach for you and your family. You can also save money by participating in the Health Care Reimbursement Account (HCRA) in 2007. For more information, see At Your Service.

Q. I've heard that employees in the lowest pay bands will have to pay the highest increases in their medical plan costs for 2007. Is that really fair to lower-paid employees?
A. Actually, employees in the lower pay bands will have lower dollar-cost increases in 2007 and will continue to pay lower premiums. UC believes that pay bands help keep medical coverage more affordable for employees in the lower pay bands. Take a look at the chart below. You can see that Pay Band 1 employees with single coverage in Health Net pay only 5.6% of the total premium, while Pay Band 4 employees pay 26.3% of the total premium. This shows that UC pays more toward the health care of lower-paid employees, and less toward the health care of those who earn more.

2007: Single coverage in Health Net
Pay Band	Your Monthly Contribution in $ (Percent of Total Cost)	UC's Monthly Contribution in $ (Percent of Total Cost)
Pay Band 1: $43,000 or less	$20.64 (5.6%)	$344.70 (94.4%)
Pay Band 2: $43,001-$86,000	$45.14 (12.4%)	$320.20 (87.6%)
Pay Band 3: $86,001-$129,000	$70.14 (19.2%)	$295.20 (80.8%)
Pay Band 4: $129,001 and up	$96.14 (26.3%)	$269.20 (73.7%)

Q. I read that some employees' medical plan costs are increasing by as much as 60% in 2007, but salaries are only increasing by about 3%. Doesn't UC care that employees are losing ground on salaries?
A. It's important to look at the big picture when evaluating health care cost increases. Here's an example that may help. Someone in Pay Band 1 with employee-only coverage in the Health Net HMO will see a rate increase from $12.49 to $20.64, which does work out to over a 60% increase. However, in dollars that's $8.15 per month, or $97.80 for the year. Now, let's say the same person earned $40,000 in 2006. With a 3% salary increase, his or her 2007 salary will rise to $41,200 — $1,200 more. So this person receives a salary increase of $1,200 –– far more than the annual health care cost increase. Since health care payroll deductions are pretax, the net effect on take-home pay will actually be less than $97.80.

UC is committed to providing competitive total compensation, including pay, benefits and retirement. UC's 2006-2007 salary program is in line with the Regents' 10-year plan to bring salaries, on average, up to market levels and to help rebalance UC's total compensation package. To that end, UC will pay much more in 2007 to fund medical benefits — about $50 million more than in 2006. Finally, unlike many other employers who are trying to keep up with the rising cost of health care, UC is not cutting benefits.

Q. Is there anything I can do to help manage my health care costs in 2007?
A. If you don't already participate in the Health Care Reimbursement Account (HCRA), you should think about doing so. It can help you save money by lowering your taxes, and it's a convenient way to budget and pay for certain health care expenses—your annual deductible, copayments, prescription and some over-the-counter drug costs, even eyeglasses! The result? You are reimbursed with tax-free money, and your taxable income is lower too.

Q. I participate in the Health Care Reimbursement Account (HCRA) program and understand that I will lose any money that remains unused in my account at the end of the year? Why is this so, and where does the money go?
A. HCRA is the University's health care "flexible spending account (FSA)," and IRS rules require the forfeiture of unused account funds that remain after the closing date for the plan year. You can use your 2007 account for eligible health care expenses that you incur through March 15, 2008. You have until June 15, 2008 to file claims for these expenses. Any money left in your account after June 15, 2008 will be forfeited. In accordance with IRS regulations, UC uses forfeited funds to help pay HCRA Program administrative expenses.

Q. Is there anything I can do to help avoid forfeiting unused HCRA funds?
A. Carefully estimate the amount of eligible expenses that you will have — you may want to underestimate these costs instead of overestimating them. To help you estimate your contribution amount for 2007, use the special "FSA Calculator" tool on the SHPS Web site at http://www.shps.net/myshps/fsa/calculator.stm. For expensive procedures that you may be considering, such as LASIK eye surgery, be sure you are medically qualified for the procedure before including it when you estimate the amount of your spending account.

Q. I'm just hearing about these health care changes for the first time. Where can I get more information?
A. Your main two sources of information are your local Benefits Office and At Your Service http://atyourservice.ucop.edu. In addition, materials were distributed to campuses and mailed to employees' homes.

Q. I'm seeing a lot of different numbers and explanations about health insurance increases for 2007. Can you please clarify just how much costs are increasing and why?
A. UC's total medical plan cost will increase 11.7% in 2007, to a total of $792.4 million. This is the total overall increase in gross premiums (the total amount of monthly premiums for all UC medical plans that both UC and employees pay), not individual increases. Your individual rate will depend on your pay band, plan choices and the family members you cover.

There are a number of factors that contribute to this increase, including escalating costs from our health care providers (doctors and hospitals), the average age of UC employees, utilization of medical benefits, the high cost of prescription drugs, and the overall health of our population.

Q. I'm confused. You say that costs are increasing by 11.7%, but the monthly premium for my coverage (single coverage in the Health Net HMO plan) is increasing by 65%. It appears that employees in the lower salary bands generally have higher percentage increases than those in the upper salary bands. I don't understand the math – please clarify.
A. First, the 11.7% refers to the overall increase in gross premiums (the total amount of monthly premiums for all UC medical plans that both UC and employees pay), not to the increase for individuals. Second, percentages can be misleading, especially when dealing with low actual dollars, because small dollar increases look very large in percentage terms. For example, an increase from $1 to $2 is a 100% increase — even though it's an increase of only one dollar.

In your case (single coverage in Health Net), your monthly contribution for 2007 is increasing from $12.49 to $20.64. While this is a 65% increase, the actual dollar increase is only $8.15.

As illustrated below, while percentage changes are higher in the lower salary bands, lower-paid employees have the lowest increases in actual dollars. The table below shows average 2007 employee contributions for all medical plans based on current elections. This illustrates that, while percentage changes are higher in the lower salary bands, lower-paid employees have the lowest increases in actual dollars.

2007 Salary Band	Average 2007 Monthly Employee Contribution	Increase from 2006
Under $43,000	$37	$13
$43,001 to $86,000	$101	$31
$86,001 to $129,000	$179	$43
$129,001 and Above	$274	$51

Q. How does UC's cost increase compare to that of other employers?
A. UC's overall rate of increase closely matches that of CalPERS, which is projecting an 11.9% increase in overall costs for 2007.

Q. How much more will I have to pay for health care in 2007?
A. Your individual rate will depend on your pay band, plan choices and the family members you cover. The chart shows rates for single coverage under the Health Net HMO.

UC will continue to pay the overwhelming majority of employee health insurance costs (including fully-paid dental and vision). Monthly premiums will continue to be based on pay levels so that lower-paid employees pay lower monthly premiums. And pay bands are being adjusted, as you can see from the chart, so some employees may pay less in 2007 than in 2006.