April 29, 2002

Local Chairpersons
Lodge Secretaries
General Committee 953
Union Pacific Railroad

Dear Sister and Brothers:

         This is in response to the many phone calls and e-mails this office has received concerning the recent premium increase announced by UPREHS relative to Disability Coverage under Plan U-65.  While I am not on the Board of Directors of UPREHS, I did attend the General Chairmen’s meeting prior to the Board’s meeting in March, and will set forth my understanding of the necessity of the Board’s actions.

         At the end of fiscal year 2001, there were 43,750 members in UPREHS, which breaks down as follows:  17,464 active members (40%), 14,392 Medicare members (33%), 976 U-65 members (2%), 10,303 dependents (23%), plus 615 other members belonged to the 60/30 and 61/30 Plans which are being combined into a 60/30 Plus Plan.

         Over the last 3 years, UPREHS has lost approximately $33 million;  the loss in fiscal year 2001 was $7,265,053, and can be broken down as follows:

Active Members    -$   778,043
Medicare Members    -$1,034,086
U-65 Members    -$6,504,667
60/30 Members    -$   357,139
61/30 Members   +$   850,467
Dependents   +$   558,415

         As can be seen, approximately 90 percent of the loss in fiscal year 2001 is attributed to 2 percent of the members enrolled under the U-65 Plan.  In the past, UPREHS has been able to cover loses in the U-65 Plan (and others) by a positive cash inflow from the active plan; however, that is no longer true with the active plan losing money as well.  The problem, and I do not see any relief in the immediate future, is that the cost of medical care, led by prescription drugs, is increasing at approximately 15 to 20 percent a year.

         Following is a comparison of disability plans between UPREHS effective July 1, 2002, and the National Plan under United Health, which is raising dues effective June 1, 2002. 

    UPREHS U-65 Plan United Health Plan C
Premiums:   $250 per month $340 per month
Deductibles:   None $500
Co-Insurance:   None 25% of U and C
Lifetime Max:   $150,000*  $150,000
Prescriptions:   $1,700 yearly None
Out-of-Pocket:   None if in Network $ 5,000 Yearly

                                          *With the imposition of the $150,000 cap, every affected member                                             participating in the U-65 plan will start at $0, and the cap is subject                                             to a yearly increase based upon the percentage of increase of                                             medical cost to the consumer price index.

       Additionally, the raise in premiums effective July 1 was not limited to disability members under the U-65 Plan. Active members’ premiums will be increased from $35 to $45 per month, and the premiums for Medicare members will increase from $151 to $165 per month (versus $265 per month for United Health Plan D).

       I understand better than most what it means to live under a fixed income as I was raised by my grandparents during their Social Security years, and I understand premium increases are extremely hard to meet when a person has to budget a limited and fixed amount of money per month.  However, to do nothing would put UPREHS out of business.  If that happens, and it very well could, the actives would be picked up under the National Plan; however, retires and disability members would be devastated and left to seek the best coverage they could find and afford.

       The action by the UPREHS Board of Directors to increase premiums is not a long-term fix as long as health care costs continue to increase yearly at the current rate.  This is a problem that is national in scope and universal to the entire health insurance industry.

       You should also be aware that the action of the Board of Directors was not limited to increasing premiums.  The Board is also attempting to negotiate an increase in the “dues offset formula” which compensates hospital associations for the cost of providing employee medical care and is based upon the cost of the National Plan to provide such coverage.  The extent to which the dues offset formula has not keep pace to rising health cost can approximately be determined by comparing the 2002 adult COBRA ratio (before administrative costs) of $367.18 against the 2002 dues offset of $266.92, for a difference of $100.26 per month less to hospital associations.

         While I know that this response does not address the many concerns over rising premiums, nor should it, I hope that it does provide insight into why the Board of Directors took the action that it did.


                  Dean L Hazlett

                  General Chairman