[Vpaaetal] Insurance Merger with ERS

[vpaaetal@TAMU-Commerce.edu]

September 2, 2004

 
Mr. Steven W. Hassel
Director, Benefits Program
Texas A & M University System
200 Technology Way
College Station, TX 77845-3424

Dear Steve:

This letter provides our summary analysis of the Actuarial Study of the
Cost and Actions Involved in the Merger of the Texas A&M University System
Group Benefits Plan into the State Employees Group Benefits Plans
Administered by the Employees Retirement System (the "Study") and our
assessment of the implications of a merger with the State plans for the
Texas A&M University System (TAMUS).  It follows our recent telephone
conversation on this subject.

Summary
Our analysis of the Study indicates that there would be essentially no
benefit to the State plan and significant harm to the Texas A&M University
System and its plan participants were the proposed merger to take place.
While it is usual in such an analysis to find that a proposed action could
be positive or negative depending on one's perspective, this is one of the
rare instances where the proposed action has universally negative
consequences.

Analysis
To focus on the impact such a merger would have on TAMUS, we note that the
financial impact of such a merger on the System would be a $20.7 million
increase in cost in the initial year with ongoing annual increased cost of
$13.8 million per year.  Plan participants would see an annual increase in
cost of $3.7 million in initial and subsequent years.  The $24.4 million
total first year increase in cost and $17.5 million future year total
annual increase in cost break out as follows:

Annual Cost of Merger ($ in Millions)
TAMUS		Participants		Total
-	Additional cost to move to State "Health Select" Plans	$12.1	-	Additional
cost to move to state "Health Select" Plans	$3.9	16.0
-	Annual reduction in TAMUS appropriation	1.7	-	Increased cost of optional
life	$3.0	4.7
		-	Decreased cost of basic life	(0.2)	(0.2)
		-	Decreased cost of dental	(3.0)	(3.0)
Net ongoing cost	13.8		3.7	17.5
-- One time cost of entry to maintain ERS reserve  balance	6.9		0.0	6.9
Net first year cost	$20.7		$3.7	$24.4
In short, TAMUS and participants would incur at least  $94.4 million in
increased costs, purely as a result of the plan merger, during the first
five years of the new arrangement.

These cost increases would likely have more than a financial impact on plan
participants.  It is likely the merger would:

-	make dependent coverage unaffordable for lower income TAMUS employees
-	reduce retiree medical eligibility for current employees
-	functionally eliminate medical coverage for existing and future
dependents of retirees by making it unaffordable

Comments on the Study
While we agree with the conclusion of the study that the proposed merger
offers no benefit to TAMUS and little or no benefit to ERS, we did have
some concerns regarding study methodology:

1)	The study is not always "symmetrical", a symmetrical analysis requires
that any positive 
impact for one party include documentation of any negative impact on the
other party if such an impact exists.

2)	There are inconsistencies in the factors used to analyze benefit costs
and in the reporting of results.

3)	Supporting analysis is limited and in our opinion, insufficient.
Important statements in the report are unsupported by data.

As none of the above issues have a material effect on the outcome of the
analysis ( addressing them would make a negative analysis more negative),
we do not suggest that TAMUS pursue them at this time.

Conclusion
The proposed merger would have a catastrophically negative effect on TAMUS
and its plan participants without improving the ERS program or reducing the
combined overall cost to the 
State of providing benefits to both organizations in any material way.  We
consider it a 
bad idea and recommend against it. 

Sincerely,






MAB:dlm



Scott Downing, Interlibrary Loan/Distance Education Librarian
Texas A&M University-Commerce
ph  903 886-5741
fax 903 886-5723
scott_downing at tamu-commerce.edu