Employee health benefits fall victim to sagging economy
With the announcement by the National Bureau of Economic
Research this past week that the United States officially entered a recession,
the worst fears about the US economy have finally been realized. This
announcement signaled the end of a decade of robust economic expansion
that has been felt even in America's most distant corners, including Bowdoin.
Bowdoin will soon be feeling the pressures of recession, and the employees
of the college are going take the brunt of the fall.
Ten years ago, Bowdoin experienced a budget crisis, often
finding itself with year-end deficits that mimicked the larger the US
economy. With the period of domestic growth, Bowdoin has benefited from
nine consecutive balanced budgets, and hopefully a tenth to follow soon.
Because of its recent ability to balance revenues and costs, Bowdoin students
and faculty have enjoyed increased benefits, including generous salary
increases. Bowdoin employees, including the faculty, have been rewarded
by Bowdoin's ability to increase health coverage. However, with the downward
trends of the last year, it will be impossible to maintain both generous
increases in pay and health benefits. To deal with this crisis, Bowdoin
has decided that it must begin to cut corners.
According to Kent Chabotar, Vice President for Finance and
Administration and Treasurer, the cost of employee health insurance has
increased 30 percent over the past year. For this fiscal year, Bowdoin
will spend $5 million on employee coverage. $4 million of that amount
is covered directly by the College through the budget, and the employees
of the College pay the other $1 million. Chabotar emphasized that Bowdoin
is not the only employer in Maine to feel these increases; the entire
state is dealing with skyrocketing health insurance costs.
The problem is only compounded further when one considers
that the amount of money coming into the College is lessening. Bowdoin,
like many others in Maine, is now forced to pay higher costs with a smaller
budget. Bowdoin has three primary sources of income: tuition and fees,
the endowment, and annual giving. Because of decreased returns on the
endowment's investments, Bowdoin took a hit when the endowment figures
came in $80 million less than expected. The endowment totaled $420 million
instead of the $500 million predicted.
To determine the annual budget, Bowdoin takes 5 percent
of the endowment and sets that number as the yearly budget. Bowdoin's
new budget will be $4 million short of what was predicted.
To compensate for the lower budget numbers, Chabotar sums
up Bowdoin's strategy as having to "trim here and there." Unfortunately
for many, this trimming will come by reducing salary increases, which
are being slashed for most of the 550 non-faculty employees from the usual
4 percent increase to only 2 percent. The 150 faculty members will likely
see their pay raises stay at typical levels of 4-6 percent.
Cuts in health care form the other side of the equation,
with coverage reducing for employees. Tim Foster, Senior Associate Dean
of Student Affairs, calms any fears about student reductions: "Student
health coverage will not be affected because it is covered by a student
health fee, which pays for a policy that the College buys from Commercial
Travelers [Insurance Company]." Conversely, the College covers employee
insurance, so cost increases are more detrimental.
Health insurance costs for employees vary because they tend
to age during their tenure at Bowdoin. Aging brings costs that student
coverage never considers, as Chabotar jokes, "For some reason the
student population never ages." In spite of the fact that they will
be spending more on healthcare, employees will see their coverage reduced
(i.e. full coverage would be reduced to 90 percent or 90 percent coverage
to 80 percent). For now, however, the there are no definite answers as
to the size of reductions, but they will certainly occur.
Kent Chabotar, who has overseen Bowdoin's nine consecutive
balanced budgets, believes that Bowdoin is on track for the future. Bowdoin
was facing sharply increasing costs over the next decade, which Chabotar
has attempted to remedy by lowering expenditures in the short term. By
doing this, Bowdoin hopes to lower the trajectory of expected costs. The
cost-cutting measures of today may be long forgotten if this plan is successful,
as the College will have more money compounding interest for future revenues.
With these new plans, Bowdoin has been able to cut $1.8 million in costs
for this year's and next year's estimated budgets. They now have $1.8
million more earning interest for the future.
Because of the unstable situation with the US economy, predicting
how the College's budget will react is difficult. Kent Chabotar reassures
students and faculty that the College is hardly in a crisis but is merely
feeling the strain that most Americans are beginning to feel. Regardless,
the effects of the recession are soon to be felt on the campus of Bowdoin.
These effects may actually hurt the employees of the College more than
the students, but with constantly changing predictions, the entire community
may find their fears manifested in the near future as their wallets begin