Spend More to Spend Less

Health care costs are often characterized as the cancer on the budget of colleges and universities.

Growing at a rate much faster than anything else on the expense side of universities’ ledgers -- and showing no signs of slowing -- health care liabilities are becoming unsustainably large for colleges and universities, particularly public institutions. And right now, at least, few institutions are making substantive changes to how they offer benefits, a delay that could end up costing them big in the future.

And the general rule for cancer holds true for health care costs: identify and treat the problem early and it's a lot easier to control in the long run.

The traditional tack has been to get employees to cover an increasing share of their health benefits. In a survey of college and university business officers released last week by Inside Higher Ed, about 30 percent of respondents said sharing more health insurance costs with employees was a very important strategy for reducing costs. But many university finance observers say that strategy is not a long-term solution.

Purdue University is taking a slightly different approach. The university recently contracted with a company called CHS Health Services, better known for working with large corporations, to set up an on-site health care center, a tactic that has been employed predominantly by the corporate sector -- and rarely in higher education.

While the center requires significant up-front investment, and could result in a higher volume of visits to doctors and other health professionals, university finance and human resources officials believe it will ultimately result in healthier employees, which could drive down costs in the long run

“The charge was to find a way to improve health and reduce health care expenses, not just continue to do what everybody’s doing, which is to pass on costs to employees in the form on an increased premium,” said Luis Lewin, vice president for human resources at Purdue.

Purdue’s plan is one of several initiatives starting to pop up at universities to improve the long-term health of their employees, a tactic that administrators hope will help control the institution’s cost of health care over time.

Health Care Problem

The Delta Project on Postsecondary Education Costs, Productivity, and Accountability found that benefit costs per full-time public employee increased by about 5 percent per year between 2002 and 2009, a rate that was more than two times the growth at private institutions. Health care costs at public institutions had grown from about 20 percent of overall compensation costs to about 25 percent, the project’s most recent report found.

Increased benefit costs means there’s less money available for other areas, such as faculty pay raises, investments in academic programs, or campus infrastructure, all of which public universities say they need.

“Rapidly rising benefit costs will continue to put public institutions at a competitive disadvantage unless these costs are brought under control,” the Delta Cost Project's most recent report states. “If benefit costs continue to escalate it will become even more difficult for public institutions to control costs and compete with private institutions for faculty — and the gaps between public and private institutions will continue to widen.”

In the Inside Higher Ed survey of business officers, only about 40 percent of respondents from public institutions said they were paying more attention to health care liabilities now than five years ago, a finding that many higher education observers thought should be higher, given the growing costs.

"All the data you look at says health care and pensions are the biggest drivers of spending in institutions; they're going up faster than anything else," said Jane Wellman, executive director of the National Association of System Heads and former executive director of the Delta Project. "Why that would they be so far down the list?"

In general, the tactic for controlling colleges and universities' health care bills has been to pass a greater share of the cost on to employees. In recent surveys by the College and University Professional Association for Human Resources, respondents have reported that annual deductibles at their institutions have increased faster than the overall cost of providing health benefits.

Some colleges have begun thinking more long-term by enacting plans that reward individuals who show progress on certain health measures, such as regularly exercising, with decreased premiums. Others are starting to punish individuals who are particularly prone to poor health, such as individuals who are obese or smokers, with higher charges.

If universities can’t control costs, there’s a possibility that they might just drop health care programs entirely.

Others have said that, given higher education’s long history of providing generous benefits to employees, that path seems unlikely. So they are going to have to find other ways to control costs.

Purdue Solution

In fall 2010, Purdue convened a group of university administrators, staff, and health affairs faculty members in a “Blue Ribbon Health Care Committee” to evaluate what the university, which employs about 9,000 people on its main campus in West Lafayette, Ind., and several thousand more at smaller campuses around the state, should do to contain its health care costs.

In 2009, Purdue spent almost $120 million on claims on medical plans. Last year expenses came out to about $155 million, said Becky Gutwein, benefits manager in the university’s human resources office.

Between 2006 and 2009, the net claims per employee increased about 34 percent, from about $7,600 to about $10,200, with an increase in the price of health care being the main driver of almost half that increase, according to a presentation by the blue ribbon committee.

Purdue’s committee surveyed employees and dependents to see what options might appeal to them. Eighty-four percent of respondents and 67 percent of dependents said they would use an on-site clinic, though that same survey found that 77 percent of respondents said their engagement with resources would be limited by time constraints.

In May 2011 the university’s board approved the creation of an on-site health clinic. The university issued a request for proposals and eventually selected CHS to set up the center, signing a three-year contract worth about $14.7 million.

The center will start out with 15 CHE employees, including doctors who could serve as Purdue employees and families' primary-care physicians. The center will also have several other employees, including nurses, health coaches, and medical assistants to handle other services, such as lab work. The center will add employees if demand is larger than initially planned.

The clinic will not charge university employees for services such as lab work and chronic condition management, though they will charge a co-pay for primary and acute care. Center expenses will be covered by medical plan premium contributions that employees and the university make. University officials said they did not expect the clinic to increase their overall costs, since they expect costs for the center to offset costs from elsewhere.

Officials hope the center controls costs in the long run by identifying potential health conditions and helping individuals manage those conditions to prevent potentially costly medical problems later on. “You come in for a headache and they find out you have high blood pressure, then they treat you for that too,” Lewin said.

He said there is a significant savings potential in preventative medicine. “A lot of people don’t tend to utilize preventive care. If they did, that would significantly impact our expenses,” Lewin said.

Purdue’s big challenge will be getting people to use the center when it opens this winter. Lewin and Gutwein said they will launch a large public awareness push during the school year and in early 2013. The center is aiming to get 30 percent of employees in the door in the first year.

Ed McNamara, vice president of sales and marketing at CHS, who is working with Purdue to set up the center, said high utilization of a wide range of health care services is the one of the few things that have been demonstrated to move the needle on institutional costs. Institutions need to get individuals in the door and get them coming back for programs to be effective.

McNamara said CHS does not have any other higher education clients, but he said the company's work at Purdue has led other institutions to inquire about setting up similar clinics on their campuses.