Health Care Costs Up Again

Survey highlighting increasing expenses for colleges draws attention to dilemmas facing institutions.
July 25, 2011

With health care and its associated costs so frequently in the news, it should come as no surprise that health care costs for colleges and universities and their employees have continued to rise.

Health care premiums for institutions increased by 7.3 percent this year, several times the rate of inflation, according to an annual survey released today by the College and University Professional Association for Human Resources.

The increase was equal for employees with and without family coverage. Increases in costs for employees were slightly higher than for institutions; the survey found an increase in median annual deductibles. While premium costs have been going up consistently, this year's increase is the largest in recent years.

"It is frustrating that the cost of health care continues to escalate, forcing many higher education institutions to cut benefits or shift more of the cost to employees," said Andy Brantley, president and CEO of CUPA-HR, in a statement.

The findings of the CUPA-HR survey, as well as other recent surveys of higher education and business leaders, make it clear that administrators still see significant uncertainty when it comes to the future of health care benefits. A combination of rising costs, varying expectations among faculty and staff, and national reforms all present challenges that colleges and universities are trying to figure out how to address.

Because of these challenges, college administrators, like employers in other fields, are weighing the advantages and disadvantages of dropping coverage for some or all employees once several provisions of the Patient Protection and Affordable Care Act, the health care overhaul legislation passed by Congress in 2010, goes into effect in 2014.

"I don't think we're going to be able to provide that lifetime security like we used to," said Brad Kimler, executive vice president of benefits consulting at Fidelity Investments, during a presentation at the annual conference of the National Association of College and University Business Officers. "And I don't think it's realistic to expect that."

A recent Inside Higher Ed survey of business officers found that a large percentage of business officers, particularly at private universities and public baccalaureate institutions, listed health care liability as one of the most significant challenges of the next two to three years. Despite that concern, the question of how to manage these costs seems to be going unaddressed. The CUPA-HR survey found that only a quarter of responding institutions had developed a strategy for what their health care benefits should be in three years.

The major question that hangs over administrators about upcoming health benefits decisions involves the components of the health care overhaul law that go into effect in 2014, notably the requirement that companies offer a reasonable level of health care benefits to their employees. Companies with more than 50 employees that don't offer health benefits will have to pay a penalty of $2,000 per worker. Individuals who do not not receive health benefits from their employers will receive income-indexed premium and out-of-pocket cost-sharing subsidies, enabling them to obtain private coverage they would not be able to afford on the current market. These options will be available in state or regional health care "exchanges."

It might be cheaper for employers, including colleges and universities, to pay the penalties and forgo whatever tax breaks come with offering employer-supported health benefits than to continue to provide benefits. "As a result, whether to offer ESI after 2014 becomes mostly a business decision," states a much-discussed survey conducted by McKinsey and Company, a management consulting firm. "Employers will have to balance the need to remain attractive to talented workers with the net economics of providing benefits -- taking into consideration all the penalties and tax advantages of offering or not offering any given level of coverage," the report states.

That survey found that 30 percent of employers will definitely or probably stop offering employer-sponsored coverage, a significantly higher percentage than the 7 percent of employers that the Congressional Budget Office predicted. Among employers who are well-versed in the law, the proportion increases to 50 percent, and 60 percent said they would pursue alternatives, the McKinsey survey found.

The report did not break down respondents by field, but did note it would be unlikely for only one company in a given field to dramatically alter its plans while others didn't. Higher education institutions, on average, tend to be more generous with benefits than other types of employers, so the sector as a whole might see no shift at all after the new provisions go into effect.

Getting out of the employer-supporter health benefit game could be economically viable for some employers, but it could also be beneficial to employees. The McKinsey study notes that "because of the subsidies, many low-income employees will be able to obtain better health coverage, for less out of pocket, on an exchange than from their employer."

Aside from the economic decision, colleges and universities are also going to have weigh the cost of health benefits as a recruiting and retention tool. Kyle Cavanaugh, vice president for human resources at Duke University, said his institution would be hard-pressed to abandon its plan for that reason. "Faculty and staff tell us that one of the most significant things they value in working here is the health care plan we provide," he said. "The plan is highly valued, and because of that, we would have to very seriously weigh the cost of continuing to provide that."

But he noted that it is too early in the process to know what the exchange system will look like and therefore to actually make a judgment on that front. Most states have not even begun to design the health care exchanges (some have even said outright that they will not create them). A lot of politics remain between now and 2014, administrators say, including major deals regarding national spending and a presidential election.

Because so many factors will go into a college or university's decision on whether to abandon or modify its plans in three years, Cavanaugh stressed that institutions should be gathering and analyzing their data now. "Health care benefits have to, now more than ever, be managed in a strategic way," he said. "The combination of costs, faculty and staff expectations, and the ongoing evolution of national health care reform drive the need to be looking at this from a strategic standpoint."

Doing so could also show returns in the short term, if colleges find ways to drive down costs and measure the effectiveness of different programs. Cavanaugh said his college has found savings by increasing the use of generic drugs. By tracking conditions associated with avoidable and repeat admissions, the university has also been able to work with providers to lower admissions. While Duke's costs have still gone up, Cavanaugh said they have been below the national average for the past few years.

CUPA's survey did find some notable widespread efforts to contain health care costs. More than 60 percent of colleges in CUPA-HR's survey said they offered wellness programs, but participation of employees at colleges with the programs was less than 20 percent at many institutions.

The survey also found the highest percentage of respondents providing same-sex domestic partner benefits -- 56 percent -- since the survey began. That is a significant increase from the 37 percent of respondents who reported offering same-sex benefits in 2005.


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