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Harvard Health Benefits: The Administration Responds

11.20.14


Photograph by Rose Lincoln/Harvard Public Affairs and Communications

In light of strong Faculty of Arts and Sciences (FAS) opposition to the changes in Harvard health benefits for nonunion employees unveiled September 3, President Drew Faust sent a long message to faculty members on the evening of November 13 (see text below)—ironically, just as the capital-campaign kickoff for Harvard Medical School (HMS) was about to begin. Faust’s note outlined four practical measures in response to the criticisms:

  • A financial cushion, in the form of “a fund that will provide financial support to those faculty and non-represented individuals and families whose out-of-pocket costs exclusive of premiums exceed 3 percent of their full-time-equivalent salary.” (This extra fund goes beyond the annual family of $4,500-limit for such costs under the new benefit program, and the accompanying partial reimbursement of those costs for covered employees whose wages or salaries are less than $95,000 per year.)
  • Possible alternate plan designs: “I have asked the Provost and the UBC [University Benefits Committee] to evaluate possible additional plan designs for 2016 that have the potential to shift some risk and cost away from deductibles and coinsurance and back to premiums. The UBC will explore whether in our high- cost health environment a very narrow network with highly limited providers and facilities but little point-of-care risk would be feasible.” (The former measure reflects apparent employee preference for paying higher premiums rather than bearing deductible and coinsurance risk at the point of need for medical services—and the finding that the projected employee premium savings under the 2015 plan design amounts to $4 to $13 per month, and perhaps three times that for the University’s share (since it pays about three-quarters of the premium expense). The latter idea suggests revisiting current provider networks that include the highly regarded, but very expensive, HMS-affiliated teaching hospitals—particularly Massachusetts General and Brigham and Women’s hospitals, the core of the Partners Healthcare system, the largest private employer in Massachusetts and the dominant medical force in Greater Boston, where Harvard spends most of its health-benefits dollars.)
  • UBC monitoring of “the consequences” of the changes, with “particular focus on both the cost of care and the utilization of services” (to see whether deductibles and coinsurance, intended to decrease use of services and/or promote consumer shopping for better prices, have deleterious health effects), with an interim report to the community next June and a final report at the end of 2015.
  • Enhanced community conversation: “Many of you have spoken of a desire to understand benefits more fully, and the provost, the UBC, and I welcome the opportunity to hear the concerns of the thousands of faculty and staff who depend on Harvard for health-care insurance.  As a first step, the UBC, in collaboration with the benefits office, will hold several town-hall meetings in the months to come.”

For the record, this report

  • provides some brief background on the campus controversy concerning Harvard health benefits;
  • reproduces Faust’s message to the faculty; and
  • analyzes some elements of her communication, and other elements surrounding the benefits issue this fall.

The Context

On November 4, FAS members attending a regular faculty meeting voted unanimously against the University’s cost-saving measures, which include deductibles and coinsurance for certain hospital, surgical, and diagnostic services (beginning January 1, and costing up to $4,500 per covered family). The vote had no practical effect: faculty and nonunionized staff members have no formal say or negotiating role in shaping the benefits package Harvard offers; and the annual enrollment in benefit plans for the entire community was scheduled to begin the next day, and indeed did.

But the rhetoric at the faculty meeting (which also included statements in support of the changes by two HMS health-policy experts who serve on the UBC, and provost Alan Garber, whom the committee advises) was heated. Outside University Hall, it continued via dueling op-eds in The Harvard Crimson: “Why the Health Plan Changed,” on November 4, by three UBC members, in support of the changes, and, in response, “Harvard’s Health Benefits Unfairness,” on November 12. The latter was signed by professors who had spoken against the benefits design at the November 4 FAS meeting (including such respected figures as Wells professor of political economy Jerry R. Green, a former provost, who opposed benefits reductions two decades ago, and Enders University Professor of systems biology Marc W. Kirschner), and by others who were scheduled to speak but could not before time for debate, already extended past the usual end of FAS faculty meetings, ran out.

President Faust’s Message

I write to respond to the resolution passed at the FAS Faculty Meeting on November 4 and the discussion that has surrounded it. More than thirty-three thousand active faculty and staff and family members receive their health benefits through Harvard. Access to excellent and affordable health care rightly matters to every one of them. The University is—and has long been—committed to their health and well-being and to benefits plans that advance that goal. We have sought to provide such coverage for this large and varied population, while we at the same time take into account the need, as with all our activities, to prudently manage cost. Colleagues have worked hard and with integrity and good faith to navigate these complex choices in designing the 2015 plans. I recognize that the changes in Harvard’s health benefits have generated anxiety, which has only been intensified by debate in which the reasons for the policies and much of the substance of their design have not been well understood. I would like to clarify these issues and endeavor to address the concerns that have been raised.

Let me begin by emphasizing that one reality at the heart of any consideration of health- care benefits is clearly established and should not be generating the disagreement and controversy we have seen over the past several weeks. There are many different ways of measuring health-care costs at Harvard, but careful analysis of any of these statistics points to the same conclusion: Harvard’s health-benefits costs have increased significantly and are expected to do so for the foreseeable future. Between [fiscal year 2001] and FY14, the Compound Annual Growth Rate (CAGR) for active and early-retiree health-benefits costs at Harvard was 9.2%. During the same period, the CAGR for the University’s operating revenue was 5.4%. If we look at the more recent period, FY08-FY14, the health-benefit cost CAGR was 6.5% and the University’s revenue CAGR was 3.2%. In other words, since the start of the twenty-first century, our health-benefits costs have increased at a rate much faster than our income—almost twice as fast. Another measure of escalating costs is the increase in University spending on health care for active employees and early retirees from $53M in FY01 to $114M in FY08 to $166M in FY14. 

Since 2008, we have all become increasingly aware of living in a world of trade-offs. What does this mean for decisions about benefits costs? Approximately half of Harvard’s annual operating budget is spent on compensation, which includes salary and wages plus benefits. Over time a greater proportion of these compensation dollars has been devoted to health-benefits cost increases rather than to wages. Between FY08 and FY14 the CAGR for salary and wages was 4%, reflecting both regular wage increases and, to some extent, a growth in staff. During this same period, as I noted above, the University’s health care costs increased by 6.5%. While changes in health-care costs reflect in part the increase—and brief decrease in 2009—in numbers of employees and dependents, and changes in the patterns of enrollment, the differential between wage growth rate and health-benefits growth rate makes clear the singular effect of increased health costs on our budgets. When such increases result in a growing proportion of compensation expense going to benefits, it puts pressure on salary growth.

Of course, the trade-offs are not just about how to spend compensation dollars, but how to allocate University spending more broadly. As noted, health-benefits costs increased at a rate higher than the University’s overall operating revenue.  And while the State of Massachusetts is in the early stages of efforts to address health-care costs, we anticipate continuing upward pressures on health costs in the years to come.

We must make decisions about how to balance these expenses with other priorities. Health benefits are funded through a University-wide fringe rate that constitutes a key part of every school budget. The FAS’s ability to afford new faculty and to provide support for research, for graduate fellowships, for undergraduate financial aid—and for all other activities—is directly affected by rising benefits costs. For the FAS, which reported a deficit of $55 million this year ($37 million when not including [the School of Engineering and Applied Sciences]), managing these trade-offs will be essential. Containing health-benefits costs is critical both to a compensation system that balances wages and benefits and to a University budget that supports the priorities for teaching and research that are our fundamental purpose.

Since 2005, the expertise and hard work of the University Benefits Committee (UBC) have prevented our costs from increasing even more rapidly by resulting in recommendations for consolidating vendors and rebidding of contracts multiple times. These actions have helped to contain costs and moderate premium increases. Remaining options for these kinds of administrative interventions are likely to be limited, yet health-care costs are projected to continue to grow. Managing expense will require other approaches, and this is the origin and rationale for the 2015 changes.

I recognize that any plan design that includes the control of institutional costs is going to have financial implications for individuals in our community, in some combination of premiums, cost sharing at the point of care, and coverage. This is one of the reasons this issue is so hard. Members of the UBC, made up of faculty and staff that include some of the country’s most eminent health-care policy leaders, met dozens of times as they developed a proposal designed to address these challenges. The committee drew widely on scholarship in the health-care field and evidence about Harvard and its 33,000-plus insured, as well as the policies of our peers, a process that embraced the kind of analysis and scrutiny we as an academic community regard to be the foundation for good decision-making. From this, they developed a set of choices intended to address cost but at the same time ensure the highest quality of care and a fair allocation of expense, to preserve the broad choices of providers and facilities, and to design a set of policies that would remain competitive with those of our peers.

Let me say a word about the last of these issues, as a number of you have presented me with one or another example of another university plan you believe to be superior to the Harvard 2015 policies. It is very difficult to directly compare health plans, since they have many very different features. An institution may offer a health-plan option that is very attractive in one dimension but has other elements that are far less so. How do you balance higher premium costs in one versus higher point-of-care costs in another? Higher co-payments versus coinsurance? Wide freedom of choice of physicians and hospitals versus access limited to only less expensive providers and facilities? Generous medical coverage in combination with extremely expensive and limited dental versus additional cost sharing for medical and substantially lower dental premiums? What one or another of these might mean for any individual or family will depend on their particular health care circumstances and needs—and on factors that may emerge only after a plan is selected. Some institutions we compare ourselves with are located in areas with relatively low medical costs, others, like us, in high-cost areas.

On this range of dimensions, Harvard’s 2015 health plans do compare well with those presented by our peers in 2014, and they reflect the traditional desire of our community, located in the midst of some of the most outstanding physicians and hospitals in the world, to retain access to a wide range of providers and facilities. Another factor to consider is that although the new elements in the 2015 plan and the ensuing discussion relate to health benefits for current employees, Harvard also offers a competitive post-retirement health benefit relative to our peers. Attracting and retaining outstanding faculty and staff is essential to all we do. Our health benefits must reinforce that critical commitment.

The UBC came to its recommendations after extensive consideration of issues of comparability and equity, of scholarship about the effects of alternative health-plan designs, and of cost-management options. I accepted the recommendation from the provost, himself an M.D. and a leading scholar of health-care policy, and the UBC. I reported on the plan to the Corporation, which had already had several considerations of health-care benefits and costs as part of discussions on the University budget. The Fellows—whose perspectives span a range of organizations within and beyond higher education—have affirmed their confidence and support regarding the judgment of the UBC and the administration in seeking both to address the escalating costs of health benefits as a significant driver of University expenses and to ensure our faculty and staff’s continued access to strong benefits and excellent care.

It is clear, however, that the 2015 health-benefits options are causing distress among some members of our community. It is not feasible to alter these plans for 2015 as they are negotiated with vendors over a period of many months, and we are already into the enrollment period for the new plans. I hope, however, that we can mitigate some of the current anxiety as we simultaneously assess the impact of these changes in the year ahead.

[The president’s message continued with the four action points summarized and quoted above, at the beginning of this report; they are deleted here.] 

The benefits office will be notifying the wider community about these updates tomorrow.

Access to excellent and affordable health care is critical to all of our well-being, and the issues of cost and design that surround it are complex and challenging. On the national stage, we have seen debates that have regrettably tended, as the saying goes, to generate much more heat than light. It is my hope and my intention that our consideration of these questions rests in the thoughtful analysis and mutual respect that we regard as hallmarks of our academic community. I look forward to working with all of you to identify how Harvard and its faculty and staff can together achieve our common purposes. 

Sincerely,
Drew Gilpin Faust

Discussion

To the extent that professors are concerned about the economic effects of possible deductible and coinsurance payments on postdocs, lower-paid staff members, and junior faculty colleagues (points raised on November 4), the stop-loss fund Faust is establishing—limiting costs to 3 percent of income—may be mollifying. In the longer term, revisiting benefit-plan designs (a narrower network, or higher premiums vs. deductibles and coinsurance)—solutions apparently rejected by the UBC, or by the administration following UBC discussion—may also be welcomed.

A series of open forum on benefits, and with the UBC—whose membership and proceedings have been out of view—may also help to clear the air. Garber has referred to the UBC membership as including prominent health-care experts, and indeed they do serve. But more strictly bottom-line-oriented administrators serve as well. For the record, the UBC members as of late summer (Dan Shore, then vice president and Harvard’s CFO, who was also a member, departed the University in September to work in a start-up company) were:

  • Michael Chernew (chair), Schaeffer professor of health care policy, HMS
  • Patricia Byrne, executive dean, Harvard Divinity School
  • Daniel Carpenter, Freed professor of government, FAS
  • Robert Clark, Scott professor of law and past dean, Harvard Law School
  • Marilyn Hausammann, vice president for human resources
  • Brigitte Madrian, Aetna professor of public policy and corporate management, Harvard Kennedy School
  • Ellen Mahoney, chief human resources officer, HMS
  • Paul Massaro, managing director and CFO, campus services, office of the vice president for administration
  • Barbara McNeil, Watts professor of health care policy and department chair, HMS
  • Lisa Muto, associate dean for institutional planning and policy, HMS
  • Joseph Newhouse, MacArthur professor of health policy and management, HMS
  • Sarah Jean Singer, associate professor of health care management and policy, Harvard School of Public Health (HSOH)
  • Katherine Swartz, professor of health policy and economics, HSPH
  • Nina Zipser, dean for faculty affairs and planning, FAS

According to some current and former members, their deliberations have been practical, not academic: they were shaped by University proposals for benefit designs (for example, for retiree healthcare, or possible consolidation of health-plan offerings), or for reaching a financial target, and then evaluating diverse courses of action to achieve it. Making the members, the committee’s role, and the mode of action more transparent may prove useful, if not entirely free of controversy.

Much of the debate this autumn reflects the fact that Harvard employees, unlike most Americans with employer-funded health insurance, have not been exposed to deductibles and coinsurance before, and so the prospect came as a surprise. For several years, the University’s annual financial reports have focused on employee benefits, as noted—but more explicit communication about what was in the offing for active faculty and nonunion staff members was apparently inadequate to the task, or never got through. It is human nature, naturally, to get used to very comprehensive, generous coverage.

That said, much of the communication about the changes this semester might, in retrospect, have been done differently. At the time the plans were announced in early September, the University declined to disclose actual expenditures on the affected health benefits, or anticipated dollar savings—and information shared since has largely come in the form of percentages and growth rates over time. Although an early error in calculating the share of Harvard expenses attributable to benefits over time was pointed out (and reported in The Harvard Crimson), it wasn’t corrected promptly.

Much of the discussion has come down to a numbers game, with all the byways and diversions that can imply. At the November 4 faculty meeting, Barbara McNeil provided the compound annual growth rates for healthcare-benefits costs from fiscal 2008 through 2013 (the data in Faust’s letter, above, were extended through fiscal 2014 with publication of the University financial report on November 7; combined, the data made it possible to calculate roughly what Harvard had spent). But of course the data, as always, are subject to further refinement.

  • Per capita figures, for instance, would suggest how much of the growth in benefit costs reflects a larger workforce and how much is medical inflation, increased utilization, and so on.
  • Faust’s message refined the sample, specifying “active and early-retiree health-benefits costs.” Given the early-retirement incentives for staff members in 2009 (when 530-plus eligible employees accepted), and for the library organization in 2012, Harvard’s early-retiree cohort has been growing: people who typically get attractive benefits packages, often for a long time, and who are, necessarily, not receiving wages or salaries—thus increasing the benefits share of expenses.
  • And of course, people could look at other line items. The cost of all benefits (Harvard’s share of Social Security and Medicare payroll taxes, pensions, retiree healthcare, disability and life insurance, dental coverage, daycare subsidies, and so on) rose as a share of University expenses—the now-accepted figure is from 8 percent in fiscal 2001 to 12 percent in fiscal 2004, and oscillating between 10 and 12 percent in the years since, as Harvard has worked hard to contain costs. But interest expense, for example, rose by a similar magnitude, as Harvard borrowed progressively more and at higher rates: from a reported 3.7 percent of expenses in fiscal 2001 to nearly 8 percent in fiscal 2011—almost $300 million (figures that exclude well more than a billion dollars of losses on interest-rate agreements following the 2008 financial crisis).

In the meantime, happily for the University, it is able to proceed with large construction projects all over campus, and, thanks to The Harvard Campaign, now routinely announces eight- and nine-figure gifts for such pressing priorities as strengthening HSPH, endowing undergraduate financial aid (another turbocharged expense in recent years), and augmenting the computer-sciences faculty. This is not an atmosphere in which any administrator would find it easy to explain to employees why it is pressing to contain benefits costs.

In the near term, Faust’s four initiatives may calm riled faculty members, even if they don’t care for the data she presents. As the chief officer responsible for such things, provost Alan Garber has repeatedly delivered distasteful medicine to the FAS, in person, in its meetings, usually by addressing financial issues that faculty members care about: the organization and staffing of the libraries (and the associated reduction and reorganization of staff), the end of personal financial-planning services, and other matters—all preceding the current changes in health benefits. The president’s more detailed message, although delivered to them electronically, may itself be received differently, not least because it holds out the promise of more communication and possible consideration of different benefit plans that were taken off the table previously.

Broadening the Conversation?

It is hard to imagine the administration inviting still more discussion, but perhaps it might modify the terms of the conversation. As Faust noted, when increased medical costs “result in a growing proportion of compensation expense going to benefits, it puts pressure on salary growth”—a dilemma any human-resources manager or organization executive understands. Faculty and non-union staff members’ wages have been restrained during the past half-decade—for reasons of short-term budgetary exigency, and otherwise. Maybe it is time for a more holistic conversation about Harvard’s compensation strategy as a whole—salaries and wages; healthcare and other benefits; and pension and retirement plans—and possible directions. Given the University’s financial outlook, and the admittedly punishing costs of housing, healthcare, and other household expenses in Greater Boston, an opportunity to air anxieties and compare options might be worth the difficulty of conducting such a forum.

What the University probably does not want is a spreading perception that the nature and values of the institution and its community have changed. Professor of history Mary Lewis, who introduced the motion on which the FAS voted at its November 4 meeting, said in her remarks (emphasis added):

Is Harvard a business that transfers costs to its employees, reducing its expenses by shifting the burden to people coping with serious illness? Or is Harvard a community where we equitably share the risks that we all face as human beings and where health care is a human right?

If Harvard were just a business, it would not offer such generous financial aid to middle-class students and their families. Indeed, Harvard always has been more than a business. Let us keep it that way.

The last time language like that was heard so passionately, nearly a decade ago, the stakes for the University seemed nearly existential: Conant University Professor Stephen Owen, discussing the faculty’s role in governance, asked “Are we citizens or employees?”

Nothing remotely like that is at stake in the disagreement over the allocation and incidence of benefits costs. This is a pocketbook issue. But the talk about community and values gets at anxieties—within the University and the larger society—prompted by heightened financial uncertainty and the resulting demands on leaders and institutional management everywhere in the early twenty-first century. Faust, for her part, invoked the importance of “mutual respect.” All parties have a common interest in getting the conversation focused on common data, common understandings, and common pursuit of Harvard’s collective, academic interests.

 

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