Health Benefits to Cost 7 Percent More
As the annual employee enrollment in health and other benefits approaches, beneficiaries—and the University—will find themselves in familiar terrain as they look toward calendar year 2017:
- The health programs will look similar to those offered last year, retaining the basic structure of deductibles and coinsurance for nonunion staff members introduced for 2015 (and then modified slightly for 2016).
- And premium costs will rise, on average, 7.0 percent—only slightly below the average 7.3 percent increase effective for 2016. The cost savings associated with the 2.7 percent reduction in average premium costs for 2015, resulting from the benefit-plan changes imposed then, look increasingly like a one-time effect. The 7.0 percent average this year is a blend of a slightly higher rate of increase in nonunion plans, and a lower rate of increase for union plans, where certain cost-saving copayment features were negotiated this year. But the rate changes for individual enrollees vary widely from these averages; see below.
More Progressive Premiums
One consequential change (apart from generally higher premiums) affects a significant number of employees. Harvard’s progressive, tiered system of employee costs—a distinctive feature of its benefits menu—has been made more so. With the addition of a new tier, employees whose annual earnings are less than $55,000 annually, unionized or not, will receive the largest University subsidy (87 percent of premiums). The highest-paid people on Harvard’s payroll, with $100,000 or more of annual compensation, continue to receive the smallest subsidy (75 percent for members of two unions whose contracts are settled; about 71 percent for nonunion faculty and staff members).
• A new tier with higher premium subsidies. This new tier emerged from the Harvard Union of Clerical and Technical Workers’ (HUCTW) contract negotiations, concluded last winter, as a tradeoff for certain cost-sharing provisions (new and increased copayments for various services and higher premiums for future retirees, but no deductibles or coinsurance for covered union members). Previously, the lowest tier, for workers whose earnings were less than $70,000, levied 85 percent of premium costs on the University and 15 percent on enrolled employees; this new tier, which affects about 40 percent of HUCTW members, boosts the subsidy 2 percentage points. Given the total monthly premiums in Boston’s high-cost healthcare market—$632 for single HUCTW members in the least expensive insurance plan, and $1,708 for family coverage—that difference reduces annual premium costs $144 and $420 per year, respectively.
• Postdocs’ premium savings. Crucially, HUCTW’s bargaining prowess benefits a large nonunionized population. Rather than maintaining separate tiered structures for union and nonunion staff members, Harvard has put in place one common plan—less than $55,000 in income; $55,000-$74,999; $75,000-$99,999; and over $100,000—and extended it broadly. (Apart from HUCTW and skilled craftspeople, other unions, including dining workers, remain in negotiations and have not settled contracts with Harvard that might fit within this structure). The large cohort of postdoctoral research fellows play a vital role in staffing scientific and medical laboratories across the University. They are on the lower end of the income scale, so during the past couple of years, their potentially increased benefit costs were a subject of particular faculty concern. Now, they will be covered by the new, lowest-income tier—and will accordingly realize the premium savings from the 87 percent subsidy rate.
One distinction remains between nonunion and union workers covered by the tiered premiums. For the former cohort—faculty members, nonunionized staff members, and postdocs—the subsidies are 87 percent, 85 percent, 77.2 percent, and 70.9 percent. For unionized workers, the subsidies decline from 87 percent and 85 percent to 80 percent and 75 percent in the upper tiers.
Varying Rates of Premium Increase
Employees’ actual premium rates this year will reflect the subsidy schedule; the effect of introducing the new, lowest-income tier with its more generous University subsidy; and the differential claims costs of nonunion and union insurance plans. The nonunion insurance plans, with coinsurance and deductibles, are less costly (and therefore have lower premiums) than the union plans, which do not have such cost-saving, or -shifting, features. But the introduction of the expanded copayment schedule in the settled union contracts somewhat lessens the gap between the plans.
Using the rates for the Harvard University Group Health Plan (HUGHP), the least costly insurance offering, nonunion enrollees will see premiums increase, on average, 7.4 percent. Those in the under-$55,000 tier will see their premiums decrease 6.9 percent, while those in the higher-paid tiers will see increases ranging from 7.2 percent to 7.7 percent.
HUCTW workers who enroll will see their premiums increase, on average, 4.0 percent to 4.1 percent, reflecting the effects of the changes in their plan design. But those in the new, lowest tier will realize premium decreases of 9.6 percent to 9.7 percent; those in the three upper tiers will see their premiums rise 3.3 percent to 4.5 percent.
Craftspeople covered by the Area Trades Council (ATC) agreement will see an average premium increase of 5.4 percent, with actual changes ranging from an 8.5 percent decrease in the lowest-income tier, to 4.6 percent to 6.0 percent increases in the three higher tiers.
Covered employees will find a couple of minor tweaks to the 2017 health plans:
- Acupuncture will now be covered, reflecting the spread of the therapy and its general availability through Harvard’s provider networks.
- “Telemedicine” will be offered, enabling employees who choose to do so to contact a primary-care provider by telephone or Skype for minor, acute ailments (sinusitis, ear infections, and so on). The service, available for HUGHP members through the Blue Cross organization, and for Harvard Community Health Plan (HCHP) members within their network, may be a convenient alternative to office visits (while incurring the same copayments as an actual visit); in some cases, patients availing themselves of telemedicine may be able to reach a provider within minutes or hours, rather than waiting a longer interval for an office visit.
In addition, Harvard is introducing ALEX, a plan-comparison tool for nonunion employees, aimed at examining how they use medical services, and outlining how the various benefit options might best fit their circumstances:
- the core HUGHP and HCHP plans, with the deductibles and coinsurance put in place in 2015;
- the high-deductible health plan first offered then (a few hundred employees have enrolled); or
- the POS [Point of Service] Plus plan, introduced last year for employees who are willing to pay higher premiums in return for avoiding the coinsurance and deductible requirements for in-network care. Roughly 10 percent of eligible, nonunion employees have taken the POS Plus option, indicating a real appetite for paying up to purchase greater protection against unexpected health costs, and to simplify management of their medical payments.
Given Harvard’s program of partially reimbursing lower-income workers’ out-of-pocket costs for copayments, coinsurance, deductibles, and other expenses (varying with their coverage and union or nonunion status), it is likely that they fare better with the core plans, rather than bearing the higher premiums associated with POS Plus. It will be interesting to see the eventual enrollment totals in that plan for 2017, the second year it has been available.
Finally, the Preferred Provider Organization (PPO) option for out-of-state employees is disappearing. HCHP has extended its POS network, essentially duplicating the providers available via the PPO option. As a matter of administrative simplification, the PPO will vanish, and employees can either transition to the core insurance offerings, or access the same providers they now use through HCHP’s expanded network; a couple of hundred employees are affected.
Experience under the 2015 Plan Design
Since the core plans were originally changed in January 2015, what experience has Harvard seen in its insured population—and what factors in the healthcare market are shaping current premium increases?
• Behavior changes since coinsurance and deductibles were introduced. The new plan designs for nonunion employees, President Drew Faust reported, were effected in a period when Harvard’s health-benefit costs were compounding at a 6.5 percent annual rate (not adjusted to a per capita figure, which would reflect changes in the size of the eligible and enrolled workforce), and its generous plan designs encouraged employees’ family members to select Harvard coverage rather than coverage offered by other employers.
During the first full year of experience with the new plan designs (which pertained to nonunionized workers only), the total number of enrolled employees does appear to have decreased—but only by about 2 percent—and the low rate of employees opting out of Harvard health coverage did not change discernably. Similarly, total spending—University-paid claims, employee out-of-pocket costs—also decreased, but only by about 1 percent. Given the change in plan designs, of course, the incidence of those costs shifted, with employee out-of-pocket costs rising an average of $349 (more than 50 percent), to $979. Those increased costs were in part offset by lowered premiums (the plan changes were accompanied by that 2.7 percent decrease in premiums for 2015, on average), and, to a minor extent, by employee use of the reimbursement program.
It is reasonable to characterize those changes as minimal, and, given the limited time period involved, not indicative of any particular trend. The enrollment and spending changes are within typical ranges for a year. The key indicators of changes in use of health services that might be induced by coinsurance and deductibles showed little movement:
- the rate of hospital admissions declined slightly in 2015;
- the rate of emergency-room visits increased, while remaining below typical U.S. and Massachusetts levels; and
- the rate of office visits decreased about 3 percent—but remained much more frequent than for the U.S. and Massachusetts benchmarks.
For those concerned that coinsurance and deductibles would discourage beneficiaries from seeking needed care, this is modestly reassuring. For those hoping that the financial incentives would induce different, more cost-effective “shopping” for or use of medical services, the evidence is modestly discouraging.
Finally, there is a suggestion in the data that patients shifted from higher-cost hospitals (Brigham and Women’s, Massachusetts General) to a lower-cost provider (Beth Israel Deaconess Medical Center). But given the sample size and duration, it is hard to sort out the influence of plan-design changes from changes in referral patterns by patients’ physicians.
• Cost trends. What has not changed is the cost of care, at least in Greater Boston. Had plan designs not been altered in 2015, premiums that year would have gone up about 3 percent to 4 percent, rather than declining 2.7 percent: a trend (price increases plus changes in utilization: the volume and mix of services) of nearly 6 percent. Now, premiums are rising at roughly 7 percent. Rising pharmaceutical costs are a significant factor, across the board. So are complex cases, such as catastrophic cancers for which new therapies are becoming available—but at six-figure price tags per patient.
The University now has about 16,500 employees enrolled in its active and under-age-65 retiree plans, with about 33,000 covered lives—up from 16,000 and 32,000, respectively, in 2014 (presumably reflecting continued growth in employment). Its annual costs for those health benefits are running at about a $220-million rate, up from the $166 million reported for the fiscal year ending June 30, 2014.
Budgetary Impact—and Benefit Prospects
If anything, the University’s spending on health benefits will increase more rapidly in calendar 2017 than the compound growth rate that concerned President Faust in early 2015, reflecting both the underlying trend in healthcare costs and the effects of increasing Harvard’s premium subsidy in the new, lowest-income tier. For nonunion employees, Harvard’s premium contributions increase nearly 10 percent in the lowest tier; in the plans for union employees, Harvard’s contributions increase 6.4 percent to 8.3 percent in the lowest tier.
Given the potential budgetary fallout from the disappointing investment returns on the endowment reported last week by Harvard Management Company—most likely, new constraints on spending this fiscal year, in anticipation of only a level endowment distribution the next year—it cannot be helpful to have health expenses rising at a 6 percent to 7 percent annual rate.
The one-year reset effect from introducing coinsurance and deductibles into nonunion plans in 2015, and perhaps from negotiating some changes in union plans settled this year, does not change the larger calculus of healthcare costs. It was a reprieve for a year, perhaps, but escalating drug costs, beneficial but extremely costly new therapies, and complex cancer and other cases are all driving up local costs—which remain among the highest in the United States.
In the near term, that puts pressure on University negotiators to search for every possible savings in renewing contracts for pharmaceutical-benefits services and administrative services in its core insurance plans: a series of incremental gains. The University Benefits Committee is expected to consider opportunities, if any, for value-based benefits or other plan-design changes (discussed at length here) that would send price signals to employees about the efficiency of alternate providers and the efficacy of various therapies (much as tiered prescription costs encourage use of generic, rather than branded, compounds that are considered therapeutically equivalent). Changes like those, and more radical ones—requiring approval for certain kinds of procedures, or limiting the provider and hospital networks available under various plans—could have significant economic advantages. But they entail consequential tradeoffs, too, if employees resist prior reviews or object to limitations on their access to preferred providers.
In the meantime, the plan-comparison tool and more communication from the University about employees’ choices can be expected. But the larger issue of continuously escalating benefits costs remains. Indeed, it may loom larger still at a time when the endowment’s performance and other economic indicators make Harvard administrators more attentive to the uncomfortable intersection of constrained revenues and escalating expenses.