In many respects, passage of the landmark health-care-reform law in 2010 was the beginning, not the end, of the nation’s effort to improve the health-care system. The risks associated with unsustainable increases in health-care spending and their implications for colleges and universities must not be ignored. Boards are well-positioned to lead efforts to improve care and lower costs for their employees and students, while educating the next generation of health professionals to work in a new health-care system.
Passage of the Affordable Care Act (ACA) in 2010 represents the most profound change to the American health-care system in more than four decades. Final passage of the law, however, means that the hard work of health-care reform is just beginning. Even though public opinion is divided, and elements of the act may see revision in further legislation or judicial action, most people agree that our present course of health-care spending is unsustainable. As major providers and consumers of health care, higher-education institutions have an important role to play in improving health and the nation’s health-care system.
Health care is a complex issue for colleges and universities. Not only do institutions of higher education provide health insurance to faculty members, staff members, and students, they face the distinct challenge of educating the next generation of health professionals. In addition, those institutions actually involved in delivering health care must demonstrate leadership in redesigning care and payment models.
Governing bodies ignore the ticking time bomb of rising health-care costs at their own risk. If not properly managed, health-care spending has the potential to damage not only an institution’s financial grounding, but also its reputation. As the stewards of institutional resources and integrity, governing boards must disarm the threat posed by health-care spending to protect the long-term viability of their institutions and American higher education as a whole.
The Magnitude of the Problem
Despite spending much more on health care, health outcomes in this country are no better—and in some cases, much worse—than those in other developed nations. The United States pays more than twice the average among its peers for health care, yet it lags in key outcome indicators such as life expectancy and infant mortality. Spiraling health-care costs also are increasing the national debt, constraining state budgets, and hampering the nation’s ability to compete in an increasingly globalized economy.
The national level
At the national level, Medicare spending is the major, long-term driver of healthcare costs and a significant contributor to a growing federal deficit. In 2009, Medicare covered 46.3 million A mericans at a total cost of $502 billion, making Medicare spending the third-largest portion of the federal budget, surpassed only by defense and Social Security outlays. According to the Congressional Budget Office, federal spending on Medicare has outpaced the growth of the economy for decades. In fact, unless policy changes are made, the U.S. Government Accountability Office estimates that Medicare spending will represent 14 percent of the nation’s gross domestic product by 2080, an 11-percentincrease from 2010.
Even with changes mandated by the new health-care act, the Medicare trust fund will be bankrupt in less than two decades as the Baby Boom generation moves into old age. (In fact, beginning January 1, 2011, more than 10,000 Baby Boomers will turn 65 every day for the next 19 years.) As David Walker, former comptroller general and current CEO of the Comeback America Initiative, said at the Association of American Medical Colleges 2010 annual meeting, “If there’s one thing that could bankrupt America, it is out-of-control health-care costs.”
The state level
Although the numbers are still being crunched, the most-recent analysis by the National Association of State Budget Officers (NASBO) predicted that Medicaid would be the single largest component of state government spending in FY 2010, replacing elementary and secondary education, and is eroding states’ ability to fund higher education. In FY 2009, 21.1 percent of state expenditures were dedicated to Medicaid, with only 10.4 percent devoted to higher education, according to NASBO. That means that state spending on Medicaid has almost doubled in two decades. (In 1989, only 10.8 percent of state expenditures went to Medicaid, with higher education receiving 12.6 percent of expenditures that year.)
As Peter Orszag, former director of the Office of Management and Budget, wrote in an op-ed in the New York Times last September, “Over recent decades, as state governments have devoted a larger share of resources to rising costs of Medicaid… they have cut support for higher education.” Although this phenomenon may be more of a concern to public colleges and universities than to their private counterparts, most institutions of higher education receive some public support. The Center on Budget and Policy Priorities has found that, since the recession began in 2008, 46 states have made budget cuts, with 43 of these states cutting appropriations for higher education.
The global level
Unsustainable health-care spending also has implications for the nation’s competitiveness. As stated in a 2010 report by the Council on Foreign Relations, rising health-care costs “place a heavy burden on companies doing business in the United States and can put them at a substantial competitive disadvantage in the international marketplace.” For example, the cost of health-care benefits of current and retired auto workers is estimated to add up to $1,700 to the sale price of each new car produced in the United States by Ford, General Motors, and Chrysler.
The Reality for Higher Education
Taken together, rising health-care costs, their impact on state support for higher education, and global competitiveness point to health care as a crucial issue for colleges and universities—with implications for institutions as employers, educators, and, for some, as health-care providers.
Colleges and universities as employers
At the same time that colleges and universities are dealing with diminishing state support for higher education, they, like most employers, are grappling with the increasing cost of providing health insurance to faculty members, staff members, and students. According to the College and University P rofessional Association of Human Resources (CUPA -HR), the cost of providing health insurance to employees at highereducation institutions “increased by 6.7 percent for employee-only coverage and by 7 percent for employee and family coverage” from January 1, 2009 through January 1, 2010. This means that health-insurance expenses for colleges and universities grew during this period at more than 2.5 times the rate of inflation. Given that inflation has remained unprecedentedly low throughout the economic downturn, this trend is especially foreboding.
As the cost of providing health benefits increases, colleges and universities, like other employers, are increasingly shifting costs to their employees. A 2008 survey by CUPA -HR found that higher-education institutions are paying less of employees’ monthly premiums: They paid between 30 and 35 percent in 2007, whereas they were contributing between 19 and 27 percent by 2008.
Shifting costs to employees is not a long-term, sustainable solution. While it may save money in the short term, another cost must be considered: the impact on the institution’s reputation from decreasing employee satisfaction. Unaddressed, a dissatisfied workforce could lead to problems attracting and retaining faculty members, other employees, and eventually even students. As highlighted in an article in the Chronicle of Higher Education (January 21, 2005), “Professors and support-staff members accustomed to high-quality health care at low cost—in some cases at no cost—are now shouldering new burdens, and not always happily.”
Colleges and universities as educators
Apart from costs, the health-care time bomb facing colleges and universities has another important dimension: the ability to provide a sufficient health-care workforce for our nation. The country’s population is aging, and 32 million Americans will gain access to health insurance through the new healthcare legislation. Yet, at the same time that more people will be needing care, America also faces serious shortages in its health-care workforce.
Our studies at the Association of American Medical Colleges (AAMC) show that the nation is on track to face a physician shortage of more than 90,000 in 10 years. The nursing crisis is even more dire. A recent analysis by Peter Buerhaus, a professor of nursing at Vanderbilt University and chair of the National Health Care Workforce Commission, and his colleagues estimated that the shortage of registered nurses, the single largest health profession, will approach 260,000 by 2025.
To help meet the nation’s growing health-care needs, higher-education institutions must be prepared to train more health-care professionals than ever before. Increasingly, students will be seeking education in medicine, nursing, dentistry, pharmacy, and public health, as well as newly emerging health professions like health-information technology, health coaching, and patient navigation. According to the U.S. Bureau of Labor Statistics, half of the 20 fastest-growing jobs will be in the health-care field. The industry expects to generate 3.2 million jobs over a 10-year period—more than any other sector. Higher education has a vital role to play in meeting this demand and fueling this job growth.
Colleges and universities also can leverage their position as educators to create real change throughout the health-care system. If higher-education institutions were, for example, to add course options like health literacy, nutrition, or health economics to their core-curriculum requirements, a new generation of informed health-care consumers would be born. Some institutions are on the right track in this regard, requiring students to take a set number of credits in fitness, wellness, or physical education. Others make students pass physical-fitness tests before they may graduate. Adding a focus on health literacy to an institution’s core curriculum would not require abandoning traditional physical-education classes and fitness tests, but rather would expand upon the foundation that they provide to create even greater health awareness.
Colleges and universities as health-care providers
While all colleges and universities act as both providers of health insurance and as educators, some institutions share the special challenge of being in the business of health-care delivery. Of the 133 M.D.- granting medical schools in the United States, 93 are affiliated with a parent college or university and, in many cases, the teaching hospitals and clinics are owned and managed by the university with oversight by a governing body.
Historically, the larger institution has often viewed the medical school and teaching hospital as a seemingly endless source of revenue. The margins generated by fee-for-service health care provided by the faculty of the academic medical center has allowed the medical school and hospital to cross-subsidize enormous growth in the academic enterprise, especially in terms of biomedical research. Now, however, as institutions of higher education face deep funding cuts and a nationwide climate of fiscal austerity, medical schools and teaching hospitals must demonstrate unprecedented skill at cost containment. Instead of mitigating budgetary shortfalls by generating more revenue through treating more patients and performing more procedures, as in the past, medical schools and teaching hospitals must develop new delivery and payment models that offer better care more cost effectively.
New Opportunities Ahead
Whether educating tomorrow’s health professionals, providing health insurance to employees and students, or directly administering patient care, all colleges and universities can appreciate on some level the challenges that high health-care costs present. In the face of such challenges, higher-education institutions have the potential to become the leaders of transformational change. Managing health-care spending will not only benefit each institution’s bottom line, but it will also enable them to protect their most valuable resources: their faculty members, administrators, and students.
One positive step that institutions can take to contain longterm health-care costs is to increase the focus on the benefits of prevention and healthy behaviors. While many institutions host health and wellness events for students, they should place just as much emphasis on the health of their employees and their families to promote a culture of wellness.
Some colleges have instituted innovative programs that offer employees incentives, such as lower-cost health benefits, for exercising a set number of times per week. Others offer time off for healthy behaviors, while some have an office of health promotion dedicated to the well being of employees and their families. Such efforts have multiple benefits, including a healthier student body and academic workforce as well as improved levels of employee satisfaction. Over the long term, such changes have the potential to create significant longterm health-care cost savings.
As large employers, colleges and universities in many cases also have the opportunity to redesign their healthinsurance plans and even entire systems of care delivery. In 2006, for example, Penn State Milton S. Hershey Medical Center took steps to redesign its healthinsurance plan. As both the provider of health insurance and the provider of health care for many employees and their families, the medical center was in a strong position to stem the growing costs of health-care coverage.
Leaders at the medical center designed a new system that made employees more aware of the cost of care and how personal choices influenced health. The new system tiered employee contributions to health insurance premiums based on income levels, so that lower-income employees received a greater employer contribution to ensure that their access to care was not jeopardized. All employees could reduce their premiums further by reviewing health-education materials and engaging in health-promotion programs. Importantly, key preventative services were fully covered so that co-pays did not act as disincentives. Without this significant overhaul, health-care costs were on track to be too great for both Penn State and the employees to bear within 10 years.
In a similar move, Vanderbilt University Medical Center revamped its health-insurance plan last year with the goal of making care more affordable for the institution and its employees. Like Penn State’s medical center and many other institutions, Vanderbilt is also selfinsured, which means it has full risk for rising health-care costs.
The distinct position that academic medical centers hold as both insurers and care providers is the main leverage point behind the concept of Healthcare Innovation Zones (HIZ), which was included in the new health-care act. The law designates that such zones be built around academic health centers as sites for testing new models of care delivery and financing. Freed from regulatory constraints, these hubs of innovation would strive to improve the quality of care for patients while containing or decreasing costs. The newly created Center for Medicaid and Medicare Innovation is charged with evaluating and testing a number of care-deliverymodels, including the HIZ concept.
Academic medical centers provide more than one-fifth of all clinical care in the United States and, with their integrated systems, they are a natural starting point to try out new models to improve care and hold down costs. For Healthcare Innovations Zones truly to improve care for a regional population, it will be crucial for the academic medical center to partner with other higher-educationinstitutions to build capacity in certain health-related degree programs.
An Emerging Roadmap
Colleges and universities need not be victims of the ticking time bomb of health-care costs. Governing bodies and leaders in higher education can take a number of steps to contain costs and eventually slow the rate of cost increases. They can:
Assess—and act on—the current and projected cost of health-care benefits and the health status of employees. A realistic, transparent baseline assessment is vital to understanding the level of risk that health-care costs pose to an institution. The results of such an evaluation must be seriously considered and addressed to avoid damaging an institution’s financial health and reputation.
Partner actively with the college or university’s insurance entity to contain costs, even if the institution is self-insured. An institution’s relationship with its insurance company should be more than an administrative, claims-processing arrangement. Insurers should be strategic partners working with the college or university to manage health-care costs while preserving the quality of care for beneficiaries.
Redesign employee benefits with a long-term strategy of creating value— a balance between cost management and health promotion. Institutions must offer transparent pricing and allow for comparison shopping when it comes to health benefits. They should also combine incentives, like healthreimbursementaccounts for healthful behaviors, with appropriate sharing of cost.
Educate employees and students about how their lifestyle choices and health-care usage affect costs. Institutions can promote a greater awareness of how health behaviors impact costs. If health-literacy courses are offered to students and faculty members, these consumers will be better equipped to make informed decisions— not only about their own health status, but also about how that status affects the system at large.
Assess whether students of health-professions programs are being taught to work in teams to deliver high-quality care and meet the health-care needs of the nation. It is not enough simply to produce the right numbers of health professionals; higher education must ensure that the health-care workforce is prepared to meet the health needs of the 21st century. Familiarity with new, team-based care-delivery models will be essential. Institutions that operate or work closely with health-care systems should explore ways to drive the transformation of the system and payment models in their actual delivery of health services.
Institutions of higher education are in a position to play a key role in defusing the health-care-spending time bomb. As influential leaders, trustees must engage in generative thinking to create effective strategic plans.
Imagine if higher education lowered its health-care costs, promoted healthy behaviors, insured employees and their families who understood the relationship between use of services and their cost, actively partnered with an insurance company to manage health spending, and educated high-performing health-care teams. This vision can become a reality. Governing boards can and must drive the transformation.
Questions Governing Boards Should Ask
• Have we carefully assessed the current and projected cost of health-care benefits for the institution and the health status of its employees? Do we understand the financial and reputational risks to the institution if we do not address the findings of this assessment?
• Do our employees and students demonstrate “health literacy” and understand the financial challenges of health-care spending and their role in driving costs— either upward through overuse of services or downward through prevention and wellness efforts? Do we have a core-curricular requirement related to health literacy?
• Are we paying an insurance company simply to manage billing, or have we partnered actively with it in managing costs and promoting health?
• What changes are required in our health benefits to create better value—a balance between cost management and health promotion?
• Are our health-professions programs preparing students for the current, fragmented health-care system or the high-performing, team-based system of the future?