Higher Education in the Age of Obamacare

By Darrell G. Kirch    //    Volume 21,  Number 4   //    July/August 2013

Two years ago, the nation was on hold, wondering if the 2010 Patient Protection and Affordable Care Act (ACA), commonly known as Obamacare, would be repealed by Congress or overturned by the U.S. Supreme Court. Neither occurred, and today we face the most sweeping changes to our nation’s health-care system in our lifetime. Virtually no sector of society will be left out, including higher education. Health-care reform is creating a dramatic new landscape that will require college and university leaders and their governing boards to analyze their health-care spending, rethink organizational strategies, and restructure benefit programs.

In simple terms, the decisions ahead will require striking a balance between the two fundamental obligations of every governing board: 1) the fiduciary responsibility to control costs, and 2) the strategic responsibility to ensure the health and well-being of faculty and staff, on whom the vitality of the entire institution depends. In that context, I will cover the key implications of Obamacare for higher education and outline steps to guide institutions in making effective decisions in light of reforms.

The Future of Providing Health-Care Benefits

One of the first issues that will require the attention of governing boards is whether the institution will continue to provide traditional employer-sponsored health insurance to employees and retirees or make active decisions that may steer current and former employees into the new health-insurance exchanges established by the ACA.

McKinsey and Company, in a 2011 survey, predicted that 2014 would signal the beginning of the largest shift in employer-provided health benefits in the post-World War II era as thousands of people switch to purchasing insurance through state-run exchanges. According to McKinsey’s analysis, 30 percent of employers representing a variety of industries say they will definitely or probably stop offering employer-sponsored insurance after 2014. Among employers with a high awareness of health-care reform, this proportion increased to more than 50 percent.

Rising health-care expenses are one of the largest drivers of increasing benefit costs. According to the Kaiser Family Foundation, employer-sponsored health-insurance premiums averaged $5,615 a year for single coverage and $15,745 for family coverage in 2012. This is an increase of 97 percent from the average family premium in 2002—a cost that has grown three times faster than wages (33 percent) and inflation (28 percent). Among higher education institutions alone, the College and University Professional Association for Human Resources (CUPA-HR) found that the median annual cost of providing health insurance to employees in 2012 increased by 6.7 percent for employee-only coverage and by 6 percent for employee and family coverage over the previous year.

While most colleges and universities will probably choose to continue offering insurance plans to remain competitive in the job market, there are signs that institutions are beginning to make adjustments to deal with the oncoming financial impact of reform. A recent article in the Chronicle of Higher Education described how some institutions plan to cut back adjunct professors’ hours to avoid the new requirement to provide health insurance for employees working 30 hours or more per week. An article in the Los Angeles Times referred to this trend as “the new math of workplace benefits,” and noted that other institutions will adapt by hiring more part-time faculty and staff to avoid the expense of full-time benefit requirements.

Under the ACA, large employers (more than 50 full-time equivalent employees) will incur a federal penalty if any full-time worker receives a premium tax credit through a health-insurance exchange. The monthly penalty starting in 2015 for employers offering no coverage is about $167 per full-time employee (minus the first 30 workers, who are excluded from this calculation). Large employers offering plans that are unaffordable or where the employee is paying a high percentage of the health-care cost will incur a monthly penalty beginning in 2015 of $250.

In addition to decisions regarding current employees, governing boards will need to re-examine the health benefits for retirees. Will institutions offer retiree health benefits, encourage retirees to participate in the exchanges, or rely on Medicare benefits? In a 2012 survey, CUPA–HR found that more than half of responding institutions provide health-care benefits for retirees under age 65; slightly less than half do so for those 65 and over.

In evaluating these choices, boards are well advised to balance both fiduciary and strategic considerations. Reducing the hours of part-time or adjunct faculty and staff to make them ineligible for health benefits may produce short-term savings, but boards should consider whether that is a productive strategic response to ensuring the long-term sustainability of the institution.

Rethinking Benefit Plans

The coming changes under health-care reform also provide an unparalleled opportunity to make strategic modifications to institutional health-benefit plans. From a governance perspective, the goal is to create a benefits package that is affordable (the fiduciary obligation) and at the same time encourages the long-term health and wellness of faculty, staff, and students (the strategic responsibility).

No longer will it suffice for an institution simply to shop every year or two for an insurance company to administer its plan. Instead, benefit managers will need to become active partners in designing plans and incentives that address their institution’s particular health and wellness needs. Benefit redesign will entail more than just considering what is covered in a plan. Redesign also will require some challenging, value-based decisions, such as:

  • Should income be a factor in how much employees pay for their insurance (just as means testing is being suggested for Medicare contributions)?
  • What health or medical issues are of greatest concern and cost to the institution?
  • Will incentives be offered to employees to become more actively engaged in healthy behaviors (e.g., fitness-club discounts)?
  • To what degree and in what way should insurance be used to discourage employees from unhealthy behaviors, such as smoking? Or to reduce obesity?
  • Will clinicians be given incentives to make better care decisions for patients?

“Value” Becomes the Holy Grail of Health Care

Self-insured institutions—especially universities with an affiliated medical school, teaching hospital, or academic medical center—have an opportunity under health-care reform to restructure their health-benefits packages to achieve higher value. These institutions are not only the employers and insurers of faculty, staff, and students; they also serve as direct health-care providers if they operate or are affiliated with an academic medical center. As such, these institutions are distinctly positioned to implement innovative redesigns of health benefits and health-care delivery while bending the cost curve.

During my tenure as senior vice president for health affairs, dean of the college of medicine, and chief executive officer of the Milton S. Hershey Medical Center at the Pennsylvania State University (PSHMC), we became real stakeholders in improving the health of our faculty and staff members while lowering costs at the same time. Through a comprehensive, integrated program drawing on a superb medical staff and rich onsite resources, we were able to make a fundamental shift from sick care to prevention and wellness.

Our approach at PSHMC involved implementing a high-deductible health plan combined with health-reimbursement arrangements and wellness incentives that enabled realizing significant cost savings while maintaining a high level of employee satisfaction. Today, PSHMC employees are healthier, with more of them now getting recommended flu shots, cancer screenings, and other preventive health services. Through cost-control measures, incentives to use the home network for care, and promotion of preventive care and wellness programs, PSHMC saved more than $24 million between 2006 and 2010, reducing the rate at which health-care costs increased annually by 5 percent.

Even if an institution is not self-insured or affiliated with an academic medical center, governing boards can take steps to get more value from each health-care dollar spent to improve the health outcomes of faculty and staff members. For example, in addition to getting regular updates on health-care costs for the institution, governing bodies might consider developing a dashboard to monitor key indicators of employee health and wellness:

  • How many days do faculty and staff members lose to sick leave?
  • What diseases and conditions are most prevalent among employees?
  • Are faculty and staff members taking full advantage of preventative health screenings?

Once these and other questions are answered, additional opportunities may emerge to improve employee health outcomes and the institution’s bottom line.

For instance, UnitedHealthcare found that members of its college and university health plan see specialists 17 percent more often than other employee groups. In addition, their member data showed that back pain and arthritis diagnostic costs are the highest-cost diagnostic categories among higher education plan members. Are these findings reflective of employees not having a “medical home” or primary care relationship? Could requiring completion of an educational module on safe lifting or perhaps providing access to a pool, exercise facility, or class for stretching help reduce lost work time of arthritis sufferers and reduce costs?

Expanding the board’s focus to look at quality, outcomes, and cost—that is, value—will enable institutions to make a difference in a way that can be measured and appreciated.

Responding Strategically to Shifts in the Health-Care Workforce

Another workforce issue related to healthcare reform is whether higher education institutions are prepared to meet the demand for more and new kinds of health professionals. With the Baby Boom generation moving into old age and an additional 32 million Americans gaining health-insurance coverage under the ACA in 2014, the United States faces a shortage of more than 90,000 doctors by 2020, according to the Association of American Medical Colleges (AAMC) Center for Workforce Studies, and a shortage of 260,000 registered nurses by 2025, according to studies conducted by the National Health Care Workforce Commission.

Governing boards must assess whether their institutions are ready to fill the growing need for health-care professionals and help current health-care staff learn new skills. Health-care reform also will create opportunities for academic programs to increase their student bodies as new occupations emerge in the health-care industry, such as billing advocates or health navigators who support patients needing insurance, medical, or other guidance. In addition, health-care reform presents opportunities for institutions to expand or create online offerings, such as adding degree or certificate programs that can help health-care workers acquire new skills. Massive Open Online Courses (MOOCs) like those developed by Coursera and instructional tutorials like those of the Khan Academy are two examples of new online learning initiatives in which institutions may wish to engage.

Colleges and universities also will need to prepare graduates of their health-professions schools to work collaboratively in the inter-professional, team-based model of health-care delivery that is evolving. Reforms in health care will require physicians, nurses, dentists, pharmacists, public health workers, and other allied health professionals to take a more integrated approach to caring for patients.

To help break down silos in the health-care system, the AAMC and five other health associations recently created the Interprofessional Education Collaborative (IPEC). Representing medical schools as well as schools of osteopathy, dentistry, nursing, pharmacy, and public health, IPEC has produced a road map through its report, “Core Competencies for Interprofessional Collaborative Practice” (May 2011), of the competencies that students in health professions should acquire for interprofessional, collaborative practice.

Sustaining the Academic Medical Center

Colleges and universities affiliated with a medical school, teaching hospital, or comprehensive academic medical center also will have to take steps to ensure the future sustainability of their academic health institutions, given the financial cutbacks that will come with full implementation of health-care reform and the continuing challenges of federal budget sequestration.

Over the past 30 years, academic medical centers have experienced robust growth and, in many instances, provided substantial revenues that cross-subsidized programs at their parent universities. Today, academic medical centers face unprecedented fiscal challenges on multiple fronts that threaten the sustainability of their current operating models. With health-care spending at the center of federal budget discussions, academic medical centers are being called on to bend the health-care cost curve at the same time the sequester is having an adverse impact on their clinical revenues and medical research support. The writing on the wall calls for major changes in how medical schools and teaching hospitals carry out their missions of medical education, health care, and research if they are to meet these challenges. This is not a question of surviving temporary budgetary pressures. This is now a matter of taking steps to ensure that these institutions are able to continue to fulfill their missions over the long term.

The first step for governing boards of institutions with health-professions schools for clinical practitioners is to deepen their understanding of how they operate. Boards should become familiar with the financial models underpinning their medical schools, teaching hospitals, and faculty practice plans, and learn how the funds flow within and among these institutions and their parent university. Equipped with this knowledge, boards will be better able to understand how their medical school and teaching hospital may be disrupted by reductions in federal funding.

While the AAMC will continue to advocate strenuously to prevent and reverse funding cuts, the academic community must develop its own solutions to cope with the new fiscal realities. Board members may have to move their institutions in new directions to stay on course:

  • The parent university may need to provide greater support for health-professions education and medical research;
  • The academic medical center may have to pursue new partnerships with commercial entities;
  • The board may need to consider mergers, acquisitions, and sales; and
  • New or different governance structures for the academic medical center may be required.

In addition, as the cost of tuition continues to rise and state support for higher education continues to fall, boards must be mindful of student debt. The possibility of raising tuition to offset lost revenues needs to be considered carefully. According to the latest AAMC data, medical student debt reached an all-time high in 2012, averaging $166,750 per student. While a career in medicine remains an excellent investment, rising debt levels could make students start to question whether a medical education is worth the sacrifices of shouldering years of debt. With an impending physician shortage and the need for a more diverse physician workforce, it is essential that governing boards do everything possible to encourage students from broad and varied backgrounds to become physicians and physician scientists.

Thriving in the Age of Health-Care Reform

In the end, the fundamental question for governing bodies of higher education institutions is one of balance: In grappling with the implications of health-care reform, how will the institution meet its fiduciary obligation to control costs while fulfilling its strategic obligations to support the institutional mission and ensure the health and wellness of faculty and staff members? As the ultimate stewards of institutional resources and integrity, board members will need an in-depth understanding of health care to strike the appropriate balance. What may appear to be the expedient course of action from a financial standpoint may be counterproductive to maintaining a healthy workforce.

Uncertainty before the Supreme Court decision kept many people and institutions on the sidelines of long-term planning for the ACA’s implementation. Now, however, it is time for governing boards to begin a rigorous evaluation of health-care reform’s impact on their institutions. There is no doubt that health-care reform will require boards to make some tough, controversial decisions.

Institutions affiliated with academic medical centers are especially qualified and positioned to lead the way in developing strategies to lower employee health-care costs while improving outcomes and quality of care. In the months and years ahead, creating a high-value health system will require not simply revenue expansion and expense reduction, but also a true redesign in the way we do our work. There is no turning back.

The Patient Protection and Affordable Care Act (ACA) Highlights from 2010 to 2018

March 23, 2010: President Obama signs the ACA into law.

March 2012: Supreme Court hears arguments on challenges to the ACA.

June 2012: Supreme Court rules 5-4 to uphold most of the ACA; state Medicaid expansions are optional.

2013: States decide who will operate their insurance exchanges; exchanges begin open enrollment Oct. 1. Cap on flexible spending accounts takes effect.

Most provider payment reductions begin, including implementation of value-based purchasing and reductions in Medicare and Medicaid Disproportionate Share Hospital support.

2014: Implementation of state insurance exchanges (“marketplaces”) and enhanced federal payments for services provided under state Medicaid expansions take effect.

2015: Enforcement of employer insurance requirements begins; mandated essential health benefits take effect.

2017: Insurance exchanges may choose to offer plans for employers with 100+ employees.

2018: Tax on high-cost, employer-sponsored insurance takes effect.

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