Rising health care costs hit home

The rising cost of health care is one of the public policy topics that probably receives more attention in the press than the rising cost of college, the latter of which I know a lot more about.  For almost 30 years I've worked at universities almost without interruption, and the five years I wasn't working at a university I was covered by my wife's health insurance under her union contract as a teacher, which was similar to what I received as a university employee.  Having worked in universities and benefited from the very generous benefits many universities offer, I've been largely protected from the challenges that many families face in gaining access to and paying for health care.  I recognize that not all higher education institutions offer such generous benefits, but the ones at which I've worked have had very good coverage.

For example, the current coverage at Penn State (which self-insures its employees) costs me $247.62/month for coverage for our family.  As a benchmark, I have a close friend who is my age and self-employed, and has to buy insurance for himself.  He pays over $500/month just for individual coverage that is nowhere near as comprehensive as I enjoy as a Penn State employee.  And for my monthly premium, the coverage my family receives is close to universal; we pay small ($10-$20) co-pays for office visits, and beyond that, most office visits for primary care physicians, specialists, hospital stays, procedures, etc. are covered in full.  There are of course exceptions; you do pay more if you go outside the approved network of providers (20% of the cost), but the network is fairly inclusive of health care providers, at least in our area around State College.  We also have relatively good prescription drug coverage.  Many preventive procedures are free.

As an example, a couple of years ago, our youngest daughter was in the local hospital for four days.  She had no surgeries or unusual procedures, other than a X-ray or two.  The bill came to over $15,000, and we paid nothing other than a $50 co-pay for our emergency room visit before she was admitted to the hospital.  This comprehensiveness of the coverage is similar to, and priced in roughly the same ballpark (adjusting for health care inflation) to what I enjoyed when I worked at MIT and at the University of Michigan.

Well, the other shoe has dropped here at Penn State.  Earlier this month the university announced the details of changes to the health care coverage effective next January 1.*  The monthly premium for family coverage is going up 12% (the individual premium is increasing at the same rate), not an unusually large rise given recent history.  However, the coverage that Penn State employees receive is changing radically.  The university is instituting two types of charges that didn't exist in the past.  The first is an annual deductible, something that is common in many other health insurance plans.  Families will pay a $500 deductible, which means that the subscriber has to pay the first $500 of health care costs in a year, before the insurance coverage kicks in.

In addition, the university is instituting a co-insurance charge of 10%, meaning that the subscriber is now responsible for paying 10% of all charges, with the health plan paying the remaining 90%, up to a maximum of $2,000 per year (including the deductible) for a family, or $1,000 for an individual.  While 10% doesn't sound like much, you have to remember that under our current coverage the plan pays 100% of the costs.  Here's a link to the details of the new plan.

Thus, the impact of the deductible and co-insurance charges is that many families will end up paying $2,000  (in addition to their monthly premiums) above and beyond what they're paying this year.  The combination of the increase in the premium along with the out-of-pocket additions means that my cost for health care next year is likely to go up by about $2,400. This represents an increase of about 80% in the out-of-pocket costs, not including co-pays.  But the co-pays are going up also, so 80% is probably a reasonable estimate of the increase.

Before you run off and blame the federal government's health care overhaul passed earlier this year, for causing these increases, I can comfortably say that that's not the reason.  Rather, the university - like many employers - has been struggling with rising health care costs and how to control them over the last couple of decades.  This has been a topic discussed in two university-wide panels on which I have served in the last few years, the University Strategic Planning Council, and the current Academic Program and Administrative Services Review Core Council.

The university has taken some steps, such as instituting wellness programs, to try to help control the demand for health care services among its employees.  It also waives the co-pay for visits to two local clinics staffed by employees of Penn State's Hershey Medical Center, in order to encourage employees and their families to use these services (at presumably lower cost) than opting to go to other providers or an emergency room for care.

But eventually Penn State must have realized that more of the costs had to be shifted from being borne by the university to being paid by employees.  The changes being implemented effectively accomplish this.  There are obviously large equity issues at play here.  The additional out-of-pocket costs represent a little over 2% of the gross income of a professor or administrator making $100,000, but it's 8% of the income of a secretary making $36,000.

Now that it has instituted deductibles and co-insurance for the first time (at least in the eight years I have been here), it is unlikely that these will ever go away.  Penn State employees covered by this plan should realize that they still benefit from health insurance coverage that is probably better and relatively less expensive than what most people in the country have access to.  But they should also realize that these costs will continue to rise in the future.

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* Last January 1st, the university drastically changed the health care coverage for retirees, with new employees hired after that date receiving a defined contribution health care plan in retirement, while existing employees enjoy a defined benefit health plan.  But that's a topic for another day.

A delay on gainful employment, but a commitment to move forward

The Education Department announced yesterday that it was going to delay issuance of some of its gainful employment rules in order to examine more closely some of the 83,000 comments submitted.  At the same time it announced that it was still planning on releasing the rest of the rules on November 1, as it had originally planned.

As I wrote in my last post, the for-profit sector had kept the pressure on even after the comment period on the rules was over.  In an apparent attempt to improve its image and perhaps sound more like the other sectors of the higher education industry, the Career College Association has just changed its name to the Association of Private-Sector Colleges and Universities, or APSCU, an acronym uncomfortably close to that of AASCU, the American Association of State Colleges and Universities. Or, as APSCU states on its website, ""CCA is changing because there comes a time when only change can get you where you need to be."  I have no idea what that means.  The new tagline for the organization is prominently displayed on its homepage:

The notion of providing options to students has been at the crux of the organization's argument against the Department of Education tightening regulations.on the industry.  "Committed to putting students first" seems rather facetious given that these are all for-profit companies, and their primary responsibility is to their shareholders, not their customers.

One of the interesting tidbits in the Chronicle of Higher Education's article about the delay was the revelation that Corinthian Colleges, Inc., the company that started the "My Career Counts" public relations campaign I wrote about in my last post, is spending in the "high seven figures" on the campaign.  Probably money well spent if Corinthian and APSCU is successful in getting the gainful employment rules delayed, or better yet for them, significantly weakened.

The for-profits keep the pressure on gainful employment rules

Even though the comment period on the Department of Education's gainful employment rules is over, the for-profit sector is clearly keeping up the fight.  This morning's New York Times (Washington edition) has a big, full-page ad (split across two pages) in the front news section (click on the picture to see a larger version of it).  Navigating to the URL shown in the ad, www.mycareercounts.org, takes you to a website with all the reasons why the proposed gainful employment rules should be tossed out.

It's a little difficult to figure out who created the website, until you look at the very small print at the bottom of the page:

The website is sponsored by Corinthian Colleges, Inc., one of the nation's largest for-profit higher education providers.  A recent report by Education Sector on the impact of the proposed gainful employment rules found that 15 percent of the Corinthian Colleges programs would face restrictions under the rules.  The report also noted that the firm had recently reported to analysts that "89 percent of its revenue comes from federal aid programs and only about 1 to 2 percent comes from cash payments from students."  Yes, you read that correctly: student payments represented only 1 to 2 percent of the firm's total revenues.  Clearly, the loss of eligibility for Title IV federal student aid funds poses a major threat to the firm's continued growth and viability.

Don't be surprised to see continued pressure and lobbying from the for-profit sector, at least until the Department's rules are finalized (due by November 1).  The Chronicle of Higher Education reported this week that the industry had given almost $100,000 in campaign contributions in the first seven months of the year to members of Congress who had sent letters to Secretary Duncan asking him to reconsider the rules.  Many of these letters are prominently featured on the "My Career Colleges" website.  The Chronicle also tallied the hundreds of thousands of dollars in lobbying costs incurred by for-profits this year, an amount that represented a large increase over last year.  For example, the article noted that Corinthian Colleges spent $310,000 in lobbying costs in the second quarter of this year, an almost 200  percent increase over last year's $110,000.

[Update]  When I finally got around to reading the rest of the Sunday Times, I discovered this full-page ad on the front of the second news section (again, you click to see a larger image):

Newsflash! Penn state receives an $88 million gift for. . . . .

Penn State announced today the receipt of the largest single gift in its history, $88 million, from alumnus Terrence Pegula and his wife Kim. As one could imagine, a gift of this magnitude coming at a time when the university is facing such constrained resources is a huge boost for the institution.

Pegula made his money in the natural gas business, and evidently had invested much money in the Marcellus Shale, the huge gas field that spreads across parts of Pennsylvania, New York, Ohio, and West Virginia.  Earlier this year, East Resources Inc., the privately-held firm of which he was founder, CEO, and a principal shareholder (according to the Penn State press release), was sold for $4.7 billion to Royal Dutch Shell.

The campus is buzzing and the excitement is impalpable as people think about the potential for such a large gift. Well, at least until you read past the headline and discover that the $88 million is going to be used for. . . . hockey. Yes, you read correctly: $88 million for hockey.  To be a bit more precise, the money is going to help build a "state-of-the-art, multi-purpose arena," as well as provide operating funds for the men's and women's hockey clubs to move to Division 1 status, according to the press release issued by Penn State today.

Penn State is fortunate in that it has not faced the same kind of funding constraints faced by other public universities, especially those in states such as California, Arizona, Florida, and Nevada. Nevertheless, the last couple of years have forced the university to make some difficult choices, including raising tuition at rates well in excess of inflation, withholding raises and keeping salaries flat last year, and instituting additional cost sharing for health insurance for employees (to be implemented next January 1).

Penn State is not a poor university by any means; according to the Chronicle of Higher Education's endowment database, Penn State had the nation's 45th largest endowment as of June 30, 2009, at $1.23 billion (since increased to $1.4 billion as of last June 30, according to a report provided to the trustees yesterday).  A key difference between Penn State and our peers with billiion dollar plus endowments, however, is the size of the university.  Penn State's endowment has to support 24 campuses and approximately 90,000 students.  Contrast this with Wellesley College, two spots above PSU at number 43, whose endowment of $1.27 billion supports its one campus and 2,324 students.  For those who don't want to do the math, this means that Wellesley's endowment per student is 40 times greater than Penn State's.

It is difficult for any university to look the proverbial gift horse (or alumnus, in this case) in the mouth and say, "No thanks" to any gift, particularly one as sizable as this. Those of us who work in universities and study their operation know that when donors get an idea in their heads of what they want to fund, it can often be difficult to get them to consider more pressing needs. I don't know how much the university tried to convince the Pegulas that Penn State had higher priorities than a new ice rink and Division 1 hockey teams. But clearly this was a priority for them, and in a couple of years we'll be able to gaze upon our new "state-of-the-art" hockey rink, right next door to the nation's second largest football stadium, our four year-old baseball stadium (capacity 5,406 and 20 luxury suites), and the now somewhat aged in comparison Bryce Jordan Center.

One can't wonder about what else $88 million could have bought for the university, if the Pegulas had been convinced to invest in the core of the university's business, i.e., teaching and research, rather than intercollegiate athletics. But here are just a few ideas of what $88 million could purchase:

1. The university could announce attainment of its goal of raising  $100 million in its Trustee Matching Scholarship Program.  Announced in 2002, the university had achieved 63% of the original goal (as of last November).  This is a wonderful program, with the scholarships all going to undergraduates eligible for Pell Grants, meaning they come largely from families with incomes below $50,000.  Yet raising the money has been a bit of a struggle for the university.  The Pegulas could have allowed the university to reach its $100 million goal and still had plenty left over.
2. Roughly 1,500 full-tuition, 4-year scholarships for enternig freshmen this year.
3. Roughly 2,500 half-time graduate assistantships this year (stipend and tuition waiver), or tuition waivers for approximately 5,300 graduate assistants
4. 88 endowed professorships throughout the university (such as in the Department of Education Policy Studies in the College of Education, to provide just one suggestion)
5. An endowment that could fund annually into perpetuity:
   -- 300 undergraduate full-tuition scholarships, or
   -- 270 graduate tuition waivers

I'm sure many on campus and off will be rejoicing over this gift, and as I stated earlier, nobody wants to look a gift donor in the mouth.  You may even find me in a few years sitting at the new Pegula Arena cheering on the Penn State hockey team when Michigan comes to town.  But it is hard not to speculate about some of the missed opportunities of such a sizable gift.

One more time on gainful employment

After taking a summer hiatus, The Itinerant Professor is back in full swing. Yes, just like network television shows, this blog takes a summer hiatus. And just like major league baseball stars, it also refers to itself in the third person.

Enough posturing. The big news this fall is the overwhelming response to the proposed gainful employment rules published by the Department of Education in the Federal Register in July.  "Overwhelming" as in over 83,000 comments on the rules submitted to the Department, according to The Chronicle of Higher Education, far in excess - by scores of thousands - of any other proposed rules by the Department in recent memory .

As Inside Higher Ed pointed out in a recent article, the vast majority of these came in from students, employees, and supporters of for-profit institutions, often coordinated by the Career College Association (CCA), the lobbying arm for the for-profit sector.  These were not the result of grass roots efforts, but more akin to the "astroturf" campaigns where companies or other organizations try to make contacts with Congress or federal agencies appear to come from individuals alone, rather than as part of an orchestrated campaign.  The IHE article described how Education Management Corp. hired a "Republican-affiliated strategy firm" to encourage and assist employees of its many for-profit institutions to write letters in response to the gainful employment rules.  The article noted that the CCA "also coordinated bulk submissions of hundreds of comments."

The story about Education Management Corp. was first published by Stephen Burd of the New American Foundation's Higher Ed Watch blog:

“This week, employees throughout EDMC and our schools will be receiving phone calls during business hours from our partners, the DCI Group, to assist you in crafting personalized letters to U.S. Secretary of Education Arne Duncan detailing for him your own views on Gainful Employment,” Todd Nelson, EDMC’s chief executive officer, wrote last Tuesday to the company’s approximately 20,000 employees in an e-mail, which was obtained by Higher Ed Watch.

 “You will be asked a series of short questions that will help DCI Group create a unique letter. These personalized letters will then be delivered to you for a signature, along with a pre-addressed stamp envelope,” wrote Nelson. “We encourage you to mail the letters as quickly as possible so that your comments are received before September 9. The entire process should take no more than 10 minutes of your time, but its impact on EDMC would be immeasurable.”

One of the major criticisms of the rules raised by the CCA campaign is that they would likely force many for-profit institutions, or at least some of the programs in those institutions, to close, as students in them would no longer be eligible for federal Title IV student aid funds.  The campaign has emphasized how this would severely affect access to higher education by poor and minority students, since they are disproportionately enrolled in this sector.  A recent press release by the CCA stated that:

By closing programs and placing others in a tenuous “restricted” category, the ED gainful employment proposal has the potential to push 2.3 million students out of higher education, according to a CCA commissioned economic analysis prepared by Charles River Associates. This number includes 790,000 fewer females, 210,000 fewer African-Americans, and 190,000 fewer Hispanics.

[In the interest of full disclosure, I should note that the CCA had approached me earlier this year about hiring me to conduct this study for it, but I declined.]

The question now is how the Department is going to react to all these comments.  It clearly knows that a good portion of these are the result of the astroturf campaign, and thus, are likely to be discounted in importance.  Secretary of Education Arne Duncan has been fairly strident in his criticism of the for-profit sector and the need for the gainful employment rules, and has shown little inclination to back down on the preliminary rules published in July.

My guess is that the Department will stand its ground, and attempt to implement the rules largely as published.  An early indication of this was the press release issued by the ED earlier this week when it announced the most recent student loan default rates for FY2008, which rose from the previous year - not a great surprise, given the recession.  But in releasing the data, Secretary Duncan noted that:

"The data also tells us that students attending for-profit schools are the most likely to default," Duncan continued. "While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole," Duncan continued.

So stay tuned.  The Department is scheduled to issue the final rules on November 1, with the rules scheduled to take effect next July 1.