With the announcement of changes to the University’s health benefits for faculty and nonunion staff in 2015, the Gazette recently sat down with four members of the University Benefits Committee, a group of faculty and administrators from across Harvard charged with advising on potential reforms to the University’s benefits plans.
The four discussed how the committee came to make these recommendations, how they believe these changes are designed to protect benefits for the long term, and how faculty and staff will be affected. Participating were Michael Chernew, professor of health care policy at Harvard Medical School (HMS) and benefits committee chair; Barbara McNeil, founder and head of the health care policy department at HMS; Brigitte Madrian, the Aetna professor of public policy at the Harvard Kennedy School; and Patricia Byrne, executive dean at Harvard Divinity School.
GAZETTE: What are the biggest changes that employees will see next year?
MICHAEL CHERNEW: The main changes are that the premiums that employees pay monthly will go down, and the cost that employees and their dependents will pay at the point of service will rise in certain cases. In-network deductibles will be introduced, as will coinsurance. Out-of-pocket maximums, the total amount that employees potentially pay out-of-pocket, will decrease. Finally, we are adding a new lower-premium, high-deductible plan. Overall, we hope to give individuals and families more visibility into and control over their health care spending.
BRIGITTE MADRIAN: Another important change is an increase in the level of coverage available under the dental insurance plan.
GAZETTE: Tell us more about that.
CHERNEW: The dental plan used to be structured so that once an employee or family member hit a cap of approximately $3,000 in benefits, coverage ended. The new dental plan still has cost sharing, but we’ve added a catastrophic component to provide additional coverage.
GAZETTE: Are there things that aren’t changing?
BARBARA McNEIL: A number of important things aren’t changing. Preventive care coverage will not change — it will still be fully covered by Harvard. Nor will regular doctors’ visits change.
Two other points: In terms of the overall program, Harvard is paying about 77 percent of premium costs. That overall premium subsidy is competitive with its peers, but Harvard’s strategy does favor families and lower-paid employees, by subsidizing their premiums at a higher rate. The eligibility thresholds will be essentially the same: 17.5 hours a week or $15,000 per year will make most individuals eligible for benefits.
GAZETTE: What costs are increasing?
PATRICIA BYRNE: There are some cost increases. When you move out of preventive care — which isn’t changing — and into hospital stays and surgeries, for example, the employee will now share a portion of that cost with Harvard. The smaller portion, by far. When you are in your network of physicians, there will now be a deductible of $250 for an individual and a maximum of $750 for a family. You will be responsible for the remaining 10 percent of the costs up to the out-of-pocket maximum. The emergency room copay will also go up from $75 to $100, an increase consistent with our peers.
GAZETTE: What costs are decreasing?
MADRIAN: There are several aspects of the health plan that will actually make health care costs less expensive along some dimensions. I think the most noticeable one is that the monthly premium payment for health insurance coverage will go down. If you stay with the same type of coverage that you have now, the deduction from your paycheck for health insurance every month will be lower under these plan changes.
In addition to out-of-pocket maximums going down, both pharmacy costs and office visits will be included in the out-of-pocket maximum calculation.
GAZETTE: Who’s immediately affected by these changes?
CHERNEW: The specific benefit design changes for 2015 apply to faculty and nonunion staff. For unionized staff, these changes will be subject to negotiation.
GAZETTE: Why is Harvard making these changes? And why now?
CHERNEW: The University and the benefits committee are continually looking at the benefits structure. We’ve been making changes of various types and have been thinking of making changes for a long time.
The motivating factor, frankly, is that health care costs have been rising. Between 2002 and 2012, benefits costs have risen from 8 percent of the University’s overall budget to 12 percent. Even for an institution as well off as Harvard, that sort of growth isn’t sustainable. There are a lot of other revenue pressures that the University is facing, such as the tuition net of financial aid and research funding. So, we are constantly trying to come up with a benefits package that is competitive in the marketplace and enables employees to have some control over their spending but is fiscally sustainable given the competing needs for Harvard resources. So on balance the new benefit package reduces the rate of increase in Harvard’s spending on health care.
McNEIL: The committee spent more than two years deliberating this particular set of changes. We looked at a host of possible options, how they would impact our budget, compared how these changes related to the similar activities going on at our peer institutions, and assessed how they would affect our community. We also hired a consulting firm to provide us with data from our peers and to help us with analysis of our own data.
BYRNE: It was a very impressive set of conversations, and there was a lot of lively debate and argument about this on the committee. It was not pro forma. In addition, we worked with senior leadership to put the health care plans out to bid to make sure we were starting with as low a cost base as possible, and worked with outside consultants to analyze various contract and plan design alternatives.
GAZETTE: What were the guiding principles of the committee as they went through this process?
CHERNEW: As Harvard University and the country as a whole grapple with health care spending, people are constantly trying to figure out how to provide coverage that meets people’s needs in a fiscally sustainable way.
Remember that the members of the committee also are faculty and staff, so we’re very sensitive to how these changes will impact people. Our guiding principles include preserving access to health care and increasing transparency and control over health care costs for individuals in our plans.
We’ve tried to do all of this in a way that avoids putting individuals at significant risk and studied many alternative benefit designs, all in the context of massive payment reform ongoing in Massachusetts and the rest of the country now.
BYRNE: I think anyone who eavesdropped on the benefits committee would be impressed by the extent to which the committee thinks about the individual. The committee brings up a lot of “what-if” situations to explore all kinds of scenarios. We realize how diverse the workforce is and how important wellness and health insurance are to faculty and staff members.
McNEIL: We also discussed in detail the impact of heavy-duty drug costs. We wanted to make sure our community was protected against the possibility of enormous prescription drug costs by having an out-of-pocket maximum that included pharmacy costs — recall that this maximum is now lower than it had been before.
CHERNEW: Lower out-of-pocket costs and the reimbursement plan for those who earn less are designed to mitigate the sort of potentially negative financial consequences of health shocks. Some costs may increase, but we wanted to avoid having anyone in a really catastrophic situation.
GAZETTE: Are these changes going to mean that people have to switch doctors?
McNEIL: The changes in our benefit design do not imply that an individual has to change his or her doctor. That doesn’t mean that it might not happen, however. For example, the plan in which an individual is enrolled might change its list of physician providers. This happens frequently, and it’s totally outside Harvard’s control.
GAZETTE: You mentioned that there is a new high-deductible plan option. Can you tell us more about that?
MADRIAN: With this high-deductible plan, the employee is completely responsible for a higher initial level of medical expenditures, but in exchange will have a lower monthly premium. In addition, those who choose this plan will have the option to set up a health savings account where they can make tax-deferred contributions that can be used to cover health care expenses, including those that go toward meeting the deductible.
Those funds can be rolled over from year to year, are fully portable, and can also be used to pay for post-retirement health expenses, tax-free. This is a tax-advantaged way to save for health care expenditures, while at the same time getting a lower monthly premium. For those who choose the high-deductible plan and set up a health savings account, the University will seed that health savings account with a $500 contribution for individuals and $1,000 for families.
CHERNEW: These changes give individuals who consume health care more efficiently an option to capture some of those savings.
GAZETTE: How does the new plan compare with our peers?
CHERNEW: Our goal was to stay on average about where the market is — in this case, our peers in the Ivy League as well as local employers — and we believe that these changes are about where the market is. Our plan is skewed to favor lower-income individuals, but in the grand scheme of things we think this benefit structure is comparable and competitive across the board.
MADRIAN: In terms of plan design, most large organizations have a deductible, they have coinsurance, and most large organizations have added the option of a high-deductible health plan. So the changes that we are making are in line with the direction that employer-provided health plans across the country are moving.
CHERNEW: We didn’t make these changes because others are making these changes but because of the underlying set of market dynamics which are common across a lot of similar organizations. So what you’re seeing is similar organizations responding similarly to a set of market environment changes.
GAZETTE: Harvard has a huge endowment. Why can’t it use that to offset some of these costs?
MADRIAN: A large fraction of the endowment is earmarked for specific expenditure purposes, such as funding a faculty chair, financial aid, or a new building. The money from those gifts — which make up the endowment — isn’t available to fund employee health benefits. While we need to provide an attractive benefits and compensation package to retain the best faculty and staff, we’re a university, and we can’t lose sight of our primary mission: teaching, research, and the dissemination of knowledge.
GAZETTE: It seems like my health insurance changes every year, while other benefits are more static. Why is that?
CHERNEW: In an ideal world, things would be stable for all employees from year to year. However, all of the vendors that we purchase coverage from, be it our pharmacy benefit management firm or the health plans, are constantly making changes as they try to address ongoing issues in the health care sector. We try to minimize the ramifications of that, but there will inevitably be some individuals who are affected by that.
I think that, from the benefits committee’s standpoint, what we would like to convey is, first, a sense that we are aware of and paying attention to the complexities going on in health care. Secondly, frankly, we want to manage expectations because there’s no optimal set of things that will work for everybody. Thirdly, that most of what is done involves a set of tradeoffs, and we would like, to the extent possible, to allow those tradeoffs to be made by individuals and their families as best they can. By shifting more of the costs from premiums to point of service, we give individuals more awareness and control over their own health care spending.
GAZETTE: Are there any changes to pharmacy benefits?
McNEIL: We are switching pharmacy vendors to further lower premium cost and to ensure the best possible customer service. We kept the pharmacy copayment structure the same. There will likely be some disruptions because people will have to make some changes — for example, get a new pharmacy insurance card and perhaps get prescriptions rewritten for certain things. Hopefully, after this early transition period, customers will have a positive experience.
GAZETTE: Why is health care so expensive?
CHERNEW: Essentially, the reason you see the change is because of the fiscal consequences of medical progress. Over time, there have been a lot of advances in health care, which are wonderful. The way we treat cancer, heart disease, almost any medical condition we have, has changed. That’s generally a good thing, but it’s also more expensive.