Maintained by: facultysenate@american.edu
Last updated: June 2, 2006
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Trends Affecting AU's Health
Insurance Benefits Introduction The month of November is the traditional
benefits open enrollment period at AU. This is the once a year
opportunity when faculty and staff can reconsider and make changes
to their individual choices of fringe benefits including the
health insurance plans. Open enrollment is also an opportunity
for those who have chosen not to participate in an AU plan to
sign up for one. Decisions made during this annual open enrollment
period become effective the following January 1. I have one obligation to fulfill before you proceed to read this report. This is to caution you strongly that the information contained in my report should not be considered or used as a substitute for the information you will receive shortly in the official open enrollment packets which will be sent out by AU's Office of Human Resources. I have deliberately not attempted to include specific figures about final pricing or other exact figures that will appear in that document. Information About Our Current Health
Insurance Plans A medical flexible spending account is not an insurance plan. Rather it is an opportunity for you to allocate a portion of your salary, freed of income taxes, for use when paying for qualified out of pocket medical expenses. In deciding to participate in a flexible spending account, you should be aware that federal law limits your use of these funds and also requires that any money deposited into a flexible spending account be used for qualified expenses incurred during the same tax year as the deposit is made. Qualified expenses include such things as co-payments under our health and dental insurance plans, deductibles for medical or dental treatment and the like. A medical flexible spending account can even be used to pay for some medical or dental treatments or for prescription medicines that might not otherwise be covered by insurance. A similar flexible spending account is available at AU for the payment of certain dependent care expenses including, when qualified, day care required so that you (or you and your spouse) can work for taxable income outside of your home. Information about these and other AU fringe benefits are available from HR and on its web site. The two health insurance plans currently offered at AU are an HMO provided by Kaiser Permanente and an HMO with an out of network option provided by Care First Blue Cross. This latter plan used to be called "Capital Care" but is now known as "BlueChoice". AU retirees who are covered by the Benefit Extension Program but live elsewhere and those few AU employees who also do not live in the greater Washington DC area are enrolled in a Blue Cross preferred provider health insurance plan which has a national network of participating practitioners. Information About The Increasing
Cost Of Our Health Care Insurance In order to ensure that we all will get as much value for our money as possible, the administration annually engages in negotiations with all the companies which provide our various benefits. This is an open process in that it includes those of us who are members of the University Benefits Advisory Team. We are given access to the same reports and information that are available to the administration and we regularly review all of it before making recommendations to the administration about any modifications to and pricing strategies for the benefits. This review process usually begins in late summer and continues until a short time before the open enrollment period. All members of the former Faculty Benefits Committee have been ex officio members of the University Benefits Advisory Team. Others from the staff and faculty also serve on that Team. Now, it is assumed, all members of the new Faculty Senate Committee on Instructional Budget and Benefits will be ex officio members of this Benefits Team. This year, as in the past, the Benefits Team reviewed information compiled by AU's Office of Human Resources as well as information provided to the University both by its benefit insurance providers and by its benefits consultant Mercer Human Resource Consulting. The figures showed that AU's group utilization levels (our experience) are in line with the experiences of similar groups. While this is the good news it is also the bad news. It means that our costs are going up. Translated into dollars, Care First spent the following amounts per AU participant per month (known as PEPM cost): $284.91 in 2000, $306.00 in 2001 and $338.14 in 2002. Its PEPM is projected to increase to over $400 next year. Comparable PEPM figures for Kaiser Permanente were not available probably owing to its organization as a staff model HMO (its own employees are the physicians and others who provide most of its members' care needs) and Kaiser Permanente's reliance on the overall experience of all of its participants (the community) not just those at AU. Care First, by the way, is a different model of HMO. It pays outside independent providers to meet the care needs of its members. We noted that both provider companies initially proposed premium increases of almost 22 %. Later these were negotiated down to 17 % for Care First and a bit over 19 % for Kaiser Permanente. Later still, after some modifications to the plans were made, the final rates for open enrollment were reduced to an 11.3% increase for Care First and a 13.8% for Kaiser Permanente. There were increases proposed for the dental insurance plans as well but these were much more modest at least in terms of dollars. The Benefits Team thought it necessary to consider making some changes in the specific AU health insurance plans in order to reduce the increases in the premiums we would otherwise have had to pay in 2003. Most of these changes are in the prescription coverage portions of the two plans. This is because prescription drug utilization costs now represent 31 % of all claims expense for the AU plans and are where the greatest cost increases are taking place. The Benefits Team recommended that Kaiser Permanente's prescription co-payments be increased a few dollars and that a differential be charged for brand medicines when a medically acceptable generic substitute is available. Care First's plan already does this. The Team also recommended an increase in the Kaiser Permanente office visit co-payment so that it will be the same ($15) as now charged under the Care First's Blue Choice plan. We, the Team, recommended changes to the prescription coverage portion of Care First's plans too. One change was that AU move to a three tier scheme similar to those which are already used by more than one-half of all U.S. employer plans. Our recommendation would retain the lowest co-payment for generic medicines (drugs) but impose increased co-payments for brand drugs when purchased. In addition, all brand drugs would fall into one of two categories: preferred brand drugs or non-preferred brand drugs. Preferred brand drugs are maintained on a list (called a formulary) which is compiled by the prescription service. None of the preferred brand drugs has a generic therapeutic equivalent. Non-preferred brand name drugs (those not on the formulary list) have a generic and /or preferred brand drug equivalent. The co-payment for non-preferred brand name drugs would be higher than for preferred brand drugs. In addition, a small number of prescription drugs (currently 51) will require advance approval before they can be dispensed. The prescribing physician would have to initiate this approval process with the prescription service. The policy of mandatory generic substitution will continue for participants in the Care First plan. This policy requires the pharmacy or mail-order service to dispense a generic drug if available unless the prescribing physician specifically writes on the prescription script that it is to be dispensed as written and can justify this as being medically necessary. Patients still will be able to require, absent this "dispense as written" restriction, that prescriptions be filled with brand drugs but the co-payment for any brand drug for which there is a medically acceptable generic substitute will continue to also include the entire difference in price for that band and its generic version. Kaiser Permanente does not offer this option currently. There is one last change in our health insurance plans that I want to discuss. This is the availability of Medicare coverage for those over the age of 65. Medicare consists of two parts for most of its participants. Part A pays for hospitalization and related expenses and is funded by a portion of the taxes paid for social security during all of ones work life. Everyone over the age of 65 who qualifies under the Social Security laws is automatically enrolled in this Part. Part B, by contrast, is voluntary for those who are eligible and must be purchased by those who participate in it (it currently costs about $54 a month per person). Medicare Part B pays for physician visits and many of the kinds of health care that does not involve hospitalization on an in patient basis. These are the same kinds of things that our regular AU health insurance pays. Medicare also does not pay for prescription medicines in most situations. Federal law makes an employer health insurance plan the primary payer if available so long as the person covered is still on the active employment payroll. This means that for those of us at AU who are not yet retired, enrollment in Medicare Part B after age 65 might not be appropriate because our regular health plans will pay all of our expenses that would otherwise be covered by Part B. When someone retires, however, the law makes Medicare Part B as primary if the retired person has it. Until now, AU retirees have been permitted to make this decision on their own. Those who have chosen not to purchase Medicare Part B have just remained fully covered by our regular insurance under the AU Benefits Extension Program. This may now have to change. Kaiser Permanente has informed AU that effective January 1, 2004, that is one year from this January, AU will be surcharged for any retired AU employee who is over age 65 and is in our Kaiser Permanente plan but who does not also have Medicare Part B coverage. The surcharge has been set at $229 per month per individual participant or well in excess of what it costs for someone to get Medicare Part B coverage. Care First has not yet made a similar proposal. Our figures of usage, however, demonstrate that a mandatory enrollment in Medicare Part B for Care First covered retirees who are over age 65 would save the AU plans an estimated $160,000 a year (current estimate) or almost 6% of the total claims paid in the 2001 plan year. The consultant informed us that already 95% of all employers nationally coordinate (as it is termed) mandatory Part B coverage with their own plans for retirees who meet Medicare eligibility. Thus it was our recommendation that AU do so as well. The Past Decade Has Not Been Like
It Was Nor May It Be Like It Will Be When It Comes To Health
Care Costs In the mid to late 1980's AU offered us the choice of eight or nine individual health insurance plans. This was at that time fairly typical for employers who had enough employees to make it work. The AU plans included a traditional indemnity insurance that paid for most of all of the cost of almost any medical care intervention after an annual deductible had been met. Indemnity plans were at one time the preferred type of insurance for most people. AU also offered several HMO plans that cost participants less than did the indemnity plan both in terms of premiums and out of pocket provider fees. While generally controversial in some circles, these HMOs tended to appeal to many at AU. Finally, AU had one other plan. This was a very inexpensive (in terms of the premiums charged for it --only one dollar a month at one point) catastrophic medical costs insurance. This last plan only covered costs that exceed a very high deductible in any one year. As I recall, this last plan tended to appeal to persons who had other medical insurance such as through a spouse's employer. Regretfully the 1980's was an era of broad based price inflation in the United States. Among the things that increased in cost most rapidly and substantially during those years was the cost of health care and the insurance that paid for it. Employers had tended to offer pretty good insurance as fringe benefits beginning in the post World War II years but until the 1980's this never constituted a serious economic burden. Typical plans paid for just about everything and perhaps this upset the ordinary workings of the supply and demand marketplace. Whatever, the fact was that medical costs began to increase and substantially. As costs went up, indemnity insurance plans began to be impacted the most. This resulted in the imposition of higher annual deductibles and a reduction in the percentage amount of the reimbursed provider fees. Still premiums increased and more and more employees moved away from the traditional indemnity type plan to the newer HMOs. That certainly took place at AU. More specifically what happened here and probably elsewhere was a migration from the indemnity market to the HMO market of the kinds of people who tended to use health insurance less. Many of these of course were younger employees who just happened to make less on average than their more senior, and frankly statistically likely to be sicker, co-workers. This created a further cost increase pressure on indemnity plans that was described at the time as being a death spiral. I recall one year during that period when we at AU were faced with a projected 137 percent increase in premiums for the indemnity plan. Those of us on the benefits committee actually felt relieved when the increase was negotiated down to only 72 percent! Changes were obviously required. One change was a reduction in the percentage of the total individual premiums that AU could pay. This meant that a major portion of the increased costs were automatically being passed on directly to the participant employees. Somewhere along the way, someone noticed that AU had been paying for the entire cost of retirees' health insurance premiums including any costs of spousal and dependent coverage. This was not actually provided in AU's official Benefit Extension Program. The practice, however, was thought to have originated during a more cost friendly era. This practice was stopped at least prospectively and caps were also placed on the amounts that AU would contribute to health insurance premiums for those of us who had not yet retired. Major structural changes in the number
and composition of the plans offered were initiated. At AU the
death spiral was forcing out the traditional indemnity plan.
Also the AU benefits consultants convinced us that it was necessary
to reduce the number of plans AU offered so as to maximize our
bargaining power with the remaining insurance companies. We
dropped most of the plans (but with some grand fathering of
participants) and moved to two: Kaiser Permanente and MD IPA.
Still even though both had been among the eight or nine theretofore
offered, the changes meant that many of us at AU had to change
physicians and, if memory serves me well on this point -- and
it does--, this was not at all popular! Both of the new plans
offered were HMO's and neither included out of network use options
except in certain emergency situations. This lack of out of
network access was soon identified as being unacceptable especially
because some participants in AU's plans happened to live in
areas not served by these two plans' networks. A year or so
later, we dropped MD IPA and switched to Blue Cross Blue Shield
of the National Capital Area's Capital Care. Our present offerings
from Kaiser Permanente and Care First are (but of course with
modifications made over the years) these two final plans. Both of the health insurance plans that AU now offers us are sound and typical of those that are generally available to employees elsewhere. The premiums we have had to pay for these plans have also been relatively reasonable and even held fairly steady for the past few years. We all know, however, that the costs of health care in the United States are again increasing at a substantial rate. HMOs or something may have been able to curtail these kinds of increases during the 1990s but my reading suggests HMOs may no longer be able to do so. Perhaps different strategies for controlling health care costs, including possible legislative interventions, will emerge. Whatever happens, it will be incumbent on all of you, my colleagues, to maintain the faculty's involvement in the process by which AU determines what health care insurance benefits it will offer. It has been a pleasure and honor for me to have been one of your representatives in this process for the past seventeen years. I retire next summer. Carole and I will then relocate away from the DC area. Someone new will need to step up to fill the position I have occupied. I want to thank all of you for having accorded me this high privilege. Patrick E. Kehoe
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