Initial Information from the Student Health Insurance Task Force
Q. Why are costs increasing and benefits decreasing in the 2014-15 student health insurance plan?
There are several main reasons for the changes. Penn State negotiated a new three year plan with Aetna covering the 2012-13, 2013-14, and 2014-15 years. The plan offered very comprehensive coverage for students and limited any premium increase in 2013-14 to less than 10 percent. To secure the comprehensive coverage and the limit on the rate increase for the second year, the University had to provide some contract flexibility for Aetna. That flexibility is in the form of what is known as “experience rating”, which means that Aetna can adjust Penn State’s premium based on the past history of spending at Penn State. While the Affordable Care Act (ACA) restricts the factors that can be used to set insurance rates, student health insurers are permitted to base rates on “…a school-specific group community rate…” (78 FR 13424, February 27, 2013).
Another reason for the change is the way the federal government has chosen to regulate student health plans under the ACA. The law requires that student health plans be regulated as individual health plans and meet the guidelines for actuarial value, which represents the share of health care expenses the plan covers on average for a typical group of enrollees. The law requires Aetna to reduce how comprehensive the benefits are in the plan. Benefits must comply with the requirement that the plan be designed to pay on average no more than 92 percent of an individual’s health care costs.
Ultimately, the cost increases are driven by a combination of ACA regulations, health care market trends, and Penn State experience, as shown in Table 1.
The ACA adds four taxes or fees to the cost of insurance. In addition, the ACA has required that new benefits be added to health plans. In addition to maintaining the preventive benefits added to the student health insurance plan last year, the 2014-15 plans adds pediatric dental and vision benefits and removes day/visit maximums from substance abuse treatment to comply with mental health parity requirements. The taxes, fees and new mandated benefits represent an 8 percent increase in costs.
Industry analysts see underlying health care costs rising in 2014 and 2015, leading most insurers to assume cost trends in the 5-9 percent range in creating premiums for upcoming years (see Table 2).
Finally, student health care costs at Penn State have been higher than projected by Aetna. The experience rating in the contract allows Aetna to adjust the premium for that higher than projected level of costs and adds about 15 percent to the cost of our insurance.
Factoring in the benefit reductions required by ACA, the estimated increase in costs due to the factors outlined falls in the range of 18 to 22 percent.
Table 1
Sources of premium increases for Penn State's Student Health Insurance Plan| Source of Premium Increases | Increase % |
|---|---|
| New PPACA Taxes, Fees, and Mandated Benefits | 8% |
| Overall Health Care Cost Trend | 5-9% |
| Penn State Experience Rating | 15% |
| TOTAL | 28-32% |
| (Less benefit reductions required by PPACA) | (-10%) |
| FINAL PREMIUM INCREASE | 18-22% |
Table 2
Projections of 2014 Health Care Cost Increases| Organization | Projection |
|---|---|
| Center for Medicare and Medicaid Services1 | 6.7% |
| Milliman Medical Index | 5.4% |
| Altarum Institute | 6-7% |
| PwC | 6.5% |
| Towers Watson | 6.7% |
| Buck's | 8.7% |
| Mercer | 7% |
| Aon Hewitt | 6.5% |
Many of the forces driving the changes in student insurance are not easily within our control. We can have very limited impact on overall health care cost trends. The changes required by ACA cannot be avoided. A different contract structure with Aetna would have simply moved some of the cost increases and benefit changes into 2013-14. The Task Force is exploring several ways the University community can try to address the issues and provide the best value for student health insurance.
Q. I’ve heard that Penn State could have gotten out of the third year of the contract. Why did Penn State decide to stay with Aetna for the third year rather than looking for another student insurance provider?
The process of working with Penn State and Aetna’s legal departments to cancel an existing contract, developing and sending out a request for proposal (RFP) for a new contract, responding to questions regarding that RFP, receiving and reviewing any bids received, selecting the new insurance provider and finalizing the contract, and developing all the materials to communicate the plan to students can easily take 18 months or more. This is why multi-year, rather than annual, contracting makes sense.
Two major national health insurers represent a large segment of the student health insurance market, UnitedHealth Care, our previous insurer, and Aetna, our current insurer. The last time the contract was submitted for bids, only three insurers bid on the contract, and one of those three had little experience in student health insurance plans. If a new RFP had been issued in 2013, under unfavorable terms, given the high level of spending in the student plan in 2012-13, it is very unlikely that another insurer would have offered a better plan for students.
Cancelling the third year of the contract in the middle of the second year would have placed Penn State at great risk of having no student health insurance plan available at all. The University was simply not willing to take that risk.
Q. I’ve heard that Aetna has inflated health care spending by Penn State students by 15 percent.
This is not true. Insurers are not allowed under federal or state law to inflate spending for an individual plan like Penn State’s student health insurance plan. In reporting their compliance with the new laws governing health insurance, the federal government allowed insurers to include a multiplier impact. Under the ACA, insurers must use an average of at least 80 percent of premiums for medical care across all their plans within a category of insurance.[2] In 2013, the federal government allowed Aetna and other insurance companies to multiply spending in their “book of business”—in this case, all student health insurance plans –by 15 percent before reporting their compliance with the 80 percent rule. The spending in the Penn State plan reported by Aetna has been verified by our consultant Towers Watson.
Q. I’ve heard that there will be a fewer “in network” mental health providers under the new Aetna plan.
For the first two years of the Aetna contract with Penn State, mental health providers covered by the student health insurance plan were accessed via a “carve-out” network called Devon. These providers were contracted with and paid by Devon, who in turn contracted with Aetna. For the 2014-2015 year, Aetna is no longer using the Devon network and is contracting directly with individual mental health providers.
This change means Aetna must negotiate new contracts with each provider and agree, provider by provider, on new payment rates (what Aetna pays each provider for their services). For mental health providers to be considered “in network” within the Aetna Student Health Insurance Plan, each provider must renegotiate their rates and sign a new contract with Aetna. The process of negotiating individual contracts hinges on rate negotiations and individual providers may decline to contract with Aetna if they believe the proposed payment rates are too low. If a provider chooses not to contract with Aetna, they can still be accessed as an “out of network provider” at a higher cost to the student.
This type of change to an insurance plan can result in a reduced number of providers be included as in-network providers. A key role that insurers play is trying to get the best financial arrangement with providers, trying to balance lower prices with adequacy of the provider network. The Task Force has clearly communicated to Aetna the expectation of a mental health provider network capable of meeting the needs of covered students. Aetna has stated their intention to continue to work to accomplish this goal. This situation should continue to be monitored by the Task Force and the University.
Q. How does the Aetna contract compare to other student health plans?
One way of looking at this is to compare how much of the premiums collected by the insurer are paid out for medical care on behalf of students. This is known as the medical loss ratio (MLR). During the development of regulations for the ACA after 2010, insurers stated that their typical medical spending in student health insurance plans ranged from 65 percent to 82 percent of premiums. The ACA’s efforts to improve health insurance required insurers to improve student health benefits and established a target MLR for these health plans of 80 percent.
In 2011, Aon Hewitt examined Penn State’s MLR under its previous insurer, United HealthCare Student Resources. Table 3 shows what they found regarding the MLR from 2004 to 2010. The MLR based on the first full year of the Aetna contract, 2012-13 is also shown.
Table 3
Penn State's Medical Loss Ratio (MLR) under United HealthCare Student Resources 2004-2010| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2012-13 | |
|---|---|---|---|---|---|---|---|---|
| MLR | 76.2% | 74.6% | 66.8% | 61.2% | 79.3% | 71.3% | 64.8% | 103.8% |
In the contract years at Penn State before the new ACA regulations and the Aetna contract the MLR averaged less than 71 percent. The new ACA regulations, the significant change in benefits in the Penn State plan with Aetna that were a result of that, as well as other factors resulted in an MLR in the first year of the Aetna contract that was a substantial improvement over past years and above the ACA target. This should continue to be monitored during the balance of the contract.
We also can compare both the 2013-14 and 2014-15 Penn State premiums and benefits to those of other universities. The tables and charts further below summarize how Penn State’s plan compares to other Big Ten universities, a comparison set of universities in the Association of American Universities Data Exchange (AAUDE), and a set of Ivy and other universities provided by Towers Watson. As they indicate, Penn State’s compensation and benefits compare favorably to those of other universities. The Task Force will update and monitor these benchmarking results as it completes its work.
Q. I understand Penn State self-funds its employee health benefits, and that this can lower costs significantly. Why doesn’t Penn State stop working with Aetna or other insurers and self-fund its student health insurance or include students in its self-funded employee health plan?
Self-funding is primarily an option open to employee groups. Federal and state laws provide a clear and simple path for self-funding employee health plans. According to Towers Watson, self-funding other types of health plans is much more complicated in Pennsylvania. In some states, there are laws that permit a self-funded student health plan, but Pennsylvania does not appear to have a law designed for this purpose.
Self-funding is also not an option without risks for students. The University of California self-funded student health insurance plan is facing a large deficit because it underestimated student health costs. Self-funded student health insurance plans also do not have to provide all the consumer protections that purchased insurance plans do under the ACA.
While self-funding does not appear to be an immediate solution, the Task Force will continue to seek more information about the option, as well as explore efforts by other universities to change state laws to permit such an option. For example, in New York, where the law prevented self-funded health insurance plans, universities worked with the Governor and state legislature to allow such plans for student health insurance. <sub>3</sub>
Q. Is out-of-pocket spending going up 400 percent?
Based on review of the distribution of claims in the last year where there is complete data on annual spending (2012-13), this estimate is misleading. The 400% estimate is based on the average change in out of pocket medical spending. Averages are misleading because of the unusual distribution of medical spending, which typically has a large number of people who spend small amounts, and a small number of people who spend a lot.
The best way to consider the impact of changes on individuals is to look at spending at different levels of overall spending. Table 4 below shows an estimate of the change in costs for students from both premiums and spending on deductibles, coinsurance and other payments. Note that this table does not include pharmacy spending and has been estimated based on grouped data that includes individuals covered under both the individual, dependent, and family plans, and that the projection assumes the student has no premium subsidy through a University appointment such as a Graduate Assistantship. Because of the data reports available, it is presented in two ways, first assuming all those in the student health insurance plan have individual coverage and second, assuming all have family coverage. Approximately 80-85 percent of students in the Penn State plan have individual coverage.
Based on these data, it appears that nearly 85 percent of students covered by the plan will see out-of-pocket spending increases that average between $0 and $30 per month. About 15 percent of students will see more substantial increases in out of pocket spending, and as noted below, the University is exploring ways to address situations where medical costs represent a substantial burden.
Table 4: How Changes in Student Health Plan Will Impact Student Spending (Individual Coverage)
| Percent of Students that Typically Spend this Amount | Annual Change in Premiums | Change in Out of Pocket Spending | Total Annual Change | Monthly Change in Premiums | Change in Out of Pocket Spending | Total Monthly Change | |
|---|---|---|---|---|---|---|---|
| Typical Spending Level | 29.00% | $490 | $ | $490 | $41 | $ | $41 |
| None | 13.30% | $490 | $ | $490 | $41 | $ | $41 |
| $1-100 | 13.30% | $490 | $ | $490 | $41 | $ | $41 |
| $100-200 | 8.50% | $490 | $73 | $563 | $41 | $6 | $47 |
| $200-300 | 5.80% | $490 | $172 | $662 | $41 | $14 | $55 |
| $300-400 | 4.30% | $490 | $185 | $675 | $41 | $15 | $56 |
| $400-500 | 3.30% | $490 | $195 | $685 | $41 | $16 | $57 |
| $500-1000 | 10.00% | $490 | $221 | $711 | $41 | $18 | $59 |
| $1000-2500 | 11.00% | $490 | $308 | $798 | $41 | $26 | $67 |
| $2500-5000 | 7.00% | $490 | $511 | $1,001 | $41 | $43 | $83 |
| $5000-10000 | 3.90% | $490 | $833 | $1,323 | $41 | $69 | $110 |
| $10000-25000 | 3.20% | $490 | $1,275 | $1,765 | $41 | $106 | $147 |
| $25000-$50000 | 0.50% | $490 | $1,275 | $1,765 | $41 | $106 | $147 |
| $50,000+ | 0.30% | $490 | $1,275 | $1,765 | $41 | $106 | $147 |
Estimates made from 2012-13 full year data from Aetna on claims distribution and does not include pharmacy spending
Table 4: How Changes in Student Health Plan Will Impact Student Spending (Family Coverage)
| Percent of Students that Typically Spend this Amount | Annual Change in Premiums | Change in Out of Pocket Spending | Total Annual Change | Monthly Change in Premiums | Change in Out of Pocket Spending | Total Monthly Change | |
|---|---|---|---|---|---|---|---|
| Typical Spending Level | |||||||
| None | $29.00 | $490 | $ | $490 | $41 | $ | $41 |
| $1-100 | 13.30% | $490 | $ | $490 | $41 | $ | $41 |
| $100-200 | 8.50 | $490 | $73 | $563 | $41 | $6 | $47 |
| $200-300 | 5.80% | $490 | $172 | $662 | $41 | $14 | $55 |
| $300-400 | 4.30% | $490 | $185 | $675 | $41 | $15 | $56 |
| $400-500 | 3.30% | $490 | $195 | $685 | $41 | $16 | $57 |
| $500-1000 | 10.00% | $490 | $221 | $711 | $41 | $18 | $59 |
| $1000-2500 | 11.00% | $490 | $308 | $798 | $41 | $26 | $67 |
| $2500-5000 | 7.00% | $490 | $511 | $1,001 | $41 | $43 | $83 |
| $5000-10000 | 3.90% | $490 | $833 | $1,323 | $41 | $69 | $110 |
| $10000-25000 | 3.20% | $490 | $1,275 | $1,765 | $41 | $106 | $147 |
| $25000-50000 | 0.50% | $490 | $1,275 | $1,765 | $41 | $106 | $147 |
| $50000 | 0.30% | $490 | $1,275 | $1,765 | $41 | $106 | $147 |
Estimates made from 2012-13 full year data from Aetna on claims distribution and does not include pharmacy spending
Q. Why can’t the University mitigate the entire increase for all students? I’ve heard it would take less than $2.5 million to do this, and that’s less than 1.5 percent of the increase in Penn State’s endowment.
The University plan covers all students, domestic and international, who choose to purchase the plan—undergraduates, medical students, law students, as well as graduate students. To mitigate the premium increases alone for all students covered by the plan would cost nearly $5 million dollars. Mitigating the other costs, while not only potentially illegal under the Affordable Care Act, would cost several million dollars more.
The comparison of those costs to the endowment increase is fundamentally misleading, because endowed funds are restricted by the donors for use in purposes described by those donors. The University is barred from using those funds for purposes other than those outlined in the donors’ guidelines. The University also cannot use income that comes from its agricultural federal funds, its hospitals/clinics, or its restricted funds (which includes endowments, grants, contracts, etc.). Its other primary sources of funding—state appropriations, tuition, and fees—would represent asking all other students to pay for the health care of the students covered by the student health insurance plan.
Q. What about families? Children cannot be seen at UHS and have no option for 100% covered pediatric care.
The changes for families are less severe than it appears at first glance. Although in-network pediatric care will be covered at 90% instead of 100%, new mandates under the ACA require 100% coverage for pediatric dental and vision care, as well as for a host of preventive services such as vaccinations, well-child checkups, autism screening, and more. Families will incur additional costs if children require treatment for illness or injury, but not for most routine preventive visits. The Task Force continues to explore options to ensure that families are adequately supported, and will include related recommendations as part of its final report.
Q. What has the University done so far?
- Guaranteed a 3% increase in all stipends for all Graduate Assistants in the 2014-2015 year,
- Maintained premium subsidies at their current rates or increased them, resulting in the University paying for the majority of the premium increase for GAs and their dependents
- Made a special allocation of $300,000 in new funding to expand Counseling and Psychological Services for all students.
- Established an emergency fund to help meet the immediate needs of students experiencing crisis situations.
Q. So, what else is the University going to do?
Student Health Insurance Task Force has been charged with making recommendations regarding the long-term future of Penn State student health insurance. The committee has 18 members representing the many interests of the University community, including 8 students, and representatives from University Health Services, the Penn State Hershey Medical Group, faculty, staff, and administration.
Q. The contract’s already been negotiated. Doesn’t that negate the Task Force’s ability to contribute to the solutions?
Absolutely not. The Task Force is charged with examining the long-term options for student health insurance, not negotiating the current contract. The signed contract certainly does not negate our efforts to explore options for the future of student health insurance at Penn State.
It is our hope that all members of the University community will understand the challenges we face. It appears that options available at other universities, such as self-funding, are not permitted in Pennsylvania. There are only a few insurers who offer student health plans, making it difficult to negotiate a strong deal. The changes embodied in the Affordable Care Act fundamentally alter the landscape of the health insurance market, providing new options to many groups of students—many of them better for some groups of students than traditional student insurance coverage–and creating uncertainty in the market, which also tends to increase insurance costs. The law adds additional taxes to insurance, and provides strong incentives for individuals to be more active and engaged consumers, expanding the information available for their decisions, but also requiring some people to bear a larger portion of their own health care costs, so that coverage can be expanded to others and adequate catastrophic coverage can be provided.
The Student Health Insurance Task Force has been asked to examine these and other issues and make recommendations. As the efforts of the Task Force on faculty and staff health insurance demonstrated, the issues are challenging and complex, but a collaborative effort to identify and work toward the best approaches can establish a strong foundation for meeting those challenges.
Additional Resources
Student Health Plan Comparison
IvyPlus Student Health Survey 2013-2014 TO PSU5.21.14
[1] NHE Projections, 2012-2022, Table 1, Private Health Insurance, Personal Health Care, Percent Change in Per Capita from Previous Year, 2014.
[2]https://www.federalregister.gov/articles/2012/03/21/2012-6359/student-health-insurance-coverage
[3]http://www.governor.ny.gov/press/08012012Affordable-College