The Social Dimension of the Eugenics of Employee Benefits--The View From Penn State

(Pix (c) Larry Catá Backer 2015)

I have been considering the move by universities to embrace cultures of eugenics through their benefits  programs (e.g., The New Eugenics--The Private Sector, the University, and Corporate Health and Wellness Initiatives (July 16, 2013); The "Wellness" Program at Penn State: The View From the Bottom Up (Aug. 6, 2013).  These programs are meant to serve as part of broader programs to manage employee behaviors to maximize their benefit to the university, and to capture, for the university, the increased productivity such behavior management generates (See here and here).  And the U.S. Government has sought to intervene to develop some regulatory structures within which employers are free to re-make their employees as they wish (See,  EEOC Issues Proposed Rule on Application of the ADA to Employer Wellness Programs ("The EEOC's proposed rule would provide much needed guidance to both employers and employees about how wellness programs offered as part of an employer's group health plan can comply with the ADA consistent with provisions governing wellness programs in the Health Insurance Portability and Accountability Act (HIPAA), as amended by the Affordable Care Act. In addition, the EEOC is also publishing a Fact Sheet for Small Businesses and a Question and Answer document for the general public.")).

I noted that this new eugenics, articulated through the management behavior controls increasingly incorporated into benefits programs, appears also to have a social dimension. The social dimension of benefits eugenics does not target behavior modification--instead it targets  the cultures of employment and the control of the thoughts and values of employees through processes of socialization that manipulate employees into becoming the strongest advocates of the programs the university targets to employees but for the benefit of the university enterprise.

This focus on the control of the "hearts and minds" of the target population is an efficient response to the problem of reducing the cost of imposing and policing programs requiring changes in employee behaviors and beliefs. By convincing employees to become the principle advocates, and monitors, of these programs, the university, like of other "masters" (understood in the sens of that term in U.S. labor law), the university increases compliance rates and decreases the costs of disciplining workers into the new managerial order.  The business case for a social dimension, then, is obvious.  

The methodologies of socialization requires the deployment of the traditional tools of incentives and disincentives common to mass management int he U.S.  It is common knowledge that the tax law in the United States has been used to manage behaviors by increasing and decreasing the costs of targeted activity by raising or lowering the tax consequences of that activity.  Business has long known that cost is a significant factor in consumer choice (and when used unfairly by pricing below cost a mechanism for destroying competition).  Where the object is to induce employees to become the advocates of the choices that university administrators have made for them, the ability to manage the costs of choices provides an important tool of this sort of socialization. Such socialization is best undertaken covertly, though the long history of tax behavior manipulation suggests that it can be as successful when the project is fully transparent. It is also best managed when a conscious policy of administrators, though the logic of administrative cultures might permit the adoption of policies that have the effect of socialization management without the need for a formal or conscious policy.

The possibility of the use of the social element of eugenics--socialization management--among a target population, can thus be discerned, at times, by the approaches that universities take to the pricing of choices among benefits made available to employees.  These issues were discussed in the context of the consideration, by the Penn State University Faculty Senate Committee on Faculty Benefits, of the pricing of benefits at Penn State.  This consideration was presented in its Advisory and Consultative Report, Employee Contributions to Penn State’s Self-Insured Health Care Costs (March 17, 2015). The six recommendations of that report were overwhelming approved by the Senate at its March 2017 meeting (Record).  While the university administration has yet to speak to the recommendations, it would not surprise to expect a negative response, and perhaps a passionate one.  I will report on that response when and if it is made.

 The report has importance not merely for the internal policy debates at Penn State but rather for the way it indicates that large universities are beginning to change their administrative operations and develop policy and policy approaches in the face of the need to contain costs, and to effectively manage their employees.  The social costs of those decisions will have ramifications far beyond the university, and those might have political dimensions as well.

The POWERPOINT PRESENTATION may be accessed HERE.

The Report follows or may be accessed HERE.

SENATE COMMITTEE ON FACULTY BENEFITS

Employee Contributions to Penn State’s Self-Insured Health Care Costs

(Advisory/Consultative)

Implementation: Upon approval by the President

Background

This report makes recommendations for the process of setting health care plan premiums.  The process is grounded in the premise that the entire Penn State community is a single group, geographically dispersed.  As a group, we constitute a single risk pool and a responsibility by each member to all members of the group to provide quality health care at an equitable individual cost.  The committee supports the introduction of new plans and contribution strategies designed to lower overall health care costs and to achieve equitable employee contributions across income levels and plan options. 

The report provides recommendations to accomplish the following objectives.

• To more clearly define employee contributions to the health insurance system to include premiums, co-pays, deductibles, coinsurance, and surcharges.
• To reaffirm the university’s longstanding commitments to cover 80% of employee's and 70% of dependent's medical expenses under the 1998 Joint Committee on Benefits.
• To call for substantial revisions to steep benefits contributions indexing instituted in 2014, based on the framework outlined in the August 30, 2011 Senate Benefits Committee report. 
• To establish an equitable system of benefits support for all faculty and staff by requiring the university to contribute an equal dollar contribution to employees within the same income bracket across different health plans.
• To require the university to be more transparent in reporting the support it provides employees at different income levels and within different health insurance plans.

To that end, we make the following recommendations:

1.  Redefining Employee Contribution to Health Insurance

Rationale

The university has a longstanding commitment to cover approximately 80% employee/ 70% family member of total health care expenses, leaving the balance to be contributed by employees.  Prior to 2011, employee contributions were monthly premiums.  Since 2011, the university has introduced deductibles, coinsurance, and fees that result in significant new out-of-pocket expenses to employees. When out-of-pocket expenses and fees are not classified as employee contributions, the full percentage of employee contribution to the total health care cost of the Penn State group is hidden, and the university percent of contribution in comparison to employee premiums only is over-reported.   To accurately evaluate the policy of 20% employee/30% dependent contribution endorsed by the Faculty Senate and Administration in the 1998 Joint Committee on the Future of Benefits Report (when premiums were the only form of contribution), all information released on contributions to health care should include all sources of contribution by employees and the university.

When the total cost of health care to the entire group includes contributions made by subscribers that are considered out-of-pocket expenses, the percentage of contribution between employee and university can be accurately examined.  As the “2014 Cost Sharing by Plan” bar chart 1.1 below indicates, employee premiums and university contributions comprise only 91% of costs for those enrolled in the PPO Blue Plan, 85% of costs for those enrolled in the PPO Savings Plan, and an average of 90% across the entire group enrolled in both plans.  Out-of-pocket contributions provide a substantial employee contribution to the entire group’s health care costs, amounting to 9% for the PPO Blue, 15% for the PPO Savings, and 10% across the entire PSU group adjusted for plan, tier level, and indexing. 

Figure 1.1 Cost Sharing by Plans

Figure 1.1 illustrates how the PPO Blue plan includes a substantially higher employee contribution than the PPO Savings Plan. Employees in the PPO Blue plan pay 18% of the cost of their plan in premium and 9% in out of pocket costs, while employees in the PPO Savings plan pay 5% in premium, receive 5% for their Health Savings Account from the University, and pay 15% in out of pocket costs.  (Figure ©Towers Watson 2014)

Recommendation 1: 

Employee contributions to health care shall be reported to include all paid premiums, co-pays, deductibles, coinsurance, and surcharges.

2.  Establishing Employee Contributions Based on 1998 Joint Committee on Benefits

Rationale

The 1998 Joint Committee on the Future of Benefits established the goal of phasing in over 7 years an employee contribution level of 20% for the individual employee and 30% for spouse and family members to health care.  Over the time this recommendation was implemented by the university (it was achieved by the 2008 benefit year), it applied only to employee premiums as no other form of employee contribution was made to meet the total health care costs known as the total Estimated Allowed Charges to the entire Penn State group.  Since 2011, deductibles, coinsurance, and surcharge fees were introduced to transfer additional health care costs to employee out-of-pocket contributions. 

The above bar graph 1.1 shows the total employee contribution is 27% for the PPO Blue Plan, 20% for the PPO Savings Plan, and 26% for the combined adjusted average.  Table 2.1 below shows the number enrolled in 2014 at each tier level within the two available plans.  Each tier level would have an expected employee contribution based on a blend of the 20% employee/ 30% dependent contribution levels and the number of individuals covered on average for each tier is indicated in parenthesis in column 1.  Using the number enrolled in a plan at each tier, a weighted average can be calculated to determine the overall % of employee contributions to be expected for each plan.  For the PPO Blue Plan, the weighted average contribution of 23.99% is lower than the actual 2014 employee contribution of 27% to that plan, thus employee contributions exceeded the 20% employee /30% dependent contribution level for the PPO Blue plan by 3.0%.  For the PPO Savings Plan, the weighted average of 24.38% is higher than the actual 2014 employee contribution of 20%, thus employee contributions fell short of the 20% employee/ 30% family contribution level for the PPO Savings plan by 4.4%. 

  Table 2.1  2014 Enrollment in Plans

PPO Blue	Contribution Expected	Number Enrolled	% of total enrolled	Weighted Average Contribution
Individual (1)	20%	4,324	39.84%	23.99%
2 Person (2)	25%	1,813	16.70%
Parent/Children (3)	26.60%	1,065	9.81%
Family (4)	27.50%	3,649	33.62%
PPO Savings	Contribution Expected	Number Enrolled	% of total enrolled	Weighted Average Contribution
Individual (1)	20%	765	36.62%	24.38%
2 Person (2)	25%	261	12.49%
Parent/Children (3)	26.60%	114	5.45%
Family (4)	27.50%	949	45.42%

The PPO Savings plan includes a Health Savings Account (HSA) and in 2014 and 2015 the university is contributing $400 individual/$800 family to this account for each plan holder.  The decision by the university to contribute to this HSA account is made yearly.  In bar graph 1.1 above, “2014 Cost Sharing by Plan,” the HSA contribution equals 5% from the university toward the PPO Savings plan.  If this contribution was paid into the HSA account by the employee instead of the university, then the total employee contribution to the PPO Savings plan would be 25% and the university contribution would be 75%; this would then closely align the PPO Savings plan 2014 employee contributions with a 24.38% weighted average contribution based on 20% employee/ 30% family contribution levels.

Taken together, recommendations 1 & 2 establish employee contributions as a combination of premiums and out-of-pocket costs.  The out-of-pocket costs for the PPO Blue Savings plan includes both the 15% contributed by employees and the 5% contributed to the HSA account by the university, for a combined total of 20%.  The out-of-pocket costs for the PPO Blue are 9%.  The key difference between the PPO Blue and PPO Savings plans should be the out-of-pocket costs, which using the 2014 contribution data, are 11% higher for the PPO Savings plan. 

In setting premium contributions for the next year, if out-of-pocket costs are projected at 9% for the PPO Blue plan, then premiums would make up the remaining employee contribution at each tier level to achieve the 20% employee/30% dependent contribution levels appropriate for that tier.  For example, premiums for the individual PPO Blue plan would require an additional employee contribution of 11%, while premiums for the family PPO Blue plan would require an additional employee contribution of 18.5%.  If out-of-pocket costs are projected at 20% for the PPO Savings plan, then premiums would make up the remaining employee contribution at each tier level to achieve the 20% employee/30% dependent contribution levels.  For example, premiums for the individual PPO Savings plan would require an additional employee contribution of 5%, while premiums for the family PPO Savings plan would require an additional 7.5%. 

These employee premium contribution levels would be adjusted for income indexing proportionately equal across both PPO Blue and Savings plans.  The level of contribution from the university to both plans would be equal in dollars at each tier based on the 20% employee/30% dependent contribution level, and the difference would be made up by employee contributions through premiums and out-of-pocket expenses.  The employee contribution would differ between the two plans based on indexing and on different ratios of premium to out-of-pocket contributions.  The PPO Savings plan has a lower premium because it includes a tax-free HSA account to meet the higher percentage of out-of-pocket costs.

Recommendation 2:

The employee contributions to health care costs shall not exceed the average of 20% employee/30% dependent for the total Estimated Allowed Charges required to provide health care to the entire Penn State group.

3.  Index Tiered Benefits Contribution Rates Base on August 30, 2011 Senate Report

Rationale

Concerned that rising healthcare costs were having a disproportionately harmful impact on lower paid university employees, Human Resources and the Faculty Benefits Committee drafted a report outlining possible changes to benefits contributions. Whereas contributions to the health insurance system had heretofore been based on a flat fee depending on the employee’s health insurance plan, the August 30, 2011 report proposed a tiered contribution system, wherein employees earning under $45,000 would contribute to the health insurance system based on a fixed percentage of their salary rather than a flat fee. Employees earning more than $45,000 would contribute gradually higher amounts based on income. The report recommended adjusting contributions based on five principles:

1.     Employee contribution for healthcare based on annual base salary;

2.     Those making $45,000 or less will contribute the flat percentage as indicated on the chart;

3.     Those making over $45,000 will contribute a percentage that has been modeled by actuarial experts; the basic premise of the model is that the more an individual earns, the more the individual will pay toward healthcare;

4.     This model provides for a cap of the employee contribution at an annual base salary of $121,000;

5.     Monthly and annual savings for employees would be significant for the majority of faculty and staff based on this model.

Under the rates implemented in 2012 and 2013, as outlined in the 2011 report, the highest income earners would pay roughly twice as much for insurance as lower income employees, based on a percentage of salary that declined as salaries increased above $45,000.  For 2014 (and continued into 2015) the university implemented a revised indexing plan wherein employees paid a flat percentage of income for each tier at all salary levels up to $140,000.   Table 3.1 below presents the different percentages under the first indexing plan in 2013 and revised plan in 2014.

Table 3.1: Percentages of contribution/salary for employee premiums to the PPO Blue Plan

Table 3.1 illustrates how the change in insurance contributions changed from 2013 to 2014 with the introduction of benefits contributions based on a flat percentage of salary. In 2013, an employee earning $45,000 a year paid 6.69% of his/her salary to pay for a family plan, while an employee earning $100,000 paid 3.64% of his/her salary for the same plan. In 2014, all employees earning up to $140,000 paid 5.43% of their salary for a family plan. The revised system created potentially large increases in premium contributions for employees earning more than $60,000 a year. ©Towers Watson 2014 (October 21, 2014 Report)

The 2012 & 2013 modest indexing plan resulted in a significant decline in premium contributions for those earning under $45,000, without a substantial increase in premiums for higher income employees.  The percent of premium contribution ranged between 16.99% and 22.17% between the PPO Blue plan tiers across all income levels.  When adding the 2014 out-of-pocket costs of 9% to each premium level, the full employee contribution slightly exceeds the 20% employee/ 30% dependent contribution levels (the exact out-of-pocket costs for the 2012 and 2013 years are unavailable). 

The 2014 and 2015 revised rates resulted in a decrease in premium contributions for employees earning under $45,000 a year from 16.99% to 12.73%, but simultaneously created substantial premium increases for those earning more than $100,000 a year from 20.53% to 28.28%.  When adding the 2014 out-of-pocket costs of 9% to each premium level, employees earning under $45,000 enrolled in the employee only plan contributed 21.73%, those at $75,000 contributed 30.21%, and those earning over $100,000 contributed 39.25%.  All of these contribution levels exceed the 20% level of contribution expected for the employee only PPO Blue plan.

The line graphs below in Table 3.2: Health Contributions as a Percentage of Salary illustrate the premium contributions as a percentage of salary and real dollar premium contributions for the three different premium plans used in 2010 (before indexing), 2012 (modest indexing), and 2014 (steep indexing). 

Figure 3.2:  Health Contributions as a Percentage of Salary

Figure 3.2 Illustrates how the change in benefits contributions formulas altered the percentage and total dollars paid for premiums by employees at different income levels from 2010 to 2012 to 2014. In 2010 all faculty paid a flat contribution for an individual policy. This resulted in lower income employees paying a relatively high portion of their salary for health insurance premiums. In 2012 the contributions system was modified to lower to premiums for those earning under $45,000 a year, without any substantial alternations in the total dollars paid by higher income employees.  With the adoption of employee premium contributions based on a flat percentage of income, some employees saw their health insurance rate double in one year. (Illustration prepared by the Faculty Benefits Committee)

In the “Health Contributions as a Percentage of Salary” graph, all employees in 2010 contributed the same premium for the PPO Blue plan, thus employees at lower incomes contributed as much as 9% of their total income as a health care premium.  With the 2012 modest indexing, employees contributed based on income and the lower premium contributions by those with incomes below $45,000 were offset by higher premium contributions from those earning more.  This indexing strategy reduced the percentage of income contributed to premiums by lower paid employees to nearly 4%, and set premiums for salaries over $45,000 that closely follow the percent of income they had contributed in previous years.  Even though the percentage of salary for employees earning more than $45,000 tracked the lower percentages paid for premiums in earlier years, the “Monthly Healthcare Contributions” graph shows that additional dollars paid by higher income employees balanced the premium dollars saved by lower income employees.

In 2014, a flat percentage was used across all income levels for each plan and tier, thus those enrolled in the PPO Blue plan with incomes above $60,000 (the median income for enrolled employees) contributed significantly more in dollars than what was required to offset the lower premiums contributed by those in the same PPO Blue plan below $60,000.  Employees earning in excess of $100,000 saw insurance premium rates effectively double again from 2013 premiums in terms of real dollars.  The 2014 indexing strategy generated a far greater contribution from employees at higher income levels in the PPO Blue plan than was required to reduce premiums for employees at lower incomes.  The “Monthly Healthcare Contributions” graph in Table 3.2 illustrates the steep increase in premium dollars contributed by employees with incomes above $60,000.  The 2014 indexing strategy to apply a flat percentage to individual employee incomes based on their plan and tier level created inequities within the group in employee premium contributions.  

Whatever the deficiencies in the 2012 indexing plan, the revised rates, introduced in 2014 represent a radical departure from the rate structures recommended by the Faculty Benefits Committee in their 2011 report.  As the substantial increase in contributions from higher income employees did not result in an equal reciprocal decrease in contributions of lower paid employees within the same PPO Blue plan, the 2014 and 2015 steep indexing generates excess funding from employee premiums, and certainly does not meet the objectives outlined in the August 30, 2011 Faculty Benefits Committee report.

Recommendation 3:

Income based employee insurance contributions shall be reset to an indexing plan similar to 2012 and 2013, as described in the August 30, 2011 Senate Benefits Committee report. Except for employees earning under $45,000 (as outlined in the 2011 report), the University shall not set insurance contributions based on a fixed flat percentage across all income levels.  Any deviations from the 2011 framework as implemented in 2012 and 2013 shall be done in consultation with the Faculty Benefits Committee and the University Senate.

4.  Provide for Equitable Benefits Compensation within Income Brackets

Rationale:

When the university implemented the revised steep indexing in 2014, and simultaneously introduced a new PPO Savings plan, the rate shifts had a dramatic impact on employee contributions, particularly for those earning more than $60,000 per year.   The changes in employee premium contributions from 2013 to 2014 are detailed in Table 4.1 below.

Table 4.1:  Change in Employee Premium Contributions from 2013 to 2014

Table 4.1 illustrates how the rate changes from 2013 to 2014 led to a $4.7 million increase in contributions from employees in the PPO Blue plan earning more than $60,000 a year. Employees in the PPO Blue plan earning less than $60,000 a year only saw a decrease of $1.4 million in contributions over the same period.

Using financial estimates provided by the university’s benefits consultant Towers Watson, the committee concluded that the 2014 rate increases on employees earning more than $60,000 a year in the PPO Blue plan far exceeded the rate reductions provided to employees earning less than $60,000 a year. Of the $4.7 million in new contributions raised from employees earning more than $60,000 a year in the PPO Blue plan, only $1.4 million was used to reduce the contribution of those in the PPO Blue plan earning less than $60,000 a year.  A large proportion of the new revenue, $3,304,000, from PPO Blue premiums became available to fund the entire PSU group’s total health care allowable costs.  In comparison, the difference in premium contributions from 2013 to 2014 for employees who switched from the PPO Blue plan to the PPO Savings plan decreased by $3,070,000. 

For 2014, employee premiums paid for both plans contributed only $234,000 new dollars towards the PSU group’s total health care allowable expenses for 2014.  The increased premium contributions paid by employees in the PPO Blue plan made up almost exactly for the decreased premiums paid by employees moving to the PPO Savings plan; although, it was not possible to know the number of employees who would change plans prior to setting premium rates for 2014.  Table 4.2 below, labeled “Differences in Penn State Contributions,” illustrates how the university contributions to the PPO Blue plan were less than contributions to the PPO Savings plan at income levels above $60,000.

Table 4.2 shows how, even within the same income bracket, Penn State provides additional health insurance premium support for most employees in the PPO Savings (high deducible) plan. An employee earning $140,000 a year on the PPO Blue family plan receives $3,200 less support in medical insurance premiums than an employee with the same income in the PPO Savings family plan.

Although Penn State requires higher premium contributions from higher income employees, the adjusted average cost of the insurance plans, labeled in the table 4.2 and 4.3 as “True Cost,” is the same at each tier level within a plan regardless of the employee income.  For the PPO Blue plan, the True Cost of the insurance plan for an individual employee is approximately $515 a month. For a family plan, the PPO Blue plan costs $1,494 a month.  This is the cost of the insurance plan only, and does not include out-of-pocket costs also contributed by the employee to meet the full cost of health care allowable expenses for the entire PSU group.  For the PPO Savings plan, the True Cost of the insurance plan for an individual employee is approximately $451 a month, 12.4% lower than the PPO Blue plan.  For a family plan, the PPO Savings plan costs $1,309 a month, 12.4% lower than the PPO Blue plan.  The difference in true costs between the plans arises from the responsibility of the employee to pay more out-of-pocket costs, approximately 11% more, for health care costs in the PPO Savings plan.

The columns in the table 4.2 above, labeled “PPO Blue (Current)” show the university and employee contributions to the PPO Blue plan, and the percentage of the total true cost of the insurance plan contributed by employee premiums at four income levels ($25k, $60k, $100k and $140k).  Note that given indexing based on a flat percentage of income, the actual premium contribution from employees range across these four example salaries, and are capped at $140k.  Also, again note that out-of-pocket costs in both plans are contributions beyond the true cost of the plans that are necessary to meet the total health care allowable expenses for the entire PSU group.  The cost of the insurance plan for individual only employees is $515 a month, and an employee earning $25k a year would contribute $36 a month, while an employee earning $140k a month would pay $204 per month.

The “PSU Contribution” column is determined by subtracting the employee premium contribution from the total cost of the insurance plan to reveal Penn State’s contribution for each income bracket. Using the previous example, for a single employee earning $25k a year, the cost of the insurance plan is $515 a month and their contribution is $36 a month, leaving the university to contribute $478 a month toward the plan for that employee. By contrast, for a single employee earning $140k a year, the total cost of the insurance plan is $515 a month and their contribution is $204 a month, leaving the university to contribute $310 a month for that employee.

The columns labeled “PPO Savings Plan (Current)” provide the estimates of the university contribution to that plan, again comparing the total cost of the plan to the employee contribution.  Looking to the PPO Savings plan, for a single employee earning $25k a year, the cost of the insurance plan is $461 a month and their contribution is $10 a month, leaving the university to contribute $451 a month toward the plan for that employee. For a single employee in the PPO Savings plan earning $140k a year, the cost of the insurance is $461 a month and their contribution is $58 a month, leaving the university to contribute $403 a month for that employee.

With an indexed premium contribution structure, where higher paid employees pay a larger share of their health plan premium costs, we would expect Penn State to contribute more toward the healthcare costs of the employee making $25k a year than the employee earning $140k a year.  And with two plans, we would expect the university contribution to the PPO Blue and PPO Savings plan to be the same at each tiered benefit level because the difference between the total cost of the two plans is made up by the higher out-of-pocket contributions from those enrolled in the PPO Savings plan.  The calculations in the column labeled “Monthly Difference” and “Annual Difference” look at these two assumptions and reveal a different actuality. 

Except for employees earning $25,000, the university contributes more in real dollars to the total costs of the PPO Savings plan even though this plan has a lower total cost of $461 as compared to the $515 for the PPO Blue plan. The differences are relatively small for employees at the $60k income range where those enrolled in the PPO Savings plan pay between $108 and $281 less in premiums per year. However, for employees at the $100k a year income threshold in the PPO Savings plan, the university is providing an extra $600 to $1,600 of premium per year over those in the PPO Blue plan.  At $140k, the highest income threshold, employees in the PPO Savings Plan receive $1,100 and $3,200 in extra premium contribution from the university than their colleagues at the same income threshold in the PPO Blue plan.

What the above table 4.2 shows again is an unequal distribution in premium contributions between the two health care plans under the indexing formula implemented for 2014 and 2015.  As a consequence, particularly for employees at the higher income levels, the PPO Savings plan becomes more attractive than its real underlying costs warrant if premiums were based on the original indexing plan recommended by the University Faculty Senate in 2011 and implemented in 2012 and 2013.  This attractive inequity may have the effect of pushing employees into the low premium, high deductible PPO Savings plan.  In their presentation to the faculty benefits committee on October 21st, Towers Watson, the University’s benefits consultant did confirm that the revenue shifts highlighted in the tables above were not uncommon as organizations made the transition from traditional plans to high deductible plans. The movement of employees from the PPO Blue plan to the PPO Savings plan was 16% of Penn State’s benefits eligible employees in 2014.  At the end of open enrollment for 2015, that figure increased only slightly to 16.9%.

To correct the inequitable distribution in employee contributions to premiums both within and between the PPO Blue and PPO Savings plan, the university shall adopt a policy of providing equitable premium contributions at each tier for employees at similar incomes regardless of the health care plan.   Under a revised premium contribution, the university would set aside funds for employees at different income levels, providing identical support for employees regardless of their insurance program. Table 4.3 below, “Eliminating the Differences in Penn State Contributions” illustrates this policy.

Figure 4.3 shows how rates might shift if Penn State provided the same level of premium support to employees in both the PPO Blue and PPO Savings plan. The revised rates would reduce the rates for employees currently in the PPO Blue plan while increasing the rates in the PPO Savings plan. This shift would occur because a revised plan would end the indirect subsidy established when Penn State provided additional financial support for most employees enrolled in the PPO Savings plan.

A single employee earning $60k a year would receive $429 per month in insurance premium support from the university whether he elected to enroll in PPO Blue or PPO Savings.  Enrolling in the PPO Savings plan would still result in a lower employee premium contribution of $52 monthly, a 7.0% employee contribution, as compared to the PPO Blue plan at $86, a 16.7% employee contribution.  The difference in premium contribution of 9-10% approximately equals the difference in contributions of 11% between the two plans in out-of-pocket costs.  As you examine the difference in premiums between plans in table 4.3 above at each tier level, you note an increase in employee premium contributions toward  the true cost of the insurance plan, and a consistent difference in the percentage of employee premium contributions between plans of 9-12% less for the PPO Savings plan, reflective of that plan’s higher out-of-pocket contributions.   At the $25k a year salary, an employee selecting the PPO Savings plan would actually have a premium contribution of zero dollars, and the excess University contribution shown could be redirected by the University to the HSA account for that employee.

A principle of equitable compensation would, in the short term, result in a modest drop in the rates of employees currently enrolled in the PPO Blue plan. Those in the PPO Savings plan (particularly those in the higher income brackets) would see a more substantial increase in order to achieve the expected contribution balance based on the 20% employee/30% dependent contribution level policy.  These shifts would benefit the vast majority of employees, 83% of whom remain in the PPO Blue plan in 2015.  More importantly, the policy of equal university contribution to both plans would eliminate the inequitable contribution support provided to the PPO Savings plan as a consequence of premium levels priced below those required to fully fund the PPO Savings plan and above those required to fully fund the PPO Blue plan.  Further, the extra contribution of 5% to the PPO Savings plan HSA account by the university artificially reduces the higher out-of-pocket costs that should accompany the PPO Savings plan, thus only adds to the already inequitable premium contributions between plans.

Recommendation 4:

The University shall provide an equal dollar contribution in premium support to employees at the same income level, regardless of the health insurance program in which they are enrolled.

Recommendation 5:

Human Resources shall publish yearly a table showing the per employee cost of insurance plans, the university’s and employee’s dollar contribution in premium support for individual employees, broken down by income bracket and insurance plans.

Recommendation 6:

The University shall not contribute extra dollars to the Health Savings Account of those enrolled in the PPO Savings plan beyond the dollar amount contributed to employees in any plan.

Conclusion

Beyond the foundational equity sought by the recommendations in this report, the committee is mindful of the importance of controlling healthcare expenditures both to maintain the fiscal health of the university, and to mitigate the possible impact of the so called “Cadillac” excise tax written into the Affordable Care Act.

The federal excise tax on healthcare, which begins in 2018, will levy a 40% tax on the value of health insurance premiums over and above $10,200 for individuals, and $27,500 for families. The tax is calculated only on the value of health insurance plans above the threshold. Any business that provide less than $10,200 of coverage per individual would not be subject to the excise tax. For example, after 2018, a business which provides an employee with $11,200 of health insurance coverage would pay $400 in excise taxes ($11,200 benefit - $10,200 cap = $1000 x 40% rate = $400 excise tax). While the $10,200 cap on so called “Cadillac” health insurance will grow at the rate of inflation (CPI), health spending rates generally grow more rapidly. While the ceiling for the excise tax was set well above most health insurance plans, by indexing the rate to the CPI (rather than medical inflation) the tax will gradually place burdens on a growing proportion of US businesses.

The excise tax poses no immediate threat to Penn State employees as the university insurance is presently well below the threshold defined by the ACA. The university’s benefits consultant Towers Watson reports that the annual projected costs of the medical/pharmacy plans for those enrolled in the more expensive PPO Blue system runs $6,228 a year for individuals and $18,069 for family coverage. These are well below the $10,200 and $27,500 thresholds.

Nonetheless, if the ACA is not modified by Congress the law could eventually place significant burdens on employee benefits as Penn State’s health insurance expenses will, almost certainly, outpace the rate of inflation. Working with Human Resources, the Faculty Benefits Committee will continue to examine how the university might slow the growth of medical expenditures with greater efficiency, expanded access to preventative care and the voluntary adoption of high deductible insurance systems like the PPO Savings plan.

SENATE COMMITTEE ON FACULTY BENEFITS