I have been following the efforts by Penn State University to implement a new kind of em,ployee lifestyle and health management program in an effort to create more productive workers at cheaper cost. Much of the recent dialogue has emerged from the objects of this management and cost savings; and the effort has appeared to center on engaging in discussion of portions of the plan, some of which, under similar circumstances, were substantially modified at other universities.
(Pix (c) Larry Catá Backer 2013)
This post provides, without analysis or comment, the response of the university in the form of a communication from its President. The response is rich and deep and merits careful study for its hints of the evolution of the character of the relationship of the university to its stakeholders going forward, and of the management of university policy of direct concern to them.
a message from
President Rodney Erickson |
Health care changes at Penn State
Penn
State Faculty and Staff Members,
First of
all, let me thank you for the outstanding job you
continue to do in support of our students, our
research endeavors, and our outreach mission. As
you have no doubt seen in recent weeks, Penn State
is recognized in many publications and rankings as
one of the top universities in the nation and
indeed the world, and there is much to be
justifiably proud of what is being accomplished.
As we embark on the next 150 years as the
Commonwealth’s land-grant university, I know that
all of us want to make certain that Penn State
continues to be a leader in higher education, but
there are big challenges that we must confront.
Likewise, opportunity is often the other side of
that coin.
As you
are aware, based on a recent announcement, the
University is implementing a significant set of
changes to allow us to better control the
currently unmanageable increases in healthcare
costs for our benefits-enrolled faculty and staff.
It is my hope that this message can help explain
our urgent need for action in this area.
Higher
education, like many parts of the so-called
service sector, is faced with a specific kind of
cost and revenue structure as a “people-based”
enterprise. Salaries, wages and benefits make up
roughly 70 percent of our annual expenditures. Our
revenues come from tuition and the other services
we provide, such as medical care, housing and
research grants, among others; and as a publicly
supported university, we also receive an annual
appropriation from the Commonwealth. The state’s
contribution this fiscal year accounts for just
over 6 percent of our total budget and 11.2
percent of the Educational & General (E&G)
budget, our core instructional budget. Tuition now
makes up more than 81 percent of the E&G
budget.
The
reality is that Penn State and other colleges and
universities can no longer increase tuition at
rates significantly exceeding inflation. Real or
inflation-adjusted incomes in the United States
are at 2008 levels, five years after the start of
the Great Recession. Student debt has crossed the
trillion dollar threshold and exceeds total credit
card debt in the country, while students face the
prospects of higher interest rates on their loans
in the midst of a difficult labor market in many
fields. College attendance rates have stagnated
and appear to be falling. The University operates
in a competitive environment that is becoming more
intense every year.
We are at
serious crossroads with respect to our
responsibilities for greater cost control and, in
addition to the many actions that have already
been taken to tighten our collective belt, I also
charged our leadership in Human Resources to take
decisive action and hold annual health care cost
increases— which are soaring — to the Consumer
Price Index plus 2 percent.
Our
health care spend is projected to be $217 million
in 2013-2014. Without intervention, this is a
growth of approximately 13 percent over the
previous year. Passing large increases year after
year onto employees or our students is not a
sustainable strategy. The bold initiative that is
being rolled out this year is part of a long-term
effort that ensures we remain competitive AND
maintain the existing quality of health care
options, while easing pressures on tuition
increases that face our students and their
families.
Please
allow me to provide some perspective on these
figures. A 10 percent cost increase in health care
at our current level of spending is approximately
$22 million. That is roughly equivalent to a 2
percent increase in salaries, wages and associated
costs like Social Security employer contributions.
It is equivalent to a 2 percent increase in
tuition for our students. It is also equivalent to
a 3 percent central recycling on E&G budgets.
If we can substantially curb these runaway costs,
these are funds that can be used for tuition
relief, salary enhancements, or the pursuit of new
strategic initiatives for the University.
Since
Penn State is self-insured, we are providing
health care benefits to eligible employees with
our own funds. This is very different from fully
insured plans where an employer contracts with an
insurance company to cover employees and their
dependents. Because of this self-insured
arrangement, we assume the direct risk, but we
also can reap substantial rewards when our medical
and pharmacy bills (claims) are low. On our
behalf, Highmark is the "third party
administrator" that processes our claims.
The
message communicated in the University’s Strategic
Plan (Priorities for Excellence: The Penn
State Strategic Plan 2009-2014) is clear:
The University
must be creative in the design of its health
care programs of the future. Integrating
additional wellness education and incentives
must be a strategic initiative in the
University’s planning. Other options such as
health reimbursement accounts and changes to
deductibles and co-pays should be considered,
along with differential rates for employees who
continue to engage in higher health-risk
behaviors, and for those who utilize “in system”
providers as opposed to other health care
professionals. Strategic
Priority 7.3
The
recently announced initiative meets the objectives
outlined in the University’s strategic plan. Our
strategy is a deliberate and aggressive attempt to
reduce the rate of health care cost
increases—something that we have been unable to do
previously. Despite several million dollars in
University expenditures over the past decade in
support of voluntary programs for health and
wellness, only a very small percentage of faculty
and staff have participated. If we can improve the
health of our participants through increased
awareness and engagement in their own health, the
rates of our health insurance can be maintained at
current levels or even reduced. This opportunity
is too great to ignore, and we know from the
experience of our employees at the Hershey Medical
Center that substantial reductions in the rate of
cost increases have been achieved with a similar
program over the past eight years. The modest
investment we are making in employee engagement to
help mitigate their own health risks will ensure
the long-term stability of our ongoing benefits
plan.
In order
to increase everyone’s level of awareness,
resources and tools are being made available to
you and your spouse/same-sex domestic partner. I
can appreciate that these on-line tools raise
concerns about security and privacy of
information, and I want to assure you that
included in Highmark’s contract with WebMD, one of
the leading health and wellness authorities in the
country, are specific terms and provisions that
require strict compliance with federal laws and
regulations applicable to privacy and information
security. They are required by law to fully comply
with all relevant HIPAA privacy and security
standards. All information at Highmark or WebMD
must be maintained on secure servers. Any breach
subjects them to significant financial penalties
and possible prosecution. More detailed
information about this can be found at Highmark
and WebMD Health Services. (http://ohr.psu.edu/assets/benefits/documents/WebMDPrivacyAndSecurity.pdf)
In
addition, the University does not have access to
this information and will not be using any
information for research purposes. This initiative
does not meet the definition of Human Participant
Research, as defined by federal regulations and
is, therefore, in full compliance.
In the
coming weeks, a comprehensive recorded webinar
will be posted on the OHR website. Also,
additional details will be shared in other
communications, including face-to-face Open
Enrollment meetings that will take place beginning
Sept. 16. I encourage you to avail yourself of any
and all information that is being provided. Please
know that I have heard and understand the
concerns, but I am calling upon you as a valued
member of our Penn State community to make
decisions based on factual information.
I want to
thank the more than 5,100 faculty and staff who
have scheduled an appointment for a biometric
screening and the more than 4,200 who have already
completed a wellness profile. Your participation
in managing your health is a vital component of
this plan.
We are
embarking upon a new era in higher education.
While I recognize these changes are unsettling and
have raised concerns, the magnitude of our
challenges leaves us no choice but to move ahead
as planned. For the University, it is better to
control our health care costs and have additional
latitude for reducing the rate of tuition
increase, keeping our salaries competitive, and
funding new initiatives than not meeting our
critical imperative to reduce the rate of health
care expenditures. As individuals and families, we
also will have choices to make about our
participation and how we allocate our personal
health care dollars.
Please
excuse the length of this communication, but I
believe it is extremely important that everyone
understands the scale of the issues we face with
respect to higher education and health care — and
our need to move forward. Thank you for your time.
Sincerely,
Rodney A.
Erickson
President |
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