Duke Student Health Insurance Blog

New venue

2007-01-24T19:54:00.000-08:00

Please continue discussion on our new forum on the new GPSC website:

http://gpsc.duke.edu/forums/general_discussion/health_insurance

Thanks,
David

Your options – your input

2006-12-10T05:23:00.000-08:00

The Student Health Insurance Advisory Committee is considering several options for next year's policy (Please also see the previous post for some background). Each one has its pros and cons, and we would appreciate your input!

1. Solicit bids from insurance companies to provide our insurance plan for next year (and presumably subsequent years). This means:

- Potentially changing our insurance carrier with a different network.

- Potentially a change in prescription drug coverage.

- Other changes to the structure and provisions of the plan.

- This does not mean that we have to change our policy, but if we go out to bid again, there is an implied commitment to stay with the company that we choose for more than just one year (see option 2 and 3).

2. Maintain coverage with our current provider, Blue Cross and Blue Shield of North Carolina, through our current broker, Hill, Chesson, and Woody.

- Basically the same plan with any improvements that we ask for (and are willing to pay for).

- This could allow us one extra year to prepare for option 3.

- We could still make changes to the plan, such as making our mental health coverage (one area where our current plan is troublesome) like option 3, without changing the medical (physical) portion.

3. Move to a model of self-insurance. Basically, this means that we don't use an insurance company to cover our claims, we do it within Duke. We have a large enough group that this is a viable option. This does not mean that insurance is not involved, but Duke would cover all of the students, and Duke would hold an insurance policy that would cover Duke if it had to pay out for any large claims beyond what we expect. This is a very simple concept, but would still take a lot to explain all of the unique facets. If this proves to be an attractive option, we will provide you with more information. You can always e-mail the GPSC sub-committee at DukeStudentInsurance@gmail.com.

- Total in-house control of benefits. That means that we, collectively, have control to add, remove, and alter our benefits at any time (within state regulations).

- Removal of the "middle-man" insurance company and broker that should save us money.

- Duke will have to contract with outside entities to provide a network for students when traveling outside of the Duke area, provide administration for claims, and assist with the regulations governing health insurance.

- This is highly dependent on Duke's ability to negotiate contracts with the providers that students want to use - this means primarily the Duke Health System, but could include others that would be a bit more tricky.

Going to bid

2006-12-10T05:20:00.000-08:00

Duke University has routinely entertained changes to the health insurance plan. We have also requested bids for other companies to provide service. This year we are making decisions about what changes to the plan would be in the best interest of the students that it serves.

Duke has hired a recognized consultant in the field of Student Health (Stephen Beckley, http://www.slba.com) to advise us in the process of either choosing to stay with the model we have or move to a different model for student insurance. One option is to not provide insurance through a health insurance company, but rather a totally "Duke-run" plan. We also must decide when, if at all, we want to make such changes.

This is done as both an educational process as well as assurance that we are purchasing the best plan, at the best value. It does not mean that we want to stop using Blue Cross and Blue Shield, or Hill, Chesson, and Woody, it is something that we have the responsibility of doing.

First of all, we learn the most about options in health insurance when we are presented with them in policies. Therefore, it is a healthy exercise to hear from many insurance carriers to determine what options we want in our plan. This is analogous to researching cars before you purchase one – it’s a big purchase, and you want to make sure you know all of the facts.

The second part is looking for the best plan at the best value. The committee takes its responsibility to the students very seriously; we are very aware that this is your money, and you need us to provide you with the best value. To return to the car analogy, if you purchased a Toyota all your life, you would do your research and shop around before you buy – even if you end up with a Toyota again. A car is a big purchase, and at approximately eight million dollars, the Duke Student Health Insurance plan is a big purchase as well.

Age banding, fair pricing strategies, and advantages for everyone

2006-03-28T15:28:00.000-08:00

The question of age banding has been among the most controversial and confusing that has been raised in this year's discussions of the health insurance plan. Age banding is a particularly seductive tool that can be used to bring Duke's plan back under control. Using age banding, we would be able to rethink our premium structure to bring the rates for healthy young males below market, thereby drawing these back into our plan and helping stop the downward spiral of premium increases that inheres to our present plan. Furthermore, due to the composition of our plan's participant pool and the particularities of the private market, we are able to price insurance below market value for every single student.

Some will argue that the Duke plan should shift to an age banding structure with each age range receiving the same discount off of the premium available on the open market. They claim that offering an equal discount to all participants is fair and equitable. However this conflates age banding's true goals and advantages with ideological and philosophical desires that are out of sync with our particular community.

Put simply, age banding is a mechanism that can allow us to ensure the long-term viability of our health insurance plan for all students; it need not be combined with ill-fated experiments in free-market economics.

All members of our graduate community have chosen to study here at Duke and have been invited to do so by our faculty. As we cannot allow the educational mission of our university and the cohesion of our graduate community to be compromised, we can neither allow any of our students to be overly burdened by the cost of maintaining their health while they are here in Durham, living on either a fixed income or borrowed money. The cost of the Duke insurance plan can not be allowed to prevent a student from pursuing graduate study at Duke.

"Equal" discounts?

The suggestion that it is fair to price an age-banded insurance plan according to a particular discount pegged to the open market seems internally consistent at first blush. But a funny thing happened on the road to philosophical purity: reality. Graduate students do not live on percentages but on dollars. Were we to offer an equal discount to all participants, we would have to settle for about 7% off the open market in order to balance our books. For a 22-year-old first-year grad student straight out of college, the premium would be $1,436, about $108 below market. However, a 46-year-old who chose to pursue the same graduate degree at Duke would be paying $2,764. Although this is more than $200 below the market value of comparable coverage, it is nearly double the rate that his younger colleague pays and nearly $1,200 more than the 2005-06 premium. An "equal" discount for all age bands would be no more fair than a flat tax on income and no more secure than a social security plan based on private investment accounts.

Some would argue that the older student could have been an active member of the workforce for a quarter century before matriculating at Duke and could have had the opportunity to prepare financially for the burden of going back to school, but this requires a number of assumptions that one ought not make. What about the person who earned $18,000 a year in the non-profit sector for decades and chose Fuqua's CASE program? Is this person not as valuable to our community as the entrepreneur who started a company and grew it (and amassed a small fortune) before deciding to pursue a second career in law or devote himself to the ministry or 18th-century German literature? At a moment in our nation's history where the savings rate is negative, it is presumptuous to suppose that access to wealth necessarily correlates with age.

All Duke students benefit from intelligent pricing

Thankfully, due to the particular composition of our population, it is entirely possible to acheive these goals. We can offer a nice discount to that 22-year-old first-year student while simultaneously offering an entirely manageable rate to our oldest students. Since more than 90% of our population is younger than 35, we can derive massive reductions in premiums for the older members of our populations from extraordinarily modest increases in premiums for our youngest coilleagues. Just for the sake of illustration, it is possible to offer insurance to the 22-year-old for less than $1,500 while simultaneously inviting the 46-year-old to buy a policy for little more than $2,000. By doing so, we can attract young, healthy students into our plan without imposing a veritable financial disaster upon older students. We have the opportunity to gain the advantages of age banding (namely, creating a younger, healthier aggregate pool which would control everyone's premiums in the long run) without being stuck with the unsavory side effects (sticking our older students with a 70-80% premium increase over 2005-06).

What is useful about age banding is that it allows us to fix a serious structural problem with our plan while continuing to offer good health insurance at an affordable price to every single student enrolled at the university. We simply cannot afford to conflate this goal with a desire to transform Duke's plan into a playground for free-market economics.

The issue of subsidies

2006-03-27T12:28:00.000-08:00

A perennial question at Duke regarding health insurance is how much should single students subsidize families? This year we've added a new one: how much should young students subsidize older students?

The "additional 25%" rule: Blue Cross/ Blue Shield attempts to price our insurance premiums such that they collect in premiums as much as they will pay out in claims, plus an additional 25%. If they expect to pay $6.4 million in claims for the Duke population in 2006-2007, they want to collect 1.25 x $6.4 million = $8 million from Duke students for 2006-2007. Blue Cross/ Blue Shield uses this additional 25% for administrative costs and profit.

Families: The simple fact is that over the past years, families have cost much more to insure than they have paid in premiums. Using data from 2003-2005 (two years), the average family generated $4268 in claims per year. According to the "additional 25%" rule, families should have been charged $5335. Since they paid only $2539 in premiums, this amounted to a direct subsidy of $2796 to each family from students. Each individual student paid $158 more each year so that families could pay $2796 less than their actual cost.

Older Students: A similar display of numbers (see the HCW presentation) shows younger students have been subsidizing older students, since the claims for older students are much higher than the premiums they pay. The claims for the younger age bands (under 26, and 26-35) are much lower than the premiums they should pay according to the "additional 25%" rule.

The Future of the Debate over Subsidies:
Why should only the students buying into the Duke plan pay a subsidy to help families afford health insurance? Why should the young, healthy males who opt out of the plan NOT contribute to helping maintain the diversity of 46+ year olds at Duke?

The subsidy of families and older students increases the premium for every student. When young, healthy students decide that this premium has become too high and decide to leave the plan for cheaper insurance on the private market (or to go uninsured), this only makes it more costly for everyone else left on the plan.

If the Duke Community values families and older students on campus, then everyone should pay so that older students and students with families can afford to be educated and trained at Duke.

The issue of subsidies seems to be more an issue of the cost-of-education at Duke, and not an issue of health or health insurance. We should, rather, address the issues of subsidies in the context of Financial Aid.

Benefit changes (decreases)

2006-03-27T10:31:00.000-08:00

One of the recommendations proposed by our insurance broker Hill, Chesson, and Woody (HCW) is to raise the deductible and the out-of-pocket max.

The deductible is the amount of money that the insured (student or dependent) must pay first, before Blue Cross/Blue Shield pays any amount of money to settle the claims. Currently this deductible is $100. So the first $100 in claims is always paid by the individual. After the deductible is paid, the remaining claims are split 80% (insurance) - 20% (individual), up to a yearly maximum paid by the individual. This maximum is the out-of-pocket max, and is now $1000. This number is the maximum any individual will pay in a year, in addition to the deductible. Prescription drugs have a separate deductible and no out-of-pocket max.

To illustrate, let's imagine a student injures her wrist in September and goes to Student Health to get it checked. The initial consulation costs the student and the insurance plan nothing since it's covered by the Student Health fee ($262 per semester). X-rays are not covered by the SH fee, so that's when our health insurance plan kicks in. If X-rays cost $200, the student first pays the deductible amount of $100. Then the insurance will pay 80% of the remaining costs, or $80. For the X-rays the student pays a total of $120.

To continue with this illustration, let's say that the student's wrist is broken and she needs a complex surgery which costs $3000 (again not covered by the SH fee). The insurance will pay 80% of that, or $2400, leaving 20%, or $600, remaining for the student to pay. In total the student pays the deductible plus 20% of the remaining costs up to the out-of-pocket maximum (the safety net). So far the student has paid the $100 deductible, plus $620.

Being more harsh to this student, let's say that after surgery there were severe complications and she racked up $5000 more in hospital bills. With the 80%-20% co-insurance split, she would be on the hook to pay $1000 more. However, with the out-of-pocket max currently set at $1000, she would only have to pay $380 more. The insurance would pay for the remaining $4620.

Under this scenario, the student pays $100 + $20 + $600 + $380 = $1100.
The insurance plan (everybody else) pays $80 + $2400 + $4620 = $7100.

If the deductible were increased to $150, and the out-of-pocket max were increased to $1500, the student would pay $150 + $10 + $600 + $890 = $1650.
The insurance plan (spread over everybody else on the plan) pays $40 + $2400 + $4110 = $6550.

Q: Why should we raise the deductible and the out-of-pocket max?
A: The $100 deductible and $1000 out-of-pocket max are archaic numbers. Raising them is long overdue.

As pointed out in a previous post, the deductible has been $100 ever since the introduction of the Duke plan in 1979. The out-of-pocket max has been $1000 for as long as we have records. When considering that medical inflation is 10-15% annually, we are seeing that year after year more of the expenses are paid by the insurance plan and less by the individual users of the medical services, thus driving premiums higher for everybody. Increasing premiums cause healthier students to drop out of the plan. Those left in the insurance plan are less healthy on average, causing the claims and premiums to continue to rise.

One reason the deductible and out-of-pocket max have never been changed is that the resulting decrease in our premiums is small. Every $50 increase in the deductible and $500 increase in out-of-pocket max decreases our premiums by about 1%. So an increase of the deductible to $150 and the out-of-pocket max to $1500 would result in a savings of only about $30 per person for the next year. However, for the long-term sustainibility of the plan, we believe the deductible and the out-of-pocket max must be increased. Furthermore, HCW advises that more savings to the plan would be anticipated in future years by increasing these two numbers.

Proposed changes to the Duke plan

2006-03-26T12:00:00.000-08:00

As the deadline for settling on a health insurance plan for 2006-07 draws nearer, it is worth exploring where we are, what makes this year different from previous years and which options are before us. This post will attempt simply to lay out what proposals are on the table. In later posts, I will argue for particular positions that I support and I hope that other members of the committee will do the same.

[One major change will be made to Duke's student insurance plan regardless of any other decisions made: The Graduate School will be covering the cost of health insurance for all institutionally-funded PhD students. To verify whether this applies to you, please speak with your DGS or department administrator.]

Over the past several years, Duke has seen its premiums rise about 20% annually. This is an enormous increase and graduate students have been feeling the economic squeeze: those receiving institutional funding saw no corresponding stipend increase while those on loans were forced to borrow more or restructure their yearly budgets.

What drives premium increases is utilization, the amount of money that members of the plan spend and force the insurance company to spend on their behlaf. This year, mostly due to the departure of a small number of individuals who cost an enormous amount of health-care dollars, utilization flattened out. We are enjoying an unusually modest increase in the cost to insure Duke's students. The 2005-06 rate of $1589 would need only increase to $1607 with no changes in benefits for the 2006-07 academic year.

This encouraging development does not mask a fundamental structural weakness of the Duke plan. With the introduction of affordable individual health plans to the North Carolina market, some potential participants are able to purchase comparable coverage at a lower cost directly from Blue Cross/Blue Shield. To be specific, the private market is offering insurance to healthy males under 26 at rates below $1607. This has drawn a sizable minority of participants out of Duke's plan. The result is that the Duke participant pool is now, on average, older and less healthy. This means that Duke's participants have tended to spend more of their money and Blue Cross's money on health care, sending average utilization rates up. This means that our premiums have continued to rise. Finally, this has driven yet more young healthy males out of our plan. Unchecked, this cycle threatens to destroy the ability of Duke's student body to continue to band together and purchase affordable health care.

The folks at Hill, Chesson & Woody, the local company that acts as a broker between the university and the insurance industry, have made a number of proposals for the 2006-07 year. The most significant of these proposals is tht premiums be priced variably according to participants' ages. Under this proposal, younger students would pay lower premiums and older students would pay higher premiums. Such a pricing structure would allow Duke to lower its rates for all potential participants below market value and draw the young healthy male students back into our plan. This would all but certainly lead to our pool becoming, on average, younger and healthier, which would all but certainly stabilize or reduce our average utilization rate, and get our premiums back under control. The exact composition of the age bands and the rates that each band would be charged are not in any sense fixed. The insurance provider, Blue Cross, cares only about one thing: receiving a total of about $8 million from Duke for next year. How those costs are distributed is to be decided by us.

Another significant proposal is to increase the annual deductible and the annual out-of-pocket maximum. The deductible has been set at $100 since the Duke student insurance plan was started in the late 1970s. It has been proposed that the deductible be raised to $150 or $200. The out-of-pocket maximum is presently set at $1,000. It is proposed that this be raised to $1,500 or $2,000. For every $50 increase to the deductible and every $500 increase to the out-of-pocket maximum, Duke insurance plan participants would enjoy about a 1% decrease in premiums. Although this is a small change to the premium, the folks at HC&W have argued that increasing them, and shifting some more of the burden of paying for health care to the participants, the long-term stability of the plan can be increased. Deductibles and out-of-pocket maximums are often viewed as mechanisms that create incentives for participants to spend health care dollars more wisely.

The other two proposed changes involve spouses and children. Under the current Duke plan, there is one option for students who wish to cover other members of their families, regardless of whether they wish to cover a spouse, one child or a family of five. It is proposed to have a rider for spouses, and a rider for children. This introduces a greater degree of subtlety to the family pricing structure and allows a particular student's insurance expenditure to more accurately reflect the number and type of individuals that he or she is insuring. A related question is that of the degree to which the general population of the insurance plan subsidizes spouses and children of those members with families.

Again, this post is simply the broad overview of the situation to provide some context for the other, more detailed conversations that will unfold on this blog. Please feel free to amend and correct things in the comments.

Welcome

2006-03-24T11:04:00.000-08:00

This blog is here to disseminate information and serve as a public forum about the Duke University Student Health Insurance Plan. In the days and weeks to come, everything that you need to know about changes to the plan and the process that led to them will be made available here. Feel free to join in any of the conversations.