Ken Simek, a partner in Mercer’s Health & Benefits consulting business, and Karen Hutcheson, a partner in the firm’s Talent consulting business, discuss the role that ACA-inspired, updated health plans can have in lessening some of the financial pressures many institutions now face.
Higher education institutions are jumping on the bandwagon of employers that are modernizing employee benefits to save much-needed dollars, often with high-deductible health plans as the linchpin in new streamlined benefits packages. Although colleges and universities have traditionally offered richer-than-average health benefits to entice top-notch faculty and staff, a shift is underway. According to Mercer’s most recent National Survey of Employer-Sponsored Health Plans, just 41% of large colleges and universities (those with 500 or more employees) offer a high-deductible health plan today; however, more than three-fourths expect to do so within the next three years. For most, the high-deductible plan will be offered alongside other medical plan choices, but for 10%, it will be the only plan offered.
Triggered by the economic downturn, an avalanche of issues face higher education today:
- Evolving student expectations.
- Unpredictable enrollments.
- Heightened scrutiny from all vantage points.
- Increased pressures to contain tuition and fees.
- The limiting of established financial-services relationships along with fewer investment options.
- Added compliance requirements.
- Changing expectations of the workforce.
And now, on top of everything else, the ACA’s hefty 40% excise tax (levied if plan costs exceed $10,200 for individual coverage or $27,500 for family coverage) is staring already-stretched institutions directly in the face for 2018. It’s no surprise that, among the industries queried in Mercer’s most recent health care reform survey, higher education expressed the greatest apprehension about the excise tax, with 80% saying it is a “very significant” or “significant” concern, compared to 63% of respondents overall.
Although traditionally slow to change, institutions, large and small, public and private, are beginning to recognize that the can has been kicked to the end of the road; they now must find ways to make benefits more cost-effective. Historically, higher education has tended to offer more generous benefits than many other employers. As recently as 2013, the average total health benefit cost (as a percentage of payroll) was 16.9% for large institutions, compared to 14.6% for other large employers, according to Mercer’s US survey of employer-sponsored health plans. At the same time, in the vast majority of cases, employees’ average contribution for coverage (as a percentage of premium) was found to be notably less for large institutions compared to other types of employers.
So how in the post-reform world does higher education modernize without too much compromise? How does it save money while preserving highly valued retirement benefits, accommodating the various needs and different viewpoints among both experienced professionals and up-and-coming millennials, and ensuring the ability to aggressively vie for highly qualified faculty across all disciplines, as well as for skilled talent in IT, development, and other competitive specialties?
Health care reform is proving to be the impetus for most institutions to step back and re-evaluate their benefit programs, and the driving force behind a shift toward plans in which faculty and staff have greater individual accountability and choice. At the same time, the ACA’s new 30-hour definition of full time is potentially casting a much wider eligibility net for institutions, which now may need solutions for providing health coverage to much greater numbers.
Although the most common approach to cost management is implementing a low-cost, high-deductible plan, a few institutions (primarily in the for-profit sector) are showing an interest in private exchanges as a means to provide greater flexibility, accountability, and cost-effectiveness. Slightly less than one-quarter (22%) of large institutions say they are considering moving active employees to a private exchange within five years. In a private exchange, a high-deductible plan can be one of several medical plan choices that don’t increase the administrative burden on the employer.
The reality is, when employees are given the option to buy down on their health benefits, they do so. Early data on consumer buying behavior from Mercer’s own private exchange demonstrate a direct link between cost and accountability: The average value of medical plans pre-exchange was 80.4%, dropping to 71.9% post-exchange, with an average cost reduction per employee of $800. Of that $800, 70% went back into the employer’s pocket, and 30% went into the employee’s.
As higher education continues to gain its footing amidst ongoing financial pressures and a barrage of change, flexible, high-deductible health plans can play an instrumental role in modernizing benefits that will help institutions save money while appealing to the needs of an increasingly diverse workforce.