1 The Coming Health Care Environment for Faculty at Bowling Green Howard Bunsis Professor of Accounting Eastern Michigan University Treasurer: EMU-AAUP;

1

The Coming Health Care Environment for Faculty at

Bowling Green

Howard BunsisProfessor of Accounting

Eastern Michigan UniversityTreasurer: EMU-AAUP; Michigan Conference AAUP; National AAUP

Chair, AAUP CBC

2

Roadmap• National Scene in Health Care

– Spending– Types of plans PPO, HMO, Traditional, HDHP– Types of out of pocket costs– National health care and triggers and co-ops

• Major Issues for Faculty– Cost and Choice– Drugs– Domestic Partner Benefits– Vision and Dental

• Bowling Green Considerations– BGSU is not broke!– Collectiveness versus individuality– Carrots versus sticks

3

Health Care Facts• U.S. government economists predict that public

and private health spending will hit $2.5 trillion this year, taking up a 17.6 percent share of gross domestic product.

• Americans spend more per capita on healthcare than any other country at $7,421 per person.

• Studies suggest Americans get poorer care than people in other industrialized countries that have national healthcare plans.

• Source: Center for Disease Control, 2009; http://www.cdc.gov/nchs/data/nhsr/nhsr017.pdf

4

Americans Rate Public and Private Insurance Equally

5

Health Care Since the Clinton Era

6

How Do Americans Get Health Insurance:

63%7%

15%

15%

Employer

IndividuallyPurchasedMedicaid andVeteransNo healthinsurance

Source: US Census

7

National Healthcare Spending By Source

Spending By Source (in billions) 1990 1995 2000 2005 2007Public (Medicare/Medicaid) 287 465 596 897 1,039Private insurance for consumers 234 325 455 686 769Consumer Out-of-pocket 136 146 193 247 269Other 57 80 109 144 168Total 714 1,017 1,353 1,973 2,246

GDP 5,735 7,326 9,710 12,266 13,761

Spending as % of GDP 12.4% 13.9% 13.9% 16.1% 16.3%

Public (Medicare/Medicaid) 40% 46% 44% 45% 46%Private insurance for consumers 33% 32% 34% 35% 34%Consumer Out-of-pocket 19% 14% 14% 13% 12%Other 8% 8% 8% 7% 7%Total 100% 100% 100% 100% 100%

Source: U.S. Centers for Medicare and Medicaid Services; Office of the Actuary

8

Object of National Healthcare Spending

1990 1995 2000 2005 2007 2007 %

Hospital care 252 341 417 606 697 31%

Physician and clinical services 176 249 328 479 535 24%

Prescription drugs 40 61 121 200 231 10%

Public administration 59 89 125 190 218 10%

Home and Nursing health care 75 128 163 225 257 11%

Medical products and equipment 68 86 113 147 168 7%

Dental services 32 44 62 87 97 4%

Medical research 13 18 26 41 43 2%

Total 714 1,017 1,353 1,973 2,246 100%

Source: U.S. Centers for Medicare and Medicaid Services; Office of the Actuary

9

Percentage Changes in Spending Items: 1990 to 2007

0%

100%

200%

300%

400%

500%P

resc

rip

tio

nd

rug

s

Pu

bli

cad

min

Ho

me

hea

lth

car

e

Res

earc

h

To

tal

Den

tal

serv

ices

Ph

ysic

ian

cost

s

Ho

spit

alca

re

Med

eq

uip

Source: U.S. Centers for Medicare and Medicaid Services; Office of the Actuary

10

Mercer Study on Healthcare Inflation

11

Healthcare Inflation in the Future

Reported in Wall Street Journal; July 17, 2009

12

Plan Types

• Managed Care Plans– HMO (Health Maintenance Organization)– PPO (Preferred Provider Organization)– POS (Point of Service)– EPO (Exclusive Provider Organization)

• Traditional Indemnity Plan• Account Based Health Plans (ABHP), or

High Deductible Health Plans (HDHP)– HSA (Health Savings Account)– HRA (Health Reimbursement Account)

13

Managed Care Plans• PPO (Bowling Green)

– Providers (hospitals, physicians) agree to provide services at negotiated fees.

– You have direct access to specialists, – Out of network is allowed but more expensive

• HMO– Healthcare systems that manage both the financing and

delivery of healthcare services to a specific group of people. – Before you see a specialist, you must go through your

primary care physician (PCP)– Allegedly contain costs by focusing on prevention and

primary care. • POS: Hybrid of PPO and HMO• EPO: Similar to PPO.

– Lower Rates– Cannot go out of network

14

Traditional Indemnity Plans

• You can go to any primary care doctor, specialist or hospital that you choose.

• These plans are dinosaurs

15

High Deductible Health Plans: HRA• HRA (Health Reimbursement Account)• Funds set aside by employers to reimburse employees for qualified

medical expenses, just as an insurance plan will reimburse covered individuals for the cost of services incurred.

• Must be funded solely by an employer. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical Employers have complete flexibility to offer various combinations of benefits in designing their plan.

• Contributions made by the employer can be excluded from gross income

• Reimbursements may be tax free if you pay qualified medical expenses

• There is no limit on the amount of money your employer can contribute to the accounts.

• Debit cards are typically used

– Source: IRS Publication 969

16

High Deductible Health Plans: HSA• HSA (Health Savings Account)• A tax-exempt trust that you set up with a qualified HSA trustee to

pay or reimburse medical expenses you incur.• You get a tax deduction that is FOR AGI, on line 25 of form

1040. The deduction is for contributions you make (or someone other than your employer)

• Contributions made by your employer are excluded from gross income

• The contributions remain in your account from year to year until you use them

• Distributions are tax free if you pay for qualified medical expenses

• Now the norm at Miami of Ohio: Deductibles– $2,000 single– $4,000 family deductible

17

Types of Plans Offered Over Time

0%

10%

20%

30%

40%

50%

60%

70%

80%19

88

1993

1999

2003

2008

Traditional

HMO

PPO

POS

HDHP

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008

18

2008 Family Premium by Plan Type

Employee Contribution

Employer Contribution Total

% Borne by Employee

HMO 3,380 9,742 13,122 26%

PPO 3,344 9,593 12,937 26%

POS 3,730 8,600 12,330 30%

HDHP 2,813 7,309 10,122 28%

All Plans 3,354 9,325 12,680 26%

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008

19

Percent of Total Premium Paid by Employee

% of Premium Paid by Employee Percent of Workers

Pay No Premium 7%

Between 0 and 25% 46%

Between 25% and 50% 33%

Greater than 50% 14%

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008

20

Choice (Source: Kaiser)

% of Firms Offering Differing Number of Plans

49%

34%

17%

0%

10%

20%

30%

40%

50%

One Plan Two Plans Three or morePlans

21

National Healthcare Reform

• Problems:– 46 million Americans without health

insurance. This represents 15% of the United States population.

– Healthcare spending is increasing faster than inflation, and employers, employees, and the government are picking up the tab.

– By 2017, healthcare spending will be over $4 trillion, which will eat up approximately 25% of GDP.

22

Public Option• This is being offered as

the best manner to cover the uninsured.

• Will cost at least $1 trillion over 10 years to cover the uninsured

• House Democrats: Surtax on wealthy Americans

• Senate Democrats: Tax employees for health benefits received

• Obama: Restrict deductions for the wealthy

23

Surtax

• 1.0 percent surtax on AGI between $350,000 and $500,000 (singles between $280,000 and $400,000)

• 1.5 percent surtax on AGI between $500,000 and $1,000,000 (singles between $400,000 and $800,000)

• 5.4 percent surtax on AGI beyond $1,000,000 (singles beyond $800,000)

24

Taxation of Health Benefits• Basic premise: The IRS has an all-inclusive concept of

income. Gross income is defined as ‘‘except as otherwise provided . . . , all income from whatever source derived. ’’

• However, there is an exclusion for employer-based health plans.

• Some say these gold-plated plans encourage unnecessary medical spending, and employers reduce employee pay due to cost pressures

• If employees paid taxes on the premiums, it would generate $246 billion annually

• Obama is now open to this idea, though he vigorously opposed this during the campaign.

25

Against Public Option• By JOHN SHADEGG AND PETE HOEKSTRA WSJ 9/5/09• When was the last time you asked your doctor how much it would

cost for a necessary test or procedure? In all likelihood, you can't remember. That's because your employer-provided health plan or the government "paid for it." In fact, you paid. We all pay for health care.

• There's no denying that our health-care system is complex. However, we can trace most of the problems in the current system to the lack of control individuals and families have over their care. If there's one lesson we've taken away from the thousands of citizens at town-hall meetings, it's that one massive health-care bill isn't the solution. Americans nationwide have voiced their desire for greater control over their care and for reform in digestible pieces.

• Here's how the debate over health-care reform breaks down, and what we believe Congress can do to solve these crucial issues

26

Paul Krugman: NYT 8/9/09• Health care can’t be sold like bread. It must be largely

paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care.

• Insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care.

• Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer

• Bottom line: We, as individuals, do not comparison shop for health care services

27

Faculty Health Care at Other Institutions

• Alaska: In year one, the minimum University defined contribution is 85% of net plan costs

• Akron: Faculty pay a negotiated percentage of total health care costs

• Ohio University: Proposal to increase the rate that faculty cover from 10% to 25%

• University of Michigan: Decision has been made to increase this rate from 20% to 30%

• Western Michigan just agreed to increase this from 10% to 11%

• What is this rate nationally? About 26%

28

Health Care Costs Pegged to Salary

• UC:– Single 0.50% of base salary– Double 1.00% of base salary– Family 1.35% of base salary

• Akron– 1.2% to 1.5% of salary in 06-07– Faculty will pay 15% of costs after 12/31/07– How is this working?

• Do you recommend it? – Advantages– Disadvantages

29

Prescription Drug Data% of Prescriptions: 1995 2007Generic Drugs 40% 58%Brand Drugs 60% 42%

Average Price: 1995 2007 % ChangeAll Drugs $30 $70 133%Generic Drugs $15 $34 131%Brand Drugs $40 $120 197%

Where Prescriptions Purchased: 1995 2007Total Prescriptions 2.1 billion 3.5 billion

Traditional chain 43% 47%Independent 32% 21%Mass merchant 11% 11%Supermarkets 10% 14%Mail order 4% 7%

Source: National Association of Chain Drug Stores, Alexandria, VA,

30

Summary of Prescription Drug DataAverage Cost of Generic vs Brand Drugs

$0

$20$40

$60

$80$100

$120

1995 2007

Generic Drugs

Brand Drugs

Percentage of Prescriptions by Type

40%

50%

60%

1995 2007

Generic Drugs

Brand Drugs

Source: National Association of Chain Drug Stores

31

Employee Co-Pays for Drugs

Average Co-Pay in Plans with 3 or More Tiers 2000 20081st Tier (generic) $8 $102nd Tier (Preferred) $15 $263rd Tier (Nonpreferred) $29 $464th Tier - $75

Average Co-Pay in Plans with 2 Tiers 2000 20081st Tier (generic) $7 $112nd Tier (Preferred) $14 $24

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2008

32

Prescription Drug Tiers at Selected Institutions

• Bowling Green: $6 generic; 20% of cost if use network pharmacy; $125 limit on non-generics

• Eastern Michigan: $10/$20/$30• Oakland University: $10/$20 (in negotiations)• Wayne State: $5/$10 (in negotiations)• Wright State: Up to $12/$22/$60• Akron: $10/$20/up to $50• Kent State: 10%/20%/40% ($50 max) • Central State and UC: $10/$20/$30

33

Domestic Partner Benefits

• Not apparent these are offered at BGSU• Michigan: Offer the benefits to all unmarried partners,

even unmarried heterosexual partners. • Requirements:• Residency

– The AEA resides in the same primary dwelling as the employee and has done so for a minimum of twelve (12) continuous months other than as a tenant; OR

– The AEA currently co-owns or leases a dwelling with the employee.

• Joint Financial RelationshipJoint Financial Relationship– The employee and AEA have a joint checking account, joint

savings account, or joint credit account. – The AEA has been designated as the primary beneficiary under

the employee’s EMU life insurance contract, the employee’s will or a retirement contract held by the employee.

34

Bowling Green Health Care

• PPO with the following out of pocket factors:– Premiums (comes out of your paycheck)– Deductibles (now $200/$400/$600 for in-network)– Co-Insurance (now 15%). If the doctor’s bill for a visit

is $500, you pay 15% of this.– Co-pays – mostly for drugs.– Total out of pocket maximum is the sum of

deductibles and co-insurance, and for 2009 was $800/$1,600/$2,400

35

The Future of Faculty Health Care at Bowling Green

• Faculty will not be receiving any raise for the 2009-10 academic year.

• There are certain to be increases in out of pocket health care costs that will be imposed on the faculty.

• These increases will likely be anywhere from 1% to almost 5% of an average faculty member’s salary.

• Therefore, faculty are taking a significant pay cut for the 2009-10 academic year.

• Is this necessary or appropriate?

36

Bowling Green is Not Broke• For most universities, the recession has not had a large

negative effect on total revenues. The main categories are tuition, the state appropriation, and auxiliaries.

• Enrollment typically goes up in a recession; BG has flat enrollment for 2009-10

• BGSU has an A2 bond rating from Moody’s, which is a solid rating.

• At BGSU, in 2008, the state provided about 24% of total revenues

• The last published statements are for the year ended June 30, 2008, and the State of Ohio Board of Regents gives us as assist

• But why do we always have to cut our budgets? It is a made-up crisis. Remember, budgets are plans, not actual results. Bond ratings are based on actual results.

37

Revenue Analysis(Source: BSGU Audit Reports)

REVENUES 2008 2007 2006Tuition and Fees 151,894,909 154,972,939 145,547,100State Appropriation 86,862,612 81,312,285 81,485,451Auxiliary Revenues 70,764,918 74,341,176 76,045,353Investment income (loss) (978,137) 24,987,484 9,596,401Grants and Contracts 38,585,453 36,824,941 32,551,352All Other Revenues 14,687,987 14,797,529 14,877,564Total Revenues 361,817,742 387,236,354 360,103,221

Tuition and Fees 42.0% 40.0% 40.4%State Appropriation 24.0% 21.0% 22.6%Auxiliary Revenues 19.6% 19.2% 21.1%Investment income (loss) -0.3% 6.5% 2.7%Grants and Contracts 10.7% 9.5% 9.0%All Other Revenues 4.1% 3.8% 4.1%Total Revenues 100.0% 100.0% 100.0%

• Tuition declined 2% from 07 to 08 after increasing 6.5% for 2007

• The investment loss in 2008 was the main driver in the decline in total revenue

38

State of Ohio Metrics

• Senate Bill 6 was enacted in 1997 to increase financial accountability of state colleges and universities by using a standard set of measures with which to monitor the fiscal health of campuses.

• The year end financial statements are used to create such measures.

• Three ratios and four scores are generated.

39

Actual Metrics

• Viability ratio: Expendable net assets divided by plant debt.

• Primary reserve ratio: Expendable net assets divided by total operating expenses.

• Net Income Ratio: Change in total net assets divided by total revenues.

40

Moody Scores of BGSU vs.. Ohio Peers(Carnegie Research Public Universities)

2008 Composite Score

2007 Composite Score

2006 Composite Score

Wright State 4.10 4.30 4.50Kent State 3.90 4.70 4.70Ohio University 3.50 3.20 2.90Bowling Green 3.40 4.20 4.00Ohio State 3.40 4.20 4.20Toledo 3.30 3.70 3.00Miami 3.10 4.70 4.20Akron 2.90 3.60 3.20Cleveland State 2.80 3.40 3.50Cincinnati 2.50 2.80 2.60

Mean 3.29 3.88 3.68Median 3.35 3.95 3.75

Bowling Green Rank 4.5/10 4.5/10 5/10

41

What Do We Learn?

• The score in all three years indicates that BGSU is in a strong financial position.

• It is unlikely this situation has changed much in 2009

• The main reasons for this strength are:– Large amount of reserves– Relatively low level of debt

• BGSU is in a strong position when compared to the research (per Carnegie classification) public universities in Ohio

42

Faculty Salaries in the BGSU Budget(Source: BGSU Education Budgets)

2008 2007 2006Total Salaries 67,088,785 65,087,386 62,610,596Dollar Change 2,001,399 2,476,790Percentage Change 3.1% 4.0%

Benefits at 30% 20,126,636 19,526,216 18,783,179Total Salaries and Benefits 87,215,421 84,613,602 81,393,775

Total Expenses 367,467,838 357,830,362 345,580,613Salaries and Benefits as % of Total Expenses 23.7% 23.6% 23.6%

43

Faculty Salaries: BGSU vs. Ohio PeersSource: AAUP 2008 Salary Survey

Average SalariesUniversity Full Associate Assistant Instructor All RanksOhio State $126,400 $84,200 $75,000 $56,700 $100,500Cincinnati $99,700 $72,400 $60,200 $45,500 $78,300Ohio University $100,000 $74,600 $61,800 $78,200Cleveland State $99,300 $71,300 $59,300 $47,700 $74,100Miami $102,100 $74,300 $64,600 $37,100 $73,100Wright State $99,500 $73,100 $62,600 $41,100 $71,800Akron $92,400 $69,500 $60,200 $46,100 $71,600Kent State $97,800 $71,400 $59,300 $68,300Toledo $94,300 $70,200 $61,900 $50,400 $67,300Bowling Green $94,300 $70,600 $55,600 $40,600 $63,100

Mean $100,580 $73,160 $62,050 $45,650 $74,630Median $99,400 $71,900 $61,000 $45,800 $72,450BGSU Rank 9/10 8/10 10/10 7/8 10/10

44

“Healthy Living Choices”

• At Oakland University, the administration proposed that faculty pay higher premiums if they:– Have a BMI over a certain number– Take more than one drink per day– Are a smoker

• Faculty can pay less if a doctor certifies they are succeeding in a weight reduction program, drink less, or are in a smoking cessation program.

45

Healthy Living Choices at BGSU?

• It is 90 miles from Bowling Green to Rochester, Michigan

• These universities all use the same consultants.

• Watch out!

46

Collectiveness• Healthy Living Choices is in contrast to some

basic concepts:– Basic concept of insurance, where risk is spread over

a large number of people – Concept of acting collectively, where both the

employer and employees are better off– People respond better to carrots, not sticks.

• The program should look to improvements from a large group of people, and not penalize individuals

• Can be a win-win

47

Concerns About Unions• Will we all get the same raises, regardless of

performance?– Not if you do not want to. – Merit pay is a significant feature of many AAUP

contracts

• Will there be a secret ballot for any election? Yes!

• Don’t unions just protect poor performers? – We make sure the contract is adhered to. – If a faculty member violates the contract or university

policy, we work with the administration in determining the appropriate discipline.

48

Bringing People Together

• Collective bargaining brings the faculty together from across disciplines, colleges, and campuses

• It does not have to be – and in most cases is not – an adversarial relationship with the administration.

• Grievances are few and far between.• The contract is an excellent vehicle for

solving problems.