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Why the Health Plan Changed

By Michael E. Chernew, Barbara J. McNeil, and Joseph Newhouse

The University Benefits Committee—a group of faculty and staff experts on employee benefits, of which we are members—is responsible for advising the provost on matters related to Harvard’s health benefits.

Each year we explore possible benefit changes based on fiscal guidance and input from our benefit consultants.  In general we explore ways to best address the challenges related to health care that all employers are facing.  Importantly, while we take past health care spending trends into account, our decisions largely reflect future spending projections.

Over the years we have made many changes designed to moderate spending trends. For example, last year we rebid our insurer contract, substantially reducing fees paid to insurance carriers. This year, after much discussion, we recommended a number of benefit changes. We wanted to take the opportunity to communicate with the community about the process and some of the thinking behind our recommendations.

Over the course of the year, the UBC examined a range of options for how we might best design a plan to address projected future growth in health benefits costs. We looked at how different scenarios would impact faculty and staff and how they compared to those at our peer institutions. In the process we did extensive analyses, with the help of an outside consultant, of our own data as well as information from our peers.  At the conclusion of our work, we made recommendations to the provost, which he accepted.

As we did our work we were guided by a series of principles: ensuring that we are spending our health care dollars effectively; sharing risk across the community; protecting faculty and staff with high health care costs; providing incentives for employees and beneficiaries to make efficient health care choices and supporting community members at the lower end of the pay scale. We have sought to ensure that the plans would uphold these principles.

There are multiple changes in the benefits that, though reducing premium growth, will lead to an increase in costs born by many employees who use health care. There is now a deductible (the amount that must be paid for health care services before the health plan begins to pay) that applies to services such as hospital admissions and co-insurance (the share of the cost of health care services after the deductible) for most services outside preventative care, emergency care, and routine care provided in a doctor’s office.

We introduced a new low premium, high deductible plan that includes a university contribution to a health savings account and offers significant financial benefits to employees who use less health care. Finally, we increased the generosity of the dental benefit package to protect employees and dependents with significant dental bills.

We recognize that with these changes, employees will often pay more for care at the point of service. In part that is intended because patient cost sharing is proven to reduce overall spending.

Yet we were very concerned about the burden on low-income employees and therefore recommended an expanded reimbursement program that will provide them with additional protections from high out-of-pocket costs.

Moreover, because we know that our community values having a wide choice of physicians and hospitals, we opted not to offer a “narrow” network plan, a plan that typically costs less and is now offered by multiple employers throughout the country but limit choice of provider.

These changes keep our health benefits in line with peer institutions. Specifically, Harvard employees on average will still pay less for their medical care than similarly situated employees at other comparable employers. Comparisons with our university peers confirm that Harvard’s plans remain competitive. To place this in context with non-university employers, total costs on average for Harvard employees earning less than $70,000 per year are approximately a third less than those for people covered by the state’s Group Insurance Commission health plans.

Finally, Harvard’s plans are progressive, with several features designed to help those who take home less pay. All employees will benefit from a reduction in premiums, and the progressive premium subsidy program—through which Harvard pays a greater percentage of total premiums for those on lower incomes—is maintained.

The new reimbursement program will also reduce costs for those earning up to $95,000 per year. And for those making less than $70,000 global out-of-pocket maximums will effectively drop from $1,500 to $900 for an individual.

There has been much discussion of the rise in health care costs across the country in recent years. Our work and recommendations are about the future, and we have taken that charge seriously. Yes, we anticipate that health care costs will continue to rise for Harvard—but these changes ultimately are designed to slow the rate that those costs will grow in coming years, ensuring fewer resources are diverted away from Harvard’s research and teaching mission, and offering a benefit that offers value to members of our community.

We believe these are reasonable changes designed to help the University confront the financial challenges we face. The plans are competitive, progressive and maintain a commitment to prevention and choice in providers.

Michael E. Chernew is a professor in the Department of Health Care Policy at Harvard Medical School. Barbara J. McNeil is Ridley Watts Professor at Harvard Medical School. Joseph Newhouse is John D. MacArthur Professor of Health Policy and Management at Harvard Medical School.

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