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BY BARBARA PALMER There's good news and bad news in the 2004 employee health care benefits program that administrators will unveil later this month. The program will offer health care through the same five providers and basic design plans as last year. Despite double-digit increases in the cost of health care, the amount that employees will pay for health insurance will decrease or stay the same next year for the more than half of faculty and staff who are enrolled in Kaiser Permanente, Health Net and PacifiCare. Twenty percent of employees are enrolled in Kaiser, which will be free to employees for employee-only coverage. Employees who are enrolled in the Stanford Employee Preferred Provider Organization (PPO) are likely to suffer sticker shock, however: On the heels of a 55 percent increase in 2003, employee-paid monthly premiums for the PPO are rising by 40 percent. In the PPO, the monthly contribution for employee-only coverage will increase from $140.68 per month to $196.95 per month and the monthly premium for an employee and family coverage will rise from $528.54 to $739.96 per month. Employee costs to enroll in the Blue Shield Triple Option Plan (TOP) also are increasing, but not as sharply. Employee costs for TOP will rise from $101.48 to $123.22 per month for employee-only coverage and from $414.94 to $501.14 for an employee and family. Additional changes to the PPO and the TOP -- including adjustments to deductibles and out-of-pocket maximums -- will be described in Open Enrollment materials, which will be mailed to employees later this month, said Susan Cunningham, benefits programs manager. (Open Enrollment is Nov. 3 to 21.) In 2003, 16 percent of employees enrolled in the PPO and 16 percent of employees enrolled in the TOP. The amount the university has budgeted for health care also is increasing. The university has budgeted $56.1 million for 2004, a 37 percent increase over last year, Cunningham said. "The crisis in health care costs is a profound problem for Stanford, and we're not alone," said Provost John Etchemendy. "Every employer is having trouble sustaining ever-increasing health care costs. As an example of how challenging this has become at Stanford, if you look at total salary plus benefits cost increases for last year and compare them to the salary plus benefits cost increases this year, you'll see that it is about the same amount. That shouldn't be, given the salary freeze. Where is the extra cost? It is in benefits, especially health care." Stanford offers employees a wide range of insurance choices -- with varying degrees of costs, benefits and restrictions -- because the same health care model doesn't fit everyone's needs, Cunningham added. "Stanford must balance the financial needs of the university and the health care needs of the employees. Employees can choose the more costly models but must pay the difference in premium cost to do so." Stanford's policy is to cover 100 percent of the cost of the lowest cost option for an individual employee and 82 percent of the lowest-cost family plan, Etchemendy said. That amount is then contributed toward the cost of premiums for any university-offered plan employees choose. "This gives employees the freedom to pick from many plans, but also makes visible the real costs of those plans," Etchemendy said. It is important for true differentials in costs between plans to be visible to employees, since otherwise they cannot make informed decisions and, consequently, health care providers have no motivation for slowing down cost increases, he said. The Stanford PPO, a self-insured plan, was first offered in 2002 as a way to provide access to Stanford Hospital and Clinics after the hospital terminated all health maintenance organization contracts -- including HMOs offered to university employees -- that paid the hospitals and doctors on a fixed-fee basis. The PPO, which has been the highest-priced plan offered to employees since its inception, has proved to be even more expensive than administrators had predicted. Premiums collected in 2002 failed to cover costs and the plan ran a deficit, Cunningham said. About half of the increase in the PPO rates this year will go toward recouping the losses. The deficit recovery will be spread out over a series of years and, even so, costs may not be fully recovered, she said. Older workers, higher health care costs Stanford negotiates rates for HMO plans as part of the Pacific Business Group on Health, a nonprofit coalition of 50 major institutions and businesses in Northern California that join together to leverage their bargaining power when contracting for health care. But the Stanford PPO is offered only to Stanford employees, which means that specific attributes of the Stanford population -- such as age -- factor directly into the plan's cost, Cunningham said. The average age of Stanford employees is 48, older than average. "It's a proven fact that older people spend more on health care," she said. Other factors account for the high costs, including the fact that most employees enrolled in the PPO use the medical services of Stanford Hospital and Clinics (SHC). "Being a research and teaching facility, SHC delivers high-tech, high-touch care, which is expensive," Cunningham said. In 2002, there were more than 60 enrollees whose medical claims rose above $35,000. "The Stanford PPO is a particularly vexing challenge, in part because of the limited pool of participants," Etchemendy said. "It is a much more expensive plan because of its flexibility, and its basic costs have increased beyond those of the managed care options. "Obviously, I wish the PPO didn't cost so much more than the other plans, but that is the unfortunate reality of the plan. Stanford is still contributing a very generous amount to the cost of their insurance -- roughly half -- it just doesn't cover as much of the total expense." Employee costs for some plans are not changing or are decreasing as a result of the university's policy of paying the full cost of medical insurance for employees for the lowest-priced plan, Cunningham said. The costs for that plan, the HMO offered by Kaiser, rose 19 percent for 2004, raising the ceiling for the basic flexible credit ("Choice Dollars") given to each employee. The amount of flexible credit will rise this year from $232.66 per month to $277.32 per employee. Since costs for Health Net and PacifiCare increased at a lesser rate, employee-paid costs will go down in those plans -- by 29 percent for Health Net and 84 percent for PacifiCare for employee-only coverage. Costs of coverage in those plans for spouses and families decreased much less dramatically. A proactive approach Although designs of the HMO plans won't change next year, prescription services will be consolidated for all plans except Kaiser through one provider, Express Scripts. Everyone who enrolls in health plans, except Kaiser members, will have two identification cards -- one for medical treatment and one to use for prescriptions. Provisions in the plans for prescription drug coverage won't change, Cunningham said. Part of the reason that the university will consolidate prescription drug coverage is so that administrators can collect aggregate information about the kinds of conditions for which employees receive treatment and use the data to create disease management and prevention programs, she said. "We want to find out if there are areas where we can help our population start dealing with health care costs. We can make suggestions to people about how they might manage things better." For example, if the data show that many employees are being treated for hypertension, the university may create a cardiac health program for employees, or programs might be developed to help employees identify early stages of diabetes, said Linda Herkenhoff, director of employment, benefits and development. Early diagnosis can decrease the costs of the health care exponentially, she said. "It's a matter of linking together and coming up with a synergistic answer to the question of 'How can we have everyone who works at this place called Stanford be healthier?'" she said. "That's a win for everyone. At the end of the day, keeping people healthier is the big answer to managing health care." Some programs, such as those offered through the Health Improvement Program, are already available to employees, she said. Human Resources materials this year will include links to health assessment and education tools. Employees also can help manage of the cost of health care by using generic drugs when possible and receiving prescriptions through mail order, rather than picking them up in a pharmacy, Cunningham said. "Cost is such a large issue in health care now; no one can ignore it if the health care industry is to survive," she said.
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Stanford Report, October 1, 2003
