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BY JOHN ETCHEMENDY Many of you may have been following the news about health care inflation and the increasing costs both employers and employees are bearing nationwide for quality health care. At Stanford, the news is good and bad. The good news is that most employees who subscribe to Kaiser, PacifiCare or HealthNet will see the contributions they provide for their own health care either stay the same or go down. The bad news is twofold: First, some employees, particularly those who participate in the Stanford PPO, will see costs increase dramatically. Second, covering the cost of health care is having a profound effect on the university's budget generally and is absorbing vital resources we would otherwise use to fund other important priorities. Stanford is hardly alone in this predicament. Nationwide, health insurance premiums rose an average of 13.9 percent between 2002 and 2003, according to a survey by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust. The rise in cost marks the third consecutive year of double-digit rate increases, exceeding the rate of inflation by more than 10 percentage points in each of the past two years. In 2003, Stanford's cost of providing health care coverage to its employees increased by 20 percent. We project another 18 percent rise in 2004. Fundamentally, the problem is this: Through the early years of managed care, increases were tempered as costs were squeezed out of the health care system. With those easy savings now gone, inflation pressure is again pushing costs far beyond the average inflation rate. Much of the problem is the high cost of technological advances in health care. When people are sick, they naturally want the very best health care for themselves and their families. Such care, however, comes at an increasingly high price. As you review your benefits options this year, I hope it is clear that Stanford places the highest priority on your compensation. Universities are people. Having the best people is crucial to having the best university. We believe we have the best people. Stanford employees are extremely loyal, choosing to stay at the university because of a deep commitment to its mission. Our turnover, therefore, tends to be lower than many area employers. We benefit tremendously from the cumulative experience of our faculty and staff. On the other hand, this also makes our employee base, on average, somewhat older and, thus, more expensive to cover. Because we value our people, Stanford has opted to continue covering the full cost to an individual of the lowest priced health care option, despite the temptation to do otherwise. That means Stanford will continue to cover the full cost to an individual employee of Kaiser, which is our lowest cost option. We will continue to put an amount equal to the Kaiser premium toward any other health care option an employee chooses, and 82 percent of the lowest cost family plan. Although the cost of all the health care plans increased this year, PacifiCare and HealthNet increased at rates lower than Kaiser. That means that the portion employees will pay for those two options will actually go down because the university's contribution will go up. The Kaiser contribution for an individual will stay the same -- that is, remain free to the employee -- though Kaiser's family coverage will cost employees about $20 more per month than last year. So the good news is that most employees will see their contributions to health insurance stay the same or go down. But the situation is very different with the Stanford PPO, which offers full access to Stanford physicians. There are two reasons for this. First, the PPO is a much more expensive plan because of its flexibility, and its basic costs have increased beyond those of the managed care options. Second, for the last two years, we have not collected enough to pay the medical bills of those who opt for this plan. The PPO is a self-insurance plan. Although an insurance company manages it, Stanford pays all the charges. We must collect enough to cover the expenses of those enrolled. When you under-recover one year in a self-insurance plan, you have to recover the costs the following year. The cost of the Triple Option Plan also will go up, though not as much. I'm often asked why we can't get a special deal for Stanford employees who want to see Stanford doctors and use the Stanford Hospital and Clinics. Unfortunately, we are required by law to treat each other exactly as we would any other external client or health care provider. One of the advantages of the university's approach to health care options is that employees have the freedom to pick from many plans, and the real difference in the costs of those plans are visible. If the true costs are not visible, then employees cannot make informed decisions and, consequently, health care providers have no motivation for slowing down cost increases. So, by covering the cost of the lowest cost option, employees can see how much more they have to spend if, for instance, they want more flexibility. Simply put, Stanford has never spent as much on employee health care as it will spend this year. We do so because we truly value our faculty and staff and their health. In the end, Stanford -- or any other public or private entity -- will not be able to sustain such cost increases indefinitely. Health care providers and users, as well as businesses and government agencies, will all have to collaborate to create new models for addressing this crisis. I am hopeful that Stanford, as both a consumer and provider of health care, will be part of the national debate that eventually finds a sustainable solution to one of our nation's most pressing problems.
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John Etchemendy
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Stanford Report, October 1, 2003
