VANTAGE POINT: Understanding the university's health care challenges

John Etchemendy

John Etchemendy

Stanford faculty and staff members will soon receive information about this year's Open Enrollment, and we will all once again make important decisions about health care coverage for ourselves and our families. Although the university's health care costs have increased in 2004-05, employee costs could actually decrease depending on the plan selected.

Our Human Resources staff has done an exceptional job of providing us with new cost-effective choices. Among the choices I am particularly pleased about is a reasonably priced plan for the Stanford Medical Center. The Only@Stanford Plan was created in response to faculty and staff members seeking better access to physicians at Stanford Hospital and Clinics, the Lucile Packard Children's Hospital and the Menlo Medical Clinic.

The changes in the university's health care offerings this year are substantial. They had to be substantial if we were going to take steps to stem rising costs and respond to changes in the health care industry. So it is more important than ever that faculty and staff members carefully review Open Enrollment choices and make thoughtful decisions.

To help in these decisions, I'd like to offer a broader context in which to understand Stanford's health care coverage and our struggles to sustain excellent programs in the face of ever-increasing costs.

Despite our improving financial situation, covering the increasing cost of health care is having a profound effect on the university's budget. These costs absorb vital resources needed to fund such priorities as faculty and staff salary increases and essential academic programs, both old and new. Those of us involved in the budgeting process have felt in the last several years like we're on the wrong side in a game of Pac-Man, with uncontrolled health care costs relentlessly gobbling up the part of the budget over which we have discretion. From 1995 to 2000, for instance, we saw average annual increases in net fringe benefit costs of just under 6 percent. In contrast, the average annual increase from 2000 to 2005 in net costs is projected to be over 13 percent. Or, to put it another way, in those five years benefit costs have increased over 86 percent. And there is no end in sight.

Stanford is not alone. Nationwide, health insurance premiums increased 11.2 percent between 2003 and 2004, according to a survey released by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust. The rise marks the fourth consecutive year of double-digit rate increases. Stanford's anticipated percentage increase this year is 15.4 percent. Such increases are not sustainable for any employer.

The Kaiser study revealed unfortunate consequences of our national health care crisis. For instance, about 5 million fewer workers are covered by employer health insurance than in 2001. I am pleased that the university, contrary to this trend, continues to pay 100 percent of the lowest-cost individual health plan. This year, that means Stanford will cover the full cost to an individual employee for the Kaiser health plan, 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, as well as 82 percent of the lowest cost family plan.

One of the advantages of the university's approach is that employees have the freedom to pick from many plans with different costs. The variety of plans is important. It allows you to make calibrated decisions about what you are willing to pay for certain services. That in turn creates a competition that gives health care providers motivation to slow down increases.

That's one way to combat rising health care costs. Another is through the plan innovations our benefits analysts introduce. For instance, this year, we will offer a consumer-driven health plan. These types of plans, which are very different from conventional plans, have lower premiums because the plan holder makes his or her own decisions about how to spend health care dollars.

You can help by being thoughtful, educated consumers during Open Enrollment Nov. 1 to Nov. 19 and by taking advantage of a health management program we will introduce in January. Under that new program, faculty and staff will be given financial incentives for consulting with a health adviser who will help set goals for improving health and reducing medical costs.

As I have said in the past, universities are defined by their people. Stanford has the best faculty and staff anywhere. Stanford has never spent as much on employee health care as it will spend this year. I said that last year, and I suspect I will say it again next year. But, we do so because we truly value our faculty and staff and the contributions you make to our university.

John Etchemendy is provost of Stanford University.