USC Academic Senate
Winter 2002/2003 Edition 

Volume 4, Number 1, 2002-2003


 In This Edition

  A Letter from the President
  Open Letter to Senators and Other Colleagues
  Health Care Costs, Preferences, Risks and Equity
  Recruiting and Retaining a Diverse Faculty
  Non-tenure-track Faculty at USC
  Marshall Online Teaching Evaluation System
  Concerning Terminations of Tenured Faculty
  The University After 9/11

Health Care Costs, Preferences, Risks, and Equity
Mike Nichol, Health Services Administration, SPPD

By now the initial shock of the increase in health care premiums has likely moderated for many members of the University community. But the recent article in the USC Chronicle (September 30) on the projected increases in health care costs in the next five years should be sobering indeed. In this article, the USC health care benefits team predicts that total health care costs will increase from about $50 million in 2003 to more than $90 million by 2008. While the total cost of health care to the University and its employees has been about the same as total retirement costs for the last five or so years, if these projections are even close to correct, health care will outstrip retirement costs by a wide margin in a very short period of time.

In the Spring Faculty Forum, we talked about some of the causes of the health care cost increases. First, we're getting older. An increasingly aged population at the University is actually a good thing because it means that our staff and faculty are both living longer and are happy with their careers. But since older people require more health care services, this fact is likely to contribute to higher costs. Second, the health care system in the U.S. has been one of the most innovative sectors of the economy for years, so providers frequently have new and more expensive tools available when we need them. Third, when we get sick we want the best possible care, regardless of cost. Finally, we don't do a very good job of targeting our resources to those in need. All of these factors contribute to a rapidly escalating cost of health care that's not likely to change to any great degree in the near future.

However, the University population is a substantial entity with more than 10,000 benefits-eligible employees and their families. As President Sample is fond of noting, USC is the largest private employer in Los Angeles. As such, the University should be able to demand attention and service from the health plans that service their employees. Also, since the University has access to some of the finest health professional schools and clinicians in the U.S. it should be possible to develop a showcase health care delivery system devoted to cost-effective care.

In order to accomplish these goals, the University needs to embark on an aggressive program to demonstrate that health care cost increases need not be 15-20% per year and that all members of the community can have access to the same health plans and services. There is a clear need to determine 1) member satisfaction among all four plans; 2) variations in risk profiles among the four plans; and, 3) distributional variations among the enrollees of the plans. There has been considerable work on satisfaction with health care in the last twenty years, and there is now at least one measurement tool that has been used to compare performance among managed care and preferred provider organizations. The Consumer Acceptance of Health Plans (CAHPS) instrument was developed by a consortium of investigators at RAND, Research Triangle Park, and Harvard and has been used extensively throughout the U.S. The primary purpose of an assessment of this type would be to assist employees in determining the plans that best fit their needs.

There is preliminary evidence that specific cohorts of the USC community are attracted to specific health plan choices. Older employees are more likely to choose the USC network plan rather than one of the managed care options. In fact there is about a ten year difference in the average age of network members (about 45 years old) and managed care members (about 35 years old). This creates significant differences in health care risk and utilization, since older members are likely to have more chronic diseases to treat. However, the University must determine whether these age differences translate into risk differences, as well as determine whether there are important differences in utilization. It may well be that USC plan enrollees are substantially sicker and would incur greater costs if they were to enroll in a managed care alternative (thus raising overall premiums for the community). But we don't know the answer to that question at this time, and it may be an important issue as health care costs rise.

Finally, insurance is an effort to spread risk across a community, in this case, USC employees. However, as the cost of the USC network plan premium and coinsurance increases, lower paid staff and faculty may find that this option is no longer tenable. A quick example may be useful. A worker making $30,000 in 2002 and who receives a five percent raise will gain $1,500 per year before taxes. However, if this employee and family are enrolled in the USC network plan, their premiums will go up about $60 a month for 2003, for a total of about $700 in the year. So about half of their raise will go for health care costs (and it should be noted this doesn't include the effect of the co-insurance increases). An employee making $60,000 per year receiving a five percent increase will gain about $3,000 per year, and the health insurance increase will only take about 25% of the raise. If health plan choice is a cornerstone of the University benefit, it is clear that there must be an analysis of the impact of premium cost on enrollment.

In addition to an outstanding group of clinicians, the University is fortunate to have a number of outstanding health services programs and researchers that can assist in developing and implementing these studies. Now is the time to organize this effort, so that the decisions of 2004 can better reflect the employee preferences, risk profiles, and equity considerations.