Explaining Health-Care Reform to Faculty and Staff

As the Patient Protection and Affordable Care Act of 2010 was working its way through the U.S. Congress earlier this year, Duke University leaders were already busy running budgetary and actuarial assessments to determine the impact of the legislation on its health plans. "The topic of health-care cost is a real one to us," says Kyle Cavanaugh, Duke's vice president for human resources. "Because we are self-insured and manage our own plans for all active faculty, staff, and retirees, we have a strong vested interest in what happens with health-care reform." In this interview with HR Horizons,

Kyle Cavanaugh

Cavanaugh details Duke's efforts to communicate accurate and timely information to faculty, staff, and retirees about the impact of the new law on their benefits and poses a key challenge for higher education leaders going forward: determining what level of fringe benefits their institutions can afford to provide.

Given the complexity of health-care reform, how have you shared important information about the new law with your institution’s employees?

Cavanaugh: Because the majority of care for our faculty, staff, and retirees is provided within our own domain, this allows for close partnerships within the system that enable us to respond quickly. While the new law will continue to evolve, the day after the act passed we were in a position to explain to employees regarding the near-term impact for Duke’s health plans, including extensions to cover children up to age 26 and changes that limit the ability for employees to use their flexible spending accounts for non-prescription, over-the-counter medications.

Similar to any large academic workforce, we have a range of language skills and levels of understanding on this topic—from those with a high school education to those with terminal degrees in health economics. This presents a challenge when it comes to conveying key messages on a topic as complex as health care. What we have found useful is a variety of internal mechanisms to help with our communication efforts and to cascade information down through Duke’s senior leaders.

From a grassroots standpoint, although we are highly decentralized at Duke, we have in each major unit a person responsible for human resources. We bring this entire forum together on a monthly basis and have used this group as a conduit during the past year to pass along the latest information about what was happening with reform efforts at a national level and changes within our own plans. Likewise, our various communications through e-mail, Web sites, and print documents have delivered targeted information on different aspects of the new law to our diverse constituents. We also recently used our monthly “Prime Time” town hall meeting to hold a health-care Q&A in advance of our upcoming open-enrollment period. While these town hall events can accommodate only a limited number of faculty and staff, they are broadcast live and then stored, so very often groups across campus will gather in conference rooms to watch the exchanges together as a unit.

How have you been able to convey to employees the greater choice and responsibility they will have for their own care as well as the impacts and costs of new requirements for Duke as an employer provider?

Cavanaugh: Part of our effort has been to quantify information and to break it into pieces that employees can digest. From an employer perspective, between today and 2020 when the act is fully up and running, there are literally hundreds of decisions we need to make related to our plans. We believe that providing employees with a basic time line will help them begin to understand the various requirements and the choices the university will have to make in outlying years and will keep us all focused on the fact that this is an evolving process. Many things about the new law—such as the state health exchanges—still need to be defined. And there may be issues we address today that will require adjustment on a year-to-year basis. All this can be daunting to faculty and staff, but if you can provide them with a general road map, it makes it easier for everyone to focus on changes for the current year.

It’s also critical to convey to employees all that you are doing independently of the law to provide a better and more cost-efficient benefit. Well before enactment of the new law, we were already aggressively pursuing cost containment for Duke’s health plans. One area in particular on which we were keenly focused was our prescription drug benefit. In 2009 we saw a significant steady increase in prescription costs, watching as these grew to 25 percent of our overall health-care spend. Obviously we were compelled to make some changes, which included creating an incentive for individuals to use mail order for maintenance medications and a concerted focus to get plan members to request generic drugs. We pushed out a lot of communication about this in the fall of 2009 heading into our current plan year. From a plan-management perspective, the changes have been a phenomenal success. We are currently projecting actual savings in this area alone of between $5 million and $6 million from 2009 to 2010. Because of those cost-containment efforts, we are able to hold premium increases for the 2011 plan year to half of what we are seeing on a national scale—about a 5 percent increase versus more typical 10 percent increases. Again, communication is essential. Conveying success to plan members lets them see how they can, and do, directly influence their own health-care costs.

How are you addressing cost increases in other areas directly attributable to new provisions within the law?

Cavanaugh: One of the variables we looked at as the bill was navigating its way through Congress was the impact of the requirement to provide coverage for children up to age 26. We conducted an actuarial analysis of the potential cost impact for our plans. Our active employee plan currently covers about 28,000 employees and approximately 57,000 total covered lives once we factor in dependents, spouses, and partners. Our assessment of the potential pool of new covered individuals as a result of this one provision ranged from a low of 700 to a high of 3,000 additional covered lives. Beyond that raw number, we determined what added costs this new cohort might introduce to our current plan structure based on the claims data history we have for those ages 19 to 26. Those projected costs were one variable we used in building our premium structure for 2011.

What will higher education employers need to monitor going forward, and what might they need to consider changing about their approach as health-care providers?

Cavanaugh: I think we are going to see institutions more actively involved in managing every aspect of their health plans and engaging in specific discussions about cost and transparency. For instance, the emerging focus on accountable care acknowledges the reality that there is a fixed amount of dollars to spend on managing care for a given population and that you have to make decisions accordingly. I think we will see more providers migrating to tighter physician networks, facility networks, and more direct contracting and integration of pharmacy plans to continue to bring down their spend. To that point, I remain very optimistic about our situation here at Duke. In terms of total plan management, we have for some time been actively engaged in disease management and wellness and prevention and are quite far along in the design of an integrated physicians network that will allow us to better focus on clinical outcomes and cost issues. We also have a strong level of trust among our health leaders, who are committed to an ongoing open dialogue about the effectiveness of physician and employee incentives and key attributes to maintaining a viable benefits plan going forward.

What do you envision in terms of the level of health-care benefits higher education institutions can provide in the future, especially in light of recent hints by some corporations that they might abandon their employer-provided health care altogether?

Cavanaugh: In my role I have access to some fairly senior people in companies around the country, and I am deeply concerned about some of the comments I am hearing that convey an overall sentiment that providing health care is becoming so expensive that some are planning to get out of the business entirely once the exchanges become available. We certainly don’t envision that as a viable or palatable solution for Duke as an organization and as a health-care provider. Yet, if in fact this does become the decision for a significant number of businesses across the country, you have to wonder about the possible trickle-down impacts for those of us who continue to run our own plans or contract for employer-provided coverage.

Something that I feel certain that higher education as an industry will have to address over the next five years is the total compensation arena. What is the new normal from a total compensation standpoint—not only pay, but also the array of benefits we provide, whether that’s health care, retirement, long-term disability, or tuition reimbursement for employees and family members? The reality is that for most colleges and universities, 60 percent or so of our total budgets continue to be allocated to our people. The slice spent on benefits continues to grow, and since health care remains the largest piece of that slice, we will continue to face decisions about priorities and trade-offs. If we want to retain a robust health plan into the future, what would we be willing to modify?

We are headed down a path toward some difficult choices. Of course each institution will have to make its own determination about priorities in comparison to its peers and in conjunction with its particular obligations—for instance, public institutions that may be part of a state-based program. No matter the institutional differences, I guarantee that this conversation will make it to the board level at every institution, and leaders will have to decide what they are able to do, and the priority order of each of these benefits in terms of workforce management and retention.

Karla Hignite, principal of KH Communication, is editor of NACUBO's HR Horizons. E-mail: karlahignite@msn.com.