Student Health Insurance: Problems and Solutions.

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Author: Wagner, Robin1

With all the areas of cost pressures to deal with on a college campus, student health insurance is not one that has received much attention historically. Student health insurance experiences the same inflationary trends as employee benefits, but it is rarely viewed as a significant direct cost to an institution, nor is the bill even close to the scale of costs associated with employee health plans. Yet the costs are rising, and many administrators are worried.

To provide a sense of the rate of health-insurance inflation, in each of the years from 2001 through 2004, employer health-plan premiums rose by more than 10 percent â€" by 13.9 percent in 2003 alone. Students are also more likely to use certain treatments, such as prescription drugs, behavioral-health services, and outpatient surgery, with the highest rates of inflation. What's more, college and university students belong to the age group most at risk of being uninsured. According to a recent study of health-insurance coverage by the Henry J. Kaiser Family Foundation, 45 percent of low-income individuals between the ages of 19 and 24, and 19 percent of all other individuals in that age group, were uninsured in 2004. The issues are similar for the population band into which most graduate students fall â€" ages 25 to 34 â€" where 46 percent of low-income and 15 percent of all other individuals were uninsured. The report specifically notes that younger adults, ages 19 to 34, "represent only a quarter of the nonelderly population, yet make up 40 percent of the uninsured."

University leaders are starting to learn more about student health insurance, and in some unpleasant ways. They may have been motivated to learn more about the topic from the handful of students each year who have inadequate or no health coverage and who experience an illness or accident that leaves them with five- or six-figure medical bills. Or from the administrators of the campus medical center where those students with inadequate coverage were treated, who want to know how to collect on the growing bad debt. Or from students on limited incomes who find the student plan to be too expensive. Or even from better-off students â€" those with living-expense stipends and health insurance covered by their programs â€" who begin to sound a lot like full-time employees complaining about the erosion of their insurance plan's benefits.

Help does not seem to be on the way for colleges and universities, either. Trying to look for national or even statewide policy approaches to student health insurance is complicated by the sheer diversity of student demand for health insurance, who writes the check, and what the costs and benefits are.

Very few states, most notably Massachusetts and New Jersey, require health insurance for all students, and only in those states will you find common minimum standards for levels of coverage. Across the rest of the country, the spectrum includes, at one end, colleges that require enrollment in a comprehensive insurance plan (where typically the cost burden is borne by the student, except for those with generous financing packages) and, at the other end, colleges that do not play an active role in identifying or promoting a health-insurance plan at all.

The price of health-insurance premiums and student out-of-pocket costs run the gamut as well. Insurance pricing depends on a group's experience â€" that's insurancespeak for the collective history of health costs associated with that particular group's members â€" and the size of the population being insured. (Generally speaking, the larger a group, the better the health-insurance rate, as the group can spread the risk of high claims over a large pool of people.) Therefore, in the student health-insurance world, age (younger equals healthier), size of the student body, and percentage of the student body on the plan are the most significant cost drivers.

When it comes to assessing what kind of health insurance is needed on a given campus, the mix of undergraduate and graduate students, as well as the nationality of the students, comes into play. Predominantly undergraduate institutions have the least call for student-insurance plans, as the students tend to rely on their parents' health plans and are generally not at an age when they would be concerned about health issues. (It is important to note that our assumptions about undergraduates will need to change as the percentage of Americans with employer-sponsored health plans and dependent coverage continues to decline.) Plans that cover only hospitalization and emergencies often seem practical at undergraduate institutions, especially when the campus health center can treat less-serious medical needs. By contrast, universities with large graduate programs and international-student populations need more-comprehensive health plans. Older students are likelier to develop health issues and may have dependent spouses and children, while international students must purchase health insurance with specified levels of coverage to fulfill their visa requirements.

As for paying for student health insurance, one finds a variety of situations across different campuses and even on a single campus. Some students receive health benefits as employees or through fellowships, while others must finance health insurance along with all of their educational and living expenses. The typical student health plan will cost anywhere from $1,000 annually at the low end (limited coverage for a young, healthy undergraduate) to well over $7,000 annually for the coverage of a student with dependents. While full-time students often carry health coverage through their parents' plans into their early 20s, older students, students from families without health insurance, and part-time students are exceptions to that assumption. Regardless of who is paying the bill, though, the cost of student health insurance has become a problem to consider carefully and soberly â€" it plays a role in the actual cost of attendance for students, and it erodes the spending power of student-aid budgets that do not rise nearly as quickly as the cost of health insurance.

When a campus is home to uninsured or underinsured students, costs arise for academic as well as student programs. Students may drop out when they face unanticipated health costs, for instance. Even when a student does have insurance, a health problem could pose a heavy burden. Health plans priced for penny-pinching international students and others with scarce resources offer a low premium cost in exchange for high out-of-pocket payments. In such a situation, a relatively straightforward medical issue such as day surgery to repair a knee injury could result in co-insurance and deductible charges to the student of more than $1,000.

Campus health centers, often primary-care units open at low or no cost to all students, are also facing increasing pressures related to uninsured and underinsured students. When cost is an issue to patients, they may delay treatment until symptoms are dire and reduce dosages to make expensive medicines last longer. Because of these financial concerns, students have begun arriving at campus clinics with more complex and severe health problems than one would expect from a young population. And the problems continue once the students arrive for treatment. Some have refused necessary though costly diagnostics, from blood tests to expensive imaging like MRI's, and they raise similar concerns about seeing specialists. In other words, campuses are seeing students with more severe health issues who are not getting the care they need. Such matters come back to university budget conversations in the form of requests to expand the capacity of campus health centers (having a specialist and diagnostic equipment in house would reduce out-of-pocket costs for students) and sometimes in the form of requests from ill students for financial assistance.

Where does this awful spiral end, and are there any long-term solutions and strate-gies? A single institution can't easily find a way out alone. For one, health-care costs have been rising quickly for many years, and most administrators are occupied with short-term tactical decisions. One can dampen an increase in the price of students' insurance premiums, for example, by increasing copayments or payments for prescription drugs. The problem is that these savings to the entire group come at the expense of the individuals within the plan who need those services. Making such decisions becomes an agonizing process for the faculty and staff members and students who sit on campus health-insurance committees and review the plan each year. There's very little energy or optimism left over for developing long-range solutions when the discussion focuses on benefits reductions designed to lower the premium cost.

Another limitation to developing long-term strategies is the importance of the size of a group to the premium cost. Only a handful of the largest universities in the country can enjoy any real savings that would come from being able to spread or "pool" the risk of a few individuals with high health-care costs over an extremely large group of relatively young and healthy students paying premiums. Thus the only "painless" way to reduce premium costs is bounded by the size of a college's total enrollment. To maximize the size of an institution's pool of insured students, a number of colleges and universities have a mandatory enrollment policy, or a "hard waiver" policy. By requiring enrollment in the student health plan, a college both maximizes the percentage of students enrolled in the plan and removes adverse selection from the pool of insured students. The latter point is not insignificant, as optional plans attract in larger numbers the students with existing health needs and thus have a lower percentage of healthy students in the pool.

If it's such a good idea, why do many institutions not have health-insurance requirements, let alone mandatory or hard-waiver policies? While such plans ensure proper health coverage for all students, they are not popular, since they result in a significant increase in the cost of attendance for students and families. And when a university already discounts tuition and fees significantly, adding another $1,500 or so to annual costs could truly stress the institution's financial-aid budget, not just the students struggling to pay bills. If one weighs the extra costs to students and institutions associated with mandating health insurance, perhaps it does not always make economic sense to do the right thing.

Even when we do the right thing and turn our attention to long-term planning for health insurance, rapid changes in the industry can confound our efforts. For instance, in recent years many campuses began scaling back their student-health services by removing specialties such as gynecology, physical therapy, dermatology, and orthopedics. Those decisions were made because of the expense associated with retaining highly compensated clinicians (with escalating malpractice insurance costs) on fixed student-health budgets. The logic was that students could access these services through their health-insurance plans and pay on an as-needed basis for the treatments. However, health costs have grown so much during the past decade that some campuses can possibly get more bang for their students' health bucks by hiring back some specialists through the students' health fees.

Another change in student health plans over the past decade has been the move away from and now back to self-in-sured models, in which institutions collect health-insurance premiums from students and pay out health claims from that fund. With volatile health-care inflation over several years, coupled sometimes with inexpert management of health plans, campuses feared not having collected enough premiums to cover the claims and outsourced their health insurance. However, with the rate of health-care inflation so high and sustained for several years, it has actually become possible on some campuses to save money for students by once again creating a self-financed insurance plan. Depending on one's tolerance for the risk and administrative headaches of a self-financed plan, it might be time for some institutions to reconsider outsourcing health insurance.

In other words, even well-considered strategic shifts need revisiting with some frequency.

Despite this bleak picture, there are a few avenues of improvement for getting more health care for a student's dollar. A cost factor often overlooked is a university or college's relationship with the hospital or medical center where the majority of a campus's health care is administered. Institutions can sometimes negotiate with their local providers for exclusive student-plan rates and shave off significant costs. Developing a stronger relationship with the major medical provider can also allow the campus health administrators to improve customer service for students.

If larger groups can enjoy premium savings simply on their size advantage, then perhaps smaller institutions would be well served to offer their students joint plans. Sadly, this approach has been easier said than done. Student plans among institutions do not necessarily have much in common â€" benefits, campus demographics, and provider networks differ substantially.

What colleges can do, though, is collaborate on developing a two-tiered approach to changing student health insurance. From a public-policy perspective, they could document the impact that uninsured and underinsured students may have on state resources and providers, and seek mandates of minimum insurance levels from state legislatures. Then campus health providers could develop a set of minimum coverage standards for students that would enable them to find common ground with other colleges, allowing for the second avenue of change â€" institutions collaborating in the development of larger pools of students for whom more cost-effective insurance plans could be created. Such plans could create a substantially larger risk pool with the best possible economies for students.

Unfortunately, the picture for higher-education institutions and student health insurance is not bright. Campus administrators need to devote more serious effort to the problem and to consider these and other strategies to contain the ever-escalating cost of providing health insurance for students. Although the obstacles to long-term planning are high, the costs of ignoring the problem will be much higher.

University leaders are starting to learn more about student health insurance, and in some unpleasant ways.

Even when we turn our attention to long-term planning for health insurance, rapid changes in the industry can confound our efforts.

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By Robin Wagner

Robin Wagner is deputy director of academic programs at the Institute for the International Education of Students. She formerly was associate dean of students for health affairs and strategic planning at the University of Chicago.