If the Patient Protection and Affordable Care Act (PPACA), better known as “Obamacare,” is allowed to continue to full effect by whoever wins the presidential election, more companies may institute self-funded employee health insurance plans similar to the one that governs Harvard-Westlake faculty and staff.
Unlike many other schools, the Harvard-Westlake faculty healthcare plan, which covers all full-time employees for no cost, is self-funded.
This means that the school doesn’t pay premiums to a health insurance company to take on the risk of faculty’s medical claims, and it can design its own plan.
“Self-funding is going to be the way to save money for health insurance,” Health Benefits Administrator Nicole Ryan said.
“Harvard-Westlake has been increasing [healthcare spending] one percent per year for the last ten years. Fully insured companies are going to be seeing five-and-a-half to seven-and-a-half percent per year. So more companies are going to become self-insured in the next couple years.”
Due to this self-insured set up, the plan does not need to follow numerous PPACA provisions that apply to fully insured plans, Ryan said.
However, some new rules still do apply. The school began making changes to the healthcare plan in 2010, when the first PPACA provisions were enacted, Ryan said. By 2014, there will be no preexisting condition waiting period for all individuals, Ryan said.
“This may increase the number of people on the plan, which is obviously going to increase the costs of medical care,” Ryan said. “I think we have some uncovered dependents that may not be covered under a health insurance plan right now because their parents want to save money.”
“In 2014 uncovered individuals will have to pay a hefty tax penalty if they’re not covered,” she said. “That’s part of the ACA. So everybody has to have health insurance.”
As of 2010, the plan also no longer has lifetime limits on medical care, Ryan said.
Lastly, 2010 marked the removal of the cost for covered preventive care like mammograms and colonoscopies.
Ryan thinks that PPACA’s biggest and only negative change for Harvard-Westlake employees regards the flexible spending plan, or the Section 125 cafeteria plan, which changes in 2014.
Flex is a plan employees can use to tax shelter some of their money for medical expenses, which is a way to reduce payments made to tax-collectors like the government.
While the tax shelter limit is currently $5,000, in 2014 that limit will be cut in half to $2,500.
Despite these new PPACA mandates that will increase healthcare plan costs, Chief Financial Officer Rob Levin does not think the increases will be significant, especially in relation to the healthcare plan budget of $2.7 million.
Although being exempt from several new PPACA provisions is a plus, the school administers a self-funded plan for multiple other reasons.
“We have the money,” Levin said.
He compared the chances of a certain number of people getting sick and overwhelming the budget to the chances of a certain number of people getting in a car accident.
“If you have one driver, it’s like a coin flip,” Levin said. “It’s heads or tails. You could have the $40,000 accident. But if you had 1,000 people in your family, are they all going to have an accident in the same year? It becomes real predictable, like a thousand coin flips. So we have 500 people involved in our plan.”
“They’re not all going to get sick the same year,” he said. “They’re not all going to be healthy the same year. You’re going to have some heads and some tails. So we know that it’s pretty predictable, and we’ll have good years and bad years, but we can afford the bad year. So why pay an insurance company a profit to take on that risk?”
He said that because the Business Office is able to design a plan tailored to the employees instead of paying an insurance company a profit, the self-insurance plan saves the school about $500,000 a year, which cuts students’ tuition by about $300.
On the other hand, the healthcare plan’s budget of $2.7 million a year adds about $2,000 to tuition.
Besides saving money, Levin said the healthcare plan is not worse but “as good or better.”
“We get the best of both worlds. We figured we’ve probably saved over the [past 25] years $10 million by doing this,” Levin said.