By Alex E. Tavlian/DPR Editor-in-Chief
Perhaps the only thing that the University of California Office of the President got right for its in-house, inexpensive health insurance plan for students was its name – SHIP.
Almost three years since it was launched, the largest student-contributor health insurance plan billed to “keep costs low” for students has turned into a sinking ship.
In February, the UC Office of the President announced that, due to egregious oversight, the university system is on the hook for $57 million worth of medical costs associated with its UC Student Health Insurance Plan (UC SHIP).
And, like anything that has to do with the University of California system, this multi-million dollar Christmas present was delivered a few months late and addressed to University of California students.
They should have just addressed it to “Suckers.”
In 2011, SHIP was billed as the cureall for the UC’s health insurance mandate, and the largest student health insurance plan in the nation. With competitive premiums, quite a few UC students signed up for the plan instead of either staying on their parent’s health insurance plan or finding private insurance.
While there are plenty of mistakes made in creating UC SHIP, the first and most persistent is this: the University of California, a public education system, entered the health insurance business.
With a green-light, the UC Office of the President contracted Aon Hewitt, an actuarial consulting firm tasked with setting premiums for the 2011-2012 school year.
In a report released in February, Aon Hewitt made a mistake of its own: rather than setting premiums higher than normal to account for unforeseen costs or irregularities in services used by SHIP users, it stuck with a very conservative premium price to reduce the burden on students. While their intention was great, it didn’t pay off in the least.
With premiums set for 2011-2012, it was time to let the students use their plan for the year.
That’s when the Aon Hewitt’s errors start adding up: along with low-cost premiums that don’t provide for any margin of error, Aon Hewitt, which was contracted to regularly set premiums, failed to analyze data of services used by students (which would assist in estimating the cost of care and premiums to charge).
Aon Hewitt isn’t the only organization to receive blame for this lack of oversight, the management team of UC SHIP also never requested this data to compare the cost of services to the contributions made by students through premiums, which may have eliminated the accrual of a $57 million deficit.
Not until August 2012 did the UC SHIP management fire Aon Hewitt with a new consulting firm – Alliant Insurance Services.
The UC Office of the President’s canning of Aon Hewitt can only be described as a delayed freakout.
After an audit released in February, Alliant delivered the bad news: Aon Hewitt failed to do its due diligence by not analyzing services rendered on a monthly basis and comparing the costs of those services to the pool of premiums – because neither UC SHIP management nor UC Office of the President demanded it – allowing insurance claims to exceed the projected premiums causing the deficit.
In an email to Daily Californian writer Mitchell Handler, UCOP spokeswoman Brooke Converse said “Self-funded programs sometimes operate in a deficit for an initial period after inception… As the 2011-12 plan year progressed, it became apparent that the amount of claims would exceed the projected premiums set by the actuaries.”
There are two large problems with this logic.
UCOP’s “deficit defense” is bar-none the worst PR strategy to pursue. This is especially true when taking into account that Alliant’s audit of UC SHIP found that Aon Hewitt and UC Office of the President could have avoided a ballooning deficit by setting a higher initial premium instead of opting for the lowest possible projected premium.
And the greater question: Who is steering this SHIP? Not until August, one full year after the Aon Hewitt-devised premium projections went into effect, did the UC SHIP management team dump Aon Hewitt for Alliant Insurance Services.
YOU’RE THE PROUD OWNER OF A $57 MILLION DEFICIT, NOW WHAT?
In order to duck responsibility for initiating such a calamitous program, the UC Office of the President drew up some interesting proposals that are sure to make Mark Yudof the darling of the California college student:
Increase premiums. Cut benefits. Or do both.
Alongside those lovely options, his office has another goody: increase coinsurance from 10 percent to 20 percent. Translation: if UC SHIP students undergo surgery or have an in-patient stay at a hospital, they have to contribute 20 percent of the cost rather than the current 10 percent.
Apparently, being the “nation’s largest student health insurance plan” is a surefire way to earn the title of the nation’s most expensive student health insurance plan, considering that the point in creating a student health insurance plan would be to make it less expensive than private market insurance.
In a memo, UC Santa Barbara’s Student Health Service projected a 5-year premium increase of 26 percent for 2013-2014 (somewhere in the area of , followed by increases 11.3 percent, 8.5 percent, 6.8 percent, and 4.9 percent over the next four years.
UC Davis owns just under 20% of the deficit: $10 million, the Davis Beat reported. To quell the large campus deficit, UC Davis SHIP users are expecting a $444 fee increase for health insurance.
Sadly, the shockwave of premium increases that UC students can expect in 2013-2014 aren’t unprecedented when evaluating the private insurance market. In May 2010, Anthem Blue Cross of California increased rates 39% on individual policyholders. However, the cause of Anthem’s increase and the UC SHIP increase are very different.
If, by random chance, you thought that the UC Office of the President’s oversight failures were the only problem facing SHIP, you’d be dead wrong.
Given the proposals to cut benefits and/or increase premiums are fulfilled, the University of California is essentially grabbing a shovel and digging a six-feet hole to bury itself.
Here’s the dilemma that many students will face: your health insurance premium for UC SHIP is as high or higher than many of the private market insurers, your coinsurance rate is higher and the services covered are roughly the same or slimmer. What’s a UC student to do? Dump UC SHIP, pay for a private insurance plan and apply for a waiver.
If this dump-and-run reasoning is followed by enough UC SHIP users, UC Office of the President would face a nightmare scenario (or, in Titanic terms – an iceberg). With the pool of premium contributors shrinking, premium prices will continue to soar to cover the cost of health insurance services provided and pay off the $57 million deficit accrued.
Who are the remaining users that would pay a steep price for health insurance rather than moving to a private insurer? Students whose insurance premiums with private insurance companies would be considerably more expensive.
That’s when UC SHIP stops helping students and starts hurting them.
FOOD FOR THOUGHT
The UC SHIP was, by and large, the worst idea ever embarked upon by the University of California. Until the UC Office of the President finds a solution to pay off the UC SHIP debt, students are saddled with a broken version of a dream health insurance plan.
Rather than creating an inexpensive solution for students who are mandated to have health insurance but were uninsurable in the private market, the current SHIP premium increases are likely to cause spike and penalize those users.
The worst part in this boondoggle is that it is another “passing the buck” opportunity for the University. Rather than taking responsibility for having absolutely no clue how to run a health insurance plan, they pass the their mistakes off to students.
With all of the life rafts taken by Yudof and UC bureaucrats, it seems that students will be clinging for dear life on the SHIP that sank in a sea of debt.