Retiree healthcare benefits are a target for cost cutting once again at UCOP

Prepared on behalf of the DFA Board by Joe Kiskis, who acknowledges discussions with UCLA Professor Dan Mitchell and assistance from Eric Hays.

This is an update on activity at UCOP related to medical benefits for active employees and to retiree healthcare benefits, with the latter being the more active and pressing topic.

The short version is that forces within UCOP are pushing to replace at least some of the current retiree Medicare coordinated supplemental plans with a Medicare Advantage PPO. This would supposedly reduce costs to the University by $40M per year. It is unclear how this can be done without substantially reducing the quality of retiree healthcare.

Readers will recall that in response to a belief in UCOP that the cost of retiree healthcare benefits was rising too fast, the Retiree Health Benefits Working Group was formed about a year and a half ago. Major players in the Working Group were employees, including Senate faculty, and retirees. The group worked for about six months and issued an interim report in July 2018. Largely due to the group’s efforts, there were no major changes to retiree health benefits for 2019. The Working Group also recommended that it continue to meet so that larger issues associated with later years could be more thoughtfully approached. So far as I have been able to determine, the group was not very active between then and roughly a month ago.

In the meantime, a different group in UCOP called the Executive Steering Committee on Health Benefits Programs continued to pursue cutting retiree healthcare costs to the University. Specifically it issued a request for proposals (RFP) to outside vendors for replacing one or more of the existing retiree plans with a Medicare Advantage PPO plan. For reasons not yet revealed, the belief in the Executive Steering Committee is that this can substantially cut costs to the University. To date, there has been no explanation of how this might be accomplished while maintaining the current level of care for retirees.

All indications are that the RFP was issued in late 2018 or early 2019. Three replies have been under analysis since February in the Executive Steering Committee. When this became known to the systemwide Senate and to some retiree groups and faculty associations, there were strong objections to such a closed and hidden process that ignored shared governance and excluded the Retiree Health Benefits Working Group. In particular a letter was sent from the Senate University Committee on Faculty Welfare (UCFW) to the Senate Academic Council on April 18 (see page 2 here). There was a letter from the UCB Emeriti Association to President Napolitano and Senate Chair May on May 1 and then a letter from Academic Council to the President on May 3. It appears that COO Rachael Nava became aware of the criticisms and wrote to the Working Group on April 23.

As a result, the process is now somewhat more transparent and inclusive. There are representatives of the retiree and emeriti associations meeting with the Steering Committee to evaluate the responses to the RFP.

In addition the Working Group has been resuscitated. It is now called the Employee Health Benefits Advisory Committee. It is being included in the process of evaluating the Medicare Advantage plan options. It has also been given the larger mandate to review the entire structure of healthcare plans for both active employees and retirees and to report on that by April 2020.

I am told that there will be four groups with a vote in evaluating vendors who responded to the RFP: UCOP HR, UC Health, UC Emeriti Association/Retirees Association, and the Academic Senate.

Nevertheless, the process is still not widely known. I have not been able to find anything on the UCOP website about it. Linked from Nava’s April 23 latter was a three page FAQ document which is important reading.

I have not been able to find either the Nava letter or the FAQ document on the UCOP website. Perhaps there is information somewhere on the UCOP website, but I think it fair to say that there has been no effort by UCOP to inform employees or retirees at large.

Let us now turn from process to substance. Medicare Advantage plans are often run by well-known health insurance giants. They have been around a while and are becoming more widespread. Examples of Medicare Advantage plans are Kaiser Permanente Senior Advantage and Health Net Seniority Plus, which are already choices for UC retirees. However in those cases, they are HMO’s and not PPO’s. The other three UC plan choices for retirees have a different structure. In those plans what may appear to be the insurer, i.e. Anthem Blue Cross, is actually just the plan administrator, while UC itself pays for covered benefits not paid for by Medicare. In the abstract, Medicare Advantage plans are not an inherently flawed structure. The problem hinges on the structural differences, related differences in incentives, and the claim that costs to the University can be cut by $40M.

Since almost nothing about UCOP’s ideas or intentions has been made public, much is speculation. The basic concern is that in the present situation, Anthem has little financial incentive to deny covered benefits in particular individual cases (i.e. determine that a treatment is not medically necessary) because it is UC and not Anthem that will pay for the benefit. However if the plan were a Medicare Advantage plan with Anthem or some other company as the insurer, then there is a financial incentive to deny a treatment by judging that it is not medically necessary. For improving my understanding of these issues, I am greatly indebted to UCLA Professor Dan Mitchell via private communications and his reporting on the UCLA Faculty Association blog (examples: 1, 2, 3, 4). Thus there is concern that the $40M will come from more requests for payment being denied.

However, a more arcane point should also be kept in mind. The methods by which Medicare pays for healthcare through a traditional Medicare coordinated plan (e.g. the UC Medicare Anthem High Option Plan) and a Medicare Advantage plan are quite different. Thus it is possible that some cost savings to the University could result if the payments that a Medicare Advantage plan receives from Medicare for insuring UC retirees are larger than the payments the current plans receive. Roughly speaking the traditional payments are on a payment for service basis while the Medicare Advantage plans are paid a flat rate per insuree per year i.e. a capitated rate. It gets much more complicated when one drills down into the factors that determine the capitated rate that a particular insurance company will receive for a particular population of retirees (links: 1, 2). Nevertheless the earlier point about shifted incentives remains.

It is also worth noting that UCOP has received bids showing that the costs for the current retiree plans will go up by at least ten percent for 2020. Thus if nothing is done to change the offerings, substantially more money will have to come from somewhere.

We can conclude that for 2020 there will be no large structural changes to employee health insurance, but for retirees significant changes, including large cost increases or effectively reduced benefits, could result from the current process.

If you have comments for the Health Benefits Advisory Committee, you can send them using the email address hbac@ucop.edu.