When the New York Times reported that professors at Harvard University were up in arms over changes to their employer’s health plan, the irony was immediately clear: Many thought-leaders at Harvard championed the ObamaCare law that is now causing many employers – including Harvard – to make such changes.
A little Schadenfreude is fun – and the political right understandably relishes the chance to mock liberal academia, but it’s important to understand what really is happening at Harvard and why.
First, what were the changes to Harvard's health insurance plans? Simply put, the rising cost of health insurance premiums pushed Harvard to change its insurance plan, and the new plan requires more cost sharing from workers. This is a story other American workers already know too well, as across the country rising premiums have forced other employers to make similar changes.
Harvard employees will now have to pay $20 copays for some health services, and will face an annual deductible of $250. Sounds like a pretty cushy plan to workers who haven’t been working at Harvard: The national trend has been toward higher and higher deductibles for workers, which reached a national average of $1,217 in 2014, according to Kaiser’s employer health benefits survey.
Importantly, cost sharing, in itself, isn't a bad thing. In fact, cost sharing can be an important mechanism for bringing down healthcare costs as consumers feel some “skin-in-the-game.” Consumers may think more critically about what care is truly necessary for them, or where possible, shop around for better prices. When consumers have to pay in part out-of-pocket, they will demand more price transparency of providers, leading to more informed decisions.
While cost sharing in general can be good, the reason Harvard is making these changes is bad: Harvard is asking employees to pay greater out-of-pocket costs in the form of deductibles and coinsurance because – according to their own employee guide – of added costs created by ObamaCare’s many mandates and taxes, including coverage for “child” dependents up to age 26, preventative screenings with no copay, and a Cadillac tax on high-cost insurance plans.
Typically, with insurance, out-of-pocket costs and premiums have an inverse relationship. Plans with higher deductibles usually come along with lower premiums. But sadly, the recent trend has been for both premiums and deductible to increase year after year.
Why is this happening? As ObamaCare’s many mandates add to the cost of premiums, the natural reaction of many employers (and individual health plans) is to move to plans with more out-of-pocket costs for workers. .
But rising costs isn't ObamaCare’s greatest failure: The real failure is that this major health reform law did not significantly reform the way most Americans obtain health insurance.
Specifically, it did little to move away from an employer-centric health insurance system that limits choice, distorts markets, and adds to the cost of employment. In fact, the employer mandate in the law doubles down on this broken system, and is causing headaches in labor markets.
Whether they recognize it or not, Harvard employees, and employees at other firms who offer health benefits, have been “privileged” for decades: Unlike people who must buy their own insurance, those with employer-sponsored plans use pre-tax dollars to pay their premiums, saving them thousands of dollars each year.
Our health insurance system would be much more competitive and efficient if individual insurance plans and employer-sponsored plans faced equal tax treatment – an idea that conservatives have been championing for years.
A move toward individual consumer-driven health insurance would see many plans on the market with cost-sharing mechanisms. But this would be a choice for individuals to make – not the forced result of bad policy or employers’ decisions. And the hope of such reforms would be that our healthcare system would become more efficient, which would ultimately result in real savings for all Americans.
Sadly, the opposite is taking place under ObamaCare, and the result is higher costs for workers across the board, from fast food and retail employees to even the esteemed faculty at Harvard.
The prestigious and cutting-edge university is frankly behind the times when it comes to changes in the health insurance market. It’s understandable: Change is hard. But the millions of people whose individual insurance plans were cancelled in the fall of 2013 (despite promises to the contrary) learned that before Harvard did.
It doesn’t take a Ph.D. to see that ObamaCare is hurting more than it is helping.