Harvard professors freak out about getting slightly less excellent health insurance

Harvard, like nearly every other employer, will ask workers to pay a larger chunk of their health-care benefits in 2015. Harvard professors, like nearly all other employees, are outraged over the change, the New York Times reports:

Richard F. Thomas, a Harvard professor of classics and one of the world’s leading authorities on Virgil, called the changes "deplorable, deeply regressive, a sign of the corporatization of the university."

Mary D. Lewis, a professor who specializes in the history of modern France and has led opposition to the benefit changes, said they were tantamount to a pay cut. "Moreover," she said, "this pay cut will be timed to come at precisely the moment when you are sick, stressed or facing the challenges of being a new parent."

What makes Harvard's situation special is that some of the people working on the university's health-benefits plan are nationally known health-policy experts, people like David Cutler (a former Obama advisor) and Michael Chernew.

Everything else about the Harvard debate? That's the classic dilemma that pretty much every company in America currently faces. Do they keep spending more and more on health benefits, at the cost of giving workers raises? Or do they make employees pay more and face the wrath of an angry professor with a brand new co-pay?

The Harvard insurance is still really generous

First, let's get one fact out of the way: the Harvard plan is still really generous. Professors will have better, more robust insurance coverage than most other people who get insurance at work. And they'll definitely have better plans than the people buying coverage through Obamacare's marketplace.

The New York Times story reports that the new Harvard plan will cover, on average, 91 percent of enrollees' costs. This is known as the plan's actuarial value. And the Harvard plan falls to the right of this chart, in the bar that I've circled in red. The plans further to the left are those that cover a lower percent of enrollees' costs, maybe 70 or 80 percent:

(Health Affairs)

A plan that covers 91 percent of enrollees' costs is not unprecedented. But it is definitely better than what most workers get offered. It's way, way, better than what people on the Obamacare exchanges are buying, which are typically "silver" plans that cover 70 percent of enrollees' costs.

The $250 deductible for an individual is also unusually low. The average deductible for single-employee plans was $1,217 in 2014, according to the Kaiser Family Foundation.

But none of that is likely to matter much to Harvard professors, or any worker, who wants to know more about their situation. Why is my deductible going up from last year?

Every decision about health benefits requires trade offs

From the workers' perspective — certainly from the perspective of the Harvard professors quoted above — the increased cost-sharing seems like a raw deal. Changes in health benefits are tangible: we notice when the co-pay at the doctor's office goes from $10 to $20.

But what Harvard professors seem to be thinking less about is the more subtle, but equally raw deal they've gotten for years, now. When large employers decide to keep their benefit package stable, they end up using the money they would have given workers as a raise in order to afford the ever-increasing costs of health-care plans.

This is something my colleague Danielle Kurtzleben wrote about recently. The amount that employers spend on wages has decreased slightly, by 1.4 percent, between 2004 and 2014. Spending on employees benefits, however, has grown by 8.9 percent:

Separate research, published in 2011 in the journal Health Affairs, found that the median American family would have to earn $5,400 more in 2010 than they actually did, had those health insurance costs not eaten up that extra money.This is a point that Amitabh Chandra, another Harvard health economist, makes on Twitter:

Never mind that reducing the generosity of health insurance mean wage gains which are sorely needed. http://t.co/2vf6PqxxuJ

— Amitabh Chandra (@amitabhchandra2) January 5, 2015

The health plan that Harvard professors really liked came at a price: the university spent more on benefits that it otherwise would have put towards other forms of compensation (i.e. salary). Those are real trade-offs — just ones that you, I, and apparently a number of Harvard professors aren't as aware are being made.

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