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Higher math: Harvard's insurance premiums drop despite drama

A controversial cost change to their health insurance plans may have some Harvard professors crawling the walls like ivy—but many, if not most of them, could actually end up paying less under the new plan than they previously did.

For the first time this year, around 30,000 Harvard professors, administrative staff and other workers at the prestigious university will be forced to pay a deductible and co-insurance costs if they are enrolled in Harvard's insurance coverage and use medical services.

The Harry Elkins Widener Memorial Library on the campus of Harvard University in Cambridge, Mass.
Kelvin Ma | Bloomberg | Getty Images
The Harry Elkins Widener Memorial Library on the campus of Harvard University in Cambridge, Mass.

The annual deductibles are $250 for an individual and $750 per family. Co-insurance charges will be 10 percent of the cost of services such as being hospitalized or undergoing surgery, with a cap of $1,500 per person, and $4,500 per family.

The imposition of those charges sparked an outcry at Harvard that was detailed in a New York Times article on Monday. The Times story received widespread attention, particularly among conservatives who reveled in seeing liberal professors decrying changes that the school itself has suggested are partially the result of President Barack Obama's Affordable Care Act.

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Opponents of the changes at Harvard griped that they would financially hurt people who need health care by imposing out-of-pocket costs at the moment they sought such care.

Buried in the Times article, in the second-to-last paragraph, was the fact that Harvard's administration had pointed out that "premiums would decline slightly."

But there was no mention of just how slight that reduction would be for those monthly charges to maintain insurance coverage.

Asked about those premiums, Michael Chernew, a Harvard health economist and head of the benefits committee at the university, told CNBC that Harvard's actuary has said "the buy-down is about 6.3 percent."

"In other words, premiums would have increased by 3.6 percent without the changes," the actuary said, according to Chernew. "Instead, they decreased 2.7 percent with the changes."

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If Harvard employees don't seek medical care beyond preventative services such as screenings or immunizations, which are covered at no out-of-pocket cost, they would end up with more money in their pockets this year than they would have last year, before the new charges went into effect.

Such a decrease in premiums is unusual among employer-sponsored health plans, which have tended to rise from year to year, even during a recent slowdown in health-care cost inflation. A recent report by the Kaiser Family Foundation found that the premium prices of such plans rose by an average of 3 percent in 2014.

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Chernew said "I am sympathetic" to the argument that critics have made about the effect of the deductibles on people who use more services.

"For some people it turns out to be a big deal," he said.

But, given the decrease in premiums, and other factors, "I don't think these changes have been as horrific as the outcry has been," Chernew said.

He noted that Harvard was also, in addition to tweaking its existing health plan, now offering a new high-deductible plan that has even lower premiums than those of the original plan, giving people who use few medical services added savings. The university also has a program to help offset the effect of out-of-pocket charges on employees who earn $95,000 or less.

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Chernew and other advocates of the changes also expect that imposing deductibles and co-insurance will serve as a brake on people using health services, such as imaging tests, that aren't necessarily needed. In turn, Chernew said, that could help keep insurance costs down for the university and its employees in future years.

"We had very little cost-sharing before," Chernew said.

Harvard classics professor Richard Thomas, a leading critic of the imposition of cost sharing, acknowledged there will be a reduction in premiums and possibly a cut in the total health-care costs for the majority of plan enrollees.

"There'd be a slight reduction [in premiums], in some cases it's a matter of under $10 per month," Thomas said. "It's pretty minimal."

Asked if that reduction for most people warranted imposing cost-sharing charges on a minority, Thomas said: "I don't know. But let's say 300 people end up incurring an illness that means paying $900 or $1,500 this year, next year and maybe for the rest of their lives, and those 29,700 people are paying $9 or less per month [in premiums]. Is that an ideal community?"

"What's concerned us," he said about the deductible and co-insurance charges, "is that this is, in effect, a pay cut for sick and the poor members of our community, particularly women who are planning to have families, and those are the ways that seemed regressive."

Thomas said a junior faculty member who became pregnant in July would, when she gave birth this year, be faced with up to $1,500 in out-of-pocket co-insurance charges as a result of the new plan.

"A lot of the right wing are saying, 'Welcome to the real world,'" Thomas noted. "Well, this is the real world of corporate America. It's not the real world that existed" at Harvard and a number of other academic institutions previously, he said.

Thomas said he would have preferred to see the 3.6 percent increase in premiums that would have been required without the new cost-sharing structure.

"That's a reality that everyone could live with," Thomas said.

Even with a reality that Thomas doesn't want, Harvard's health plans are very generous for enrollees compared to the rest of the nation. Before the cost-sharing charges, the plan covered, on average, 94 percent of the costs of medical benefits to enrollees. With the new charges, that will decline to a still-high 91 percent.

Trade-offs

Larry Levitt, senior vice president of the Kaiser Family Foundation, said the change in Harvard's health plan "does highlight the disproportionate effect of raising deductibles."

"It hurts people who are sick, but it probably helps people who are healthy," Levitt said. "This isn't a wholly negative effect on the workforce."

"Compared to what most people have, Harvard faculty should consider themselves lucky, or fortunate," he said.

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Levitt noted that the average deductible for Americans enrolled in employer-provider health insurance plans which have a deductible is $1,217, or nearly five times Harvard's deductible. And the "vast majority" of such plans—80 percent—do have a deductible, said Levitt.

Co-insurance is also common, with more than 60 percent of workers in employer plans nationally having co-insurance responsibility. And the average co-insurance is 19 percent of the charge for hospitalizations and surgeries.

But, Levitt acknowledged, "no one cares about what the average is. They just care about what they have."