Happy Holidays and Happy New Year 2014!

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Brad DeLong Repeats the Conventional Wisdom

The Future of Sather Gate?

In a recent post at the Berkeley Blog, economist Brad DeLong offered an unusually succinct example of what has passed for the conventional wisdom amongst the Regents and UC administrators for the past decade.  Perhaps because he seems to think that he is providing bold advice rather than simply conforming to already existing policy, DeLong is more forthright in laying out the implications of the strategy.  Unfortunately,  he doesn't seem to realize that he is offering support for the very positions that have driven UC towards mediocrity and a lack of connection with the state of California.  Given that DeLong is one of the leading figures of the liberal wing of mainstream economics it seems worth it to take the measure of his position.

DeLong starts from the "realist" position that:

The days of Clark Kerr are over. The belief that the taxpayers of California should pay for the young citizens of California to get as much education as they want for free is no longer politically popular. Would that it were still. The old social democratic belief that America should have the best universal free public education system in the world was a principal source of America’s relative prosperity and economic leadership for a century. Now that the political coalition that supported that belief is gone, America will be a much less exceptional place.

But those days are gone. Chancellors can no longer rely on the legislature of California to fund Berkeley at the level needed to keep it an exceptional university. Berkeley needs another and a different strategy.

As DeLong notes, the strategy that Berkeley has adopted under this understanding is to dramatically increase its numbers of international undergraduate students, or as he puts it to develop "the funding stream necessary to maintain a great University by becoming a finishing school for the superrich of Asia."  To be honest, I am not really sure what to make of this characterization of students from Asia.  On the one hand, UCLA has also dramatically increased its students from both Korea and China and I have not had the impression that they are "super-rich."  On the other hand, one of the most striking aspects of the higher education policies of Asian countries has been their commitment--far greater than in the United States these days--to develop real liberal arts institutions for their youth.  But I will leave that question aside.

Now to Delong's credit he admits that this may not be the right strategy.  But he insists that it is the strategy in play, that it is better than no strategy, and that therefore Berkeley needs to follow it ruthlessly.

To do this he thinks that Berkeley's administration needs to direct all money to student life (by which I think he means counseling and mentoring), writing and acting classes, and to certain departments (engineering. pre-med, and interestingly two different types of economics).  DeLong's strategy therefore demands a bifurcated university: certain humanities departments (Theater, English) will provide international students skills in self-presentation and communication while others (economics, life sciences, and economics) will provide them with knowledge.

Apparently, DeLong thinks that Berkeley (and the other UCs for that matter) have not already been spending large amounts of funds in the bio-sciences and engineering or spending lavishly on economics.  But the last time I visited Berkeley I was struck by the dynamic re-construction on the northwest of the campus (where the life sciences are) in comparison to how archaic the buildings on the rest of the campus were (with the exception of the law school).  And last time I checked the pay scales in economics and business are significantly higher than any others outside of the medical centers.  Put another way, there is already heavy investment in the disciplines that DeLong think need money (at least in the knowledge rather than skills disciplines).

What DeLong is proposing is a form of what Andrew McGettigan has described as "internal privatization." (9) It is not something that is entirely under the control of the University--it is a legislative decision to increase private power over public higher education.  What DeLong's suggestion makes clear is how distorting the effects of this strategy is for higher education institutions when driven by the (perceived) desires of students defined as consumers.  This strategy would not preserve the Berkeley he knows:  it would convert Berkeley and the other UCs into a combination Wal-Mart and Tiffany's. We know how well that has worked for the economy as a whole.

Let's step back a minute.  DeLong is advocating this plan not because he thinks that the rest of the University is unimportant or because he thinks that social democracy was a bad thing.  Instead, he is advocating it on two grounds: first that there is something unjust about asking tax-payers to pay for the education of UC undergraduates (he speaks only about Berkeley but it applies throughout the system) and second by mimicking the argument of Margaret Thatcher: There Is No Alternative. 

These two reasons go together.  And both of these reasons depend on an ahistorical sleight-of-hand.

1) Delong implies that higher education is simply a private good. 

DeLong may feel differently in his personal views but in his arguments he reduces higher education to a private good and reduces private goods to the question of income.  Take his discussion of tuition.  Here his treatment is based entirely on the question of graduate's earnings.  The question he poses is: at what point does the loss of income and the cost outweigh the economic benefit of a degree?  To his mind, this question settles into the economist's consideration that for a college education to be a rational expenditure the long-term earning benefit must outweigh the short-term loss of income. 

Since he treats a college degree as a private good relating to income he suggests that since "the average taxpayer of California is considerably poorer than the average Berkeley graduate, that upward transfer to the relatively rich leaves a bad taste in the mouth."  But this position is remarkably over-simplified.  First it ignores that the lack of progessivity in the income tax, or the loopholes in the corporate property tax, or the shifting burden of the tax base from corporations to individuals are results of politics and history not facts of nature.  If these were corrected then we would have a situation where education could serve the entire population and the burdens would fall on those most able to bear them. 

By DeLong's logic there could be no public services except for the very poor--and given the political structure that Delong seems to take as given that would very quickly lead to no public services at all.  Moreover, it ignores all the ways that higher education (like k-12) function as public goods whose costs need to be shared.  I do not make the comparison with K-12 lightly--I know of people who object to paying taxes for public schools because their children aren't in them.  DeLong's argument is the argument of privatizers everywhere.  It fails to see incorporate the civic component of education and also fails to see that the shift from public to private funding increases costs because it forces institutions (and the individuals in them) to waste time, money, space, and labor on seeking out private and limited funding.

2) DeLong "knows" that public support for higher education does not exist anymore and therefore we must try a more privatized strategy: There is No Alternative. 

Now I have a certain sympathy for DeLong on this score:  he is, after all, a member of a discipline that has shown, as both he and Paul Krugman have argued repeatedly, a remarkable inability to recognize how much of economic thinking was rendered obsolete by the crises of the recent past.  So he may simply be thinking that since the economics profession can't change nothing can. 

But the history of economic thinking and policy suggests otherwise (as DeLong himself has pointed out).  Instead that history suggests that what may seem to be an unchallengeable orthodoxy can be changed if people work long and hard at it.   The ideas that now dominate economic thinking and policy (a certain market fundamentalism, a naturalized vision of globalization; a denigration of public institutions) did not drop from the sky.  They were developed in think tanks, spread by politicians and activists, formulated in often originally unpopular arguments, and defended over several decades.  Think back to the 1950s, 60s, or 70s and try to imagine someone seriously arguing that states should be cutting their support to higher education or that government could do nothing to help with recessions.  Our present world did not come about from nature: it resulted from political and intellectual struggles that laid the groundwork for the privatization mania that has created one of the least equal societies with the largest imprisoned population in the world. 

Let's try translating DeLong's diagnosis into somewhat different language.  In effect, he is pointing out that it is impossible to maintain social democracy under the conditions of neo-liberalism.  In this, he is surely right.  But put this way as opposed to the anodyne "the belief that the taxpayers of California should pay for the young citizens of California to get as much education as they want for free is no longer politically popular" reminds us that these are different strategies of politics and governance and not simply a "reality" that needs to be accepted.  Following the path that UC (and Berkeley, Los Angeles, and San Diego in particular) will not preserve quality public education.  It will destroy it.

Instead of simply accepting the doxa of the moment (especially when there is such evidence that it does not work in the interests of the people that Delong appears to want to assist) we should continue to call out the destructiveness of the strategy.  In practice people have begun to do so: passing proposition 30, parents and students sending California kids out of state because public universities are cheaper there, as well as the wide-spread opposition to the growth of non-resident tuition based policies.  DeLong might consider that his proposals will only intensify pressures to further cut state funding to UC not lessen them.  And if anyone really thinks that Berkeley or any other campus could sustain itself without state funding they really need to re-think their positions.  State funding remains absolutely central for the educational core mission of the University.

Advocating that we do a better job of following a poor strategy is not realism.  It is myopia.  

Union Logic of the Insurance Changes: The Case of Retiree Healthcare

We've gotten off-line comments on the ongoing coverage of benefits changes, and I thought it would make sense to address some of the issues publicly. Most focus on the issue of how faculty and staff are supposed to deal with university management, and so at the end I get to a conclusion about senates and unions via this week's issue of out-of-state retiree health care.

Q. Is keeping current levels of benefits as hopeless as your post makes it sound? 

A.  No. The post putting UC Care in the Obamacare context is a bit bleak, but my point was to say that the problems with the new UC Care program have not been resolved, and that we should continue to work to fix it.  Some non-UCOP administrators are working on a fix behind the scenes, but I don't think they will achieve uniform health benefits without major support and/or pressure from faculty and staff to move beyond the current, one-year, half-way measure. 

Q. Since most of the public pays more for worse coverage than we do, why do you think should anyone care?

A. We all hear this all the time.  First, neither salaries nor benefits at UC are now above industry averages (see e.g. this post on pay and benefits problems), and UC folks should point this out when confronted with false assumptions.  Second, we should oppose misery-loves-company spite that now fuels a salary-and-pensions race to the bottom in our increasingly post-middle-class society.  Third, many UC workers are already lower-middle or working-class, particularly in cities like Santa Barbara.  If our friends and neighbors are going to express class resentment, we should encourage them to direct it at hedge fund managers or hospital CEOs rather than at people for whom $3000 or $9000 in additional medical costs is a 10%-20% cut in take-home pay. 

Q. Must we be so cynical about UCOP motivations?

A. It's not cynicism, it's realism about how UCOP appears to see its job.  The Sansum deal, for example, suggests that UCOP was more interested in keeping their new health-care cost savings while demobilizing angry faculty and staff than  in rectifying inequitable coverage.  I say this on functionalist grounds: we have a Solomonic decision with one year of Tier 1 clinic and no Tier 1 local hospital, and in practice this has demobilized faculty and staff but retained inequitable coverage.  I also say it because Peter Taylor rejected the equity principle of cost sharing in telling the Chronicle of Higher Education that UCSB was demanding a subsidy from our colleagues elsewhere. Like other UCOP officials, Mr. Taylor does not work for UCSB employees.  Their job is to address a structural funding deficit that hasn't improved much since 2011.  Their job is not to insure maximum faculty and staff productivity through excellent working conditions and high morale. There may have been a time when UCOP's main goal was to heighten UC well-being, but that has not been true at least since then-chair of the Board of Regents Richard Blum called UCOP to heel with his 2007 memo on being "strategically dynamic."

Q. Isn't it better to save on health care and increase funding for teaching and research?

This is a false choice that has worked well as a political wedge but not as a true description of the budget.  It also avoids confronting that long-term structural issue, which is that UC is not currently funded to provide either top educational quality or above-average employee compensation.  It's getting minor annual increments in state funding that will take years to get back to ground level, and Gov. Jerry Brown and his legislative allies have made even these small increases contingent on a tuition freeze.

UCOP and the regents have used various stop-gaps to push the problem down the road. For example, the 19-year pension contribution holiday allowed UC to underestimate its state funding need by $333 million a year.  Another example has been years of reductions in the growth of the overall salary mass (thought not that of targeted executives, coaches, and high-end faculty).  The Dynes administration allowed salary scales to fall behind comparators', and justified this by pointing out our above-par benefits, saying that therefore total compensation was still ahead of our peers'.  If the Dynes administration had come for our above-par salaries, the Yudof administration came for the above-par benefits. Given ongoing structural problems, there's no natural stopping point for UCOP officials in dealing with ongoing shortfalls through the continuous pruning of total compensation.

A more recent example is retiree health care.  UCOP decided last year to carve out the subset of retirees that live outside of California, and withdraw UC health care in exchange for a cash subsidy.  Prof. Caroline Kane, writing for the UC Berkeley Emeriti Association, explains the change:

In the recent Open Enrollment period, out-of-state retirees had to select insurance through plans managed by ExtendHealth. The University does not subsidize any of these plans, but it does provide $3000 per year per Medicare-enrolled retiree and per Medicare-enrolled family members of that retiree. . . . Such plans help in covering the 30% cost of outpatient doctors, procedures, and tests that are not covered by Medicare.  From now on, there is no Open Enrollment for out-of-staters.  If they wish to change health plans in the future, they very possibly would be subject to underwriting: that is, subject to decisions on pre-existing conditions, on exclusions, and on age of the retiree.  None of these apply to in-state retirees with UC sponsored health plans. If currently out-of-state retirees move back to California, they will be ineligible for the same plans that current retirees can access. Also, the policies brokered by ExtendHealth are state-specific, so any retiree who moves would be again subject to likely changes in costs and coverage.

A class of retirees are being booted off UC health care based on their residency outside of California.  If it were a question of UC's poor coverage out of state, then retirees would logically be allowed to reenroll in UC health care, but that is not the case. This struck me as another example of discriminatory treatment based on an arbitrary class characteristic. But unlike the case with UCSB Tier 1, this discrimination was initiated by UCOP.

The letter prompted me to listen to the Regents' meeting discussion of retiree health care that Dan Mitchell had posted in November.  The UCOP leads are VP Dwaine Duckett and EVP Nathan Brostrom, with a Deloitte benefits consultant in attendence.  After the presentation, Regent Hadi Makerachian asked a series of questions, starting with why they are doing this change with this group of people.

The first answer was that it saves UC $2000 per out-of-state retiree per year. The average cost to UC under the existing system was $5000 per year, and UC will now give that group of retirees $3000. The second answer was that there is a risk transfer from UC to the retiree: in Mr. Brostrom's words, there's "more of an obligation on them as consumers of health care."  In addition to saving annual costs, UC's long-term liability is reduced by $700 million--or "a 50% reduction in total liability just for this population."

Third, Mr. Brostrom claimed that this will improve out-of-state retiree health care rather than cheapen or downgrade it. Fourth, Mr. Druckett said that "it is a way to take a small population to see how the exchanges will work, rather than trying to convert the entire retiree health population inside of California and outside all at one time. . . . I would not call this a pilot by any means but it is a way for us to see if gradually this would work where coverage is not as good for our retirees."  In other words, this is a pilot.  It's a pilot for the conversion of UC retiree health care.  One of the things also being piloted is whether there is much pushback from employees.

Mr. Brostrom wrapped up with this:

We have been looking at this, Regent Makarechian, and we thought this was a good cohort to start with because frankly their coverage was going to be getting better.  . . .To the governor's point about how people don't like disruption and change, we've gotten a lot of blowback from this plan, but we think it is the right direction to move in, and we've given Dwaine a long-term target of flattening our health care costs, and these are some of the steps we're taking to try to do that.

Mr. Brostrom had just estimated Obamacare as adding 2-3% (I assume per year) to UC health care costs. Thus Mr. Duckett's job is to cut health care costs by 2-3% year--and probably twice that, given normal cost inflation in the sector.  Given the flat revenue picture, this suggests that cuts to total compensation are to remain UCOP's annual project.

The governance of the constant cutting becomes a paramount issue.  Academic Senates work well in a collegium, to use Jim Sleeper's phrase for the desired structure of liberal education.  In that context, information is shared across roles and specializations, and decisions are meaningfully participatory.  Financial managers share information with administrative personnel and chemistry department faculty, for example, and then decisions are deliberated and to some extent jointly decided. It assumes a rough equality of status--which is why it can work well among professional colleagues but in universities has generally excluded non-academic staff.

The Senate model still functions in some precincts of academia. When I gave a lecture a couple of years ago at my alma mater, Reed College, some Senate faculty told me that they were then deciding whether the Economics department would be allowed to offer an above-College salary to candidates for a hard-to-fill position.  Majority opinion was leaning toward "no."  Some Reed faculty opposed the Senate's involvement at this level; others felt it was essential to faculty governance.  A Senate could of course decide either way while retaining deliberate authority over all major policies, as the foundation of a college that is constituted first and foremost by its faculty.

UC is the original corporate university and it has never worked this way. The entire sector has become quite a bit more corporate over the past thirty years, and this has increasingly marginalized the Academic Senate.  What we have now is a fairly straightforward managerial situation.  UCOP has ownership of financial information, which does not circulate, except in limited form to Senate committees, which do not circulate that information to their membership. Second, UCOP has ownership of decision rights.

A major symptom of this arrangement is that retiree health benefits do not belong to the retiree as deferred compensation, but to the University, to be managed according to its needs.

Most UC faculty are anti-union: the faculty is not going to unionize anytime soon.  But the more frankly managerial nature of UC governance puts faculty more obviously in the structural position of labor.  UC Care is a prime example.  Faculty are subject to the same changes as all other staff, to which none were asked to consent. And yet unionized staff do have some authority via the practice of collective bargaining.

In an era of compression of total compensation, UC faculty are less likely to put their energy into upgrading governance than into beneficial private arrangements. But that's not going to change the downward trend.

I thus recommend continued pushback on the health care plan.  The Faculty Associations are doing this, and I hope the Senate joins them.

The exchange that stays with me from the retiree health care discussion is this.

Regent Makarechian: They have all agreed to this?

Mr. Brostrom: We have implemented it, yes.

Obamacare and UC Care

We're continuing to get mail from all the campuses about the impacts of UC's cancellation of Blue Cross-Anthem and its replacement by UC Care. Most drill down into the kind of detail offered by our Berkeley contributor in October. (If you have already forgotten the blessings of your departing plan, that post chronicled many of them.)  After open enrollment closed at the end of November, a colleague wrote from Irvine:

A group of us just realized that the 20% for use of Tier 2 would affect many people who have dependents living out of state--grown-children students taking a gap year, students in boarding schools, students just graduated.  An accident and hospital stay for these families would be devastating, as they can no longer enroll in the Anthem Blue Cross guest HMO.  And perhaps even worse, retirees on the UC pension living out of state would be in the same situation. I can tell you that my colleagues have no idea of any of this.

Shortly thereafter, one of those out-of-state retirees forwarded an email she'd sent to her campus benefits representative:

I am shocked to learn today that my prescription expenses will increase 500-600% switching from Anthem PPO to UC Care.  While their benefits look pretty much the same on the material sent to us, it is not quite the case when you dig in. It comes down to this in my case: Anthem calculates a $45.00 copay for drugs that are not on their "preferred drug list" while UC Care, via Blue Cross, calculates a 20% co-insurance for a drug that is not on their list, with a $3000.00 maximum.  I have to have shots that are not on either insurer's lists and that cost $1800.00 to $1900.00 a month.  Under Anthem I was paying $45 x 12 = $530 a year. Under UC Care I would have to pay $1850 x  20% x 12=$4440, meaning each year I will pay the $3000.00 maximum.

I found this out just today from one of the "Concierge" at Blue Shield and I find it simply outrageous.  It is outrageous that we are told that coverage will remain pretty much the same, outrageous that UC Care manages to hide so well the real costs to us, outrageous that Oakland did not notice or chose not to notice the real costs to its faculty and retirees. My question to you: is there something you can do about this? and if not, what do you suggest that I can do? 

The answer appears to be no. This is a sizable pay cut, particularly for a retired person.

The UCSB Faculty Association wrote a letter pointing out that UCSB employees are still without local Tier 1 hospitalization under UC Care. It included this summary:

All is, of course, not lost.  If you are insured as an individual, your Tier 2 co-insurance contributions are capped at $3,000.00 per year.  After that, UC Care pays for everything.  Were you also to sign up for an HRA spending account, you could accumulate $2,500.00 in tax-free dollars each year to help with co-insurance costs, and save a little money that way.  Still, many of us would find being out-of-pocket for @$2,200.00 an unwelcome challenge in these diminished times.  Note, too, that the Tier 2 cap for families is much higher than the cap for individuals.  And should we need, while in hospital, to consult a doctor who is not a designated UC Care provider, we would still be responsible for 50% of those costs.  

UCOP officials insisted that UC Care was not about shifting health costs from employer to employees, and the initial publicity spotlighted the drop in monthly payments in moving from Anthem to UC Care.  But sizable cost shifting is indeed occurring, with the burden shouldered first by the chronically (if non-catastrophically) ill, and those with serious but manageable permanent conditions.

What is happening with the project of Tier 1 hospitalization that I noted a couple of weeks ago was still incomplete? The short answer is nothing for this year.

There is now better information than there was last month.  One can find lists of participating hospitals, like this one for UC Riverside. The list seems OK when one reads it from somewhere else, but as the $4400 prescription writer pointed out, the picture changes when one gets past the material to the nuts and bolts.  Riverside's Tier 1 UC Medical Center is in Irvine, not Los Angeles.  In addition, a staff member at UC Riverside reported,

Riverside Community Hospital, the best hospital in the area and a partner with UCR's new medical school, is not included in Tier 1 (UC Select).  If enrolled in UC Care, the faculty in the Medical School will not be able to use the hospital where they're training their students, unless they're willing to pay Tier 2 copayments.  The nearest UC Select hospital, Parkview Community Hospital, does not have a trauma center.

The only hospital in Davis is not in Tier 1, Santa Cruz staff will be driving to Palo Alto for Tier 1 clinical care, and so on. Various complaints we've received suggest that staff at the non-metropolitan campuses will pay more to use UC Care locally. 

In Santa Barbara, the inclusion of Sansum Clinic in Tier 1 was the result of an executive buy-out for 2014.  The deal is off for the years following, pending more successful negotiations.  Cottage Hospital is accessible through Health Net and through Tier 2, but it appears to have had no interest in negotiating Tier 1 with UC.  I was told that UCOP was looking for a per-patient employer payment keyed to their stated costs at the nearest UC Med Center, and the Sansum wanted 50% more.  UCOP apparently was willing to do a one-year top-up for UCSB employees with Sansum, but not with Sansum and Cottage.

I suggested a version of this employer buyout of employee deductibles on the principle of insurance cost pooling, in which individual and group differences come out in the wash. I conclude from my conversations that UCOP rejects this principle and continues to see the UC system as a set of separate cost pools for the purposes of health insurance.  As UC Care continues into out-years, Individual campuses will be expected in effect to self-insure and cover their own costs--except that UCOP controls the overall structure and will not support campuses in cutting their own deals with local providers. In a sense, this is worst of both worlds: UCOP not delivering on the savings of "strategic sourcing," which is supposed to give everybody volume discounts, but individual campuses can't go it alone with local medical groups whom they generally know face-to-face.

UC Care isn't the only insurance system whose opacities take time to penetrate. The New York Times ran a piece today on unexpectedly high costs with Obamacare plans--which are not designed by the government, but by private insurance companies. Here is part of the article:

Insurers devised the new policies on the assumption that consumers would pick a plan based mainly on price, as reflected in the premium. But insurance plans with lower premiums generally have higher deductibles.

In El Paso, Tex., for example, for a husband and wife both age 35, one of the cheapest plans on the federal exchange, offered by Blue Cross and Blue Shield, has a premium less than $300 a month, but the annual deductible is more than $12,000. For a 45-year-old couple seeking insurance on the federal exchange in Saginaw, Mich., a policy with a premium of $515 a month has a deductible of $10,000.

In Santa Cruz, Calif., where the exchange is run by the state, Robert Aaron, a self-employed 56-year-old engineer, said he was looking for a low-cost plan. The best one he could find had a premium of $488 a month. But the annual deductible was $5,000, and that, he said, “sounds really high.”

By contrast, according to the Kaiser Family Foundation, the average deductible in employer-sponsored health plans is $1,135.

UC Care deductibles are lower than these, but the lower-premium higher-deductible is the same.  The scheme is souring potential beneficiaries on Obamacare, and it's not helping relationship within UC either.