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.