Getting Colleges Out Of The Insurance Business

High school seniors who plan to attend college are in the midst of the application process as they head into the holiday season. In a few months, the lucky ones will get a “fat envelope” from their school of choice.

One reason the envelope is fat is that it is full of information about enrollment, housing, financial aid and perhaps the least exciting part of college – details of the fees students can expect to pay in addition to tuition.

At many colleges and universities, one of these fees is a health insurance premium, avoidable only by proving the student is covered by another insurance program. I discussed such health plans in this space back in 2010, concluding that most schools probably meant to do right by their students but in practice offered plans that were generally subpar. The Wall Street Journal said last year that 60 percent of school-offered health insurance plans “had coverage of $50,000 or less for specific conditions,” and that most of the rest had payout caps. The Affordable Care Act, which would ban such limited-coverage plans in most cases, had passed by the time I wrote my original column but was not yet in force.

So how has the landscape changed three years later?

Not as much as you might expect. My older daughter, who is a graduate student at Long Island University, received a letter in August alerting her that she would be charged for the university’s annual health care plan unless she opted out by Sept. 30. Her school is not an anomaly. The U.S. Department of Health and Human Services reported this summer that as many as 1.5 million graduate and undergraduate students are currently enrolled in a plan offered by a college or university.

Some schools have dropped their plans rather than raise the premiums dramatically, especially small schools and community colleges. At least one Catholic college discontinued its plan because of the contraception coverage requirement mandated by the Affordable Care Act. Other religious institutions have protested the rule.

Many schools, however, are simply carrying on, offering pricier new plans in place of the old ones. Certain schools successfully argued that their student health plans should be exempt from some of the Affordable Care Act’s requirements, including one that prohibits caps on annual or lifetime benefits. (The Obama administration has handed out exemptions and deferments more or less at its discretion.) Self-insured plans, in which the school pays claims directly, are not required to meet the law’s requirement of “essential” health benefits, The New York Times reported. Benefits in many other school plans are expanding, whether or not such expansion is strictly required by law, but premiums are also rising as a result.

As the Affordable Care Act takes effect, it is worth asking why schools should still offer, let alone require, health insurance plans for their students. After all, the Affordable Care Act already requires that students (along with most everyone else) secure health care coverage, making the requirement redundant. Further, the law allows anyone under 26 years old – most undergraduate and some graduate students – to remain on their parents’ plans.

Some students will not have this option, due to age, family situation, attending school outside the geographic region where their parents’ plans apply, or their parents’ choice to incur the law’s penalty rather than secure their own health insurance. For these students, government exchanges offer coverage that, with federal subsidies, may be a better value than their school’s plan. Such coverage cannot be denied due to a student’s pre-existing condition, so schools can no longer argue that their plans are vital to ensure that every student has access to coverage.

As has always been the case, some students will work enough while at school to secure insurance through their jobs, while others may earn little enough to qualify for newly expanded Medicaid availability in some states. Students under age 30 may opt to buy a catastrophic plan, which offers minimal coverage in exchange for cheaper premiums.

Most schools charge a fee to support on-campus health services, separate from insurance. In some places, this is folded into tuition or a broader student life fee; some institutions charge separately. These fees should not be confused, however, with insurance. While student health services provide important outpatient support, they aren’t substitutes for more extensive medical care that might require visits to a hospital or a specialist. Schools are clearly within bounds to charge students for on-campus care, but acting as brokers for independent health insurance is a different issue entirely.

Considering all this, it is easy to come to the conclusion that university insurance plans are redundant, and that school-imposed requirements to buy health coverage are inherently intrusive. Such insurance plans were always an undue expansion of the school’s role, just as it was an overreach for students to expect the school to act as an insurance provider.

Schools that offer any coverage at all should offer it as an opt-in service, not an opt-out requirement. I doubt that enough students would find such plans the best value available to make continuing to offer the service worthwhile.

When and if we fix the badly broken Affordable Care Act, one useful step would be to strip schools of the ability to tie enrollment to insurance status, or to charge students for insurance products they did not select for themselves. It is just one more change that is long overdue.

About Larry M. Elkin 553 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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