What’s Up With Graduate Student Subsidized Health Insurance: Pondering Plan Design

This one has been like the car wreck you see unfolding before you but feel helpless to stop.  By this, I mean this problem was identified soon after the ACA's passage as a likely problem with only complex fixes that demanded a well developed solution.  And, so far as I can tell, little heed was given by a number of the universities involved. It is ironic that large universities might not see themselves as large employers of graduate students who, either as conventionally defined employees or as common law employees, with an impermissible "premium reduction arrangement" for individual market health insurance baked right into their employment relationship with many of their graduate students. Or, maybe it was just wishful thinking that universities and graduate students would be seen as sufficiently distinctive or special, that push would never come to shove.  Well, it has — sort of.

The reason why most universities are struggling with subsidized  graduate student health insurance payments is that most student health insurance is not true employer sponsored insurance  ("ESI"). It is, for the most part, within the legal definition of  a special kind of insurance – student health insurance plans (SHIP).  And SHIP, as it is organized at most universities, is defined as part of the individual market. 

University employed students come in two flavors: conventionally defined employees and common law employees. The ACA brings many more employees (not just student employees, but all employees) inside of common law employee status for purposes of understanding who must be offered insurance, what kind of insurance must be offered, etc. Common law employee status does not map easily onto the definitions of employee found in the tax code, ERISA, and labor law. This gets tricky.

The insurance design of the  ACA wants and needs younger relatively healthy insured lives inside of group markets and not off by themselves in de facto age and fitness segregated risk pools.  Although, gradually, some of the provisions of the ACA have been brought to bear on SHIP, its very nature as a product—an individual market insurance product purchased in whole or in part by university subsidy marks it as an interesting anomaly to the general rule that the ACA is tone deaf to the pleas of younger insureds that they will, in fact, be subsidizing older insureds in the population (with small exceptions such as catastrophic coverage options available only to the youngest insureds).  This need for younger more robust insureds in the risk pools is, of course, arguably even greater in non-Medicaid expansion states who, arguably, have de-stabilized  all their insurance risk pools by their Medicaid expansion choice. And, the failure to expand Medicaid in a given state, removes Medicaid as backstop health insurance for some graduate students in those states as well. 

The orientation of the ACA is also to both drive as many people into group insurance markets as possible and to thwart any inclination of employers to want to subsidize their employee’s individual market health insurance purchases as a way to get out from under pay or play.

All of this comes to a head with the chorus of university announcements that university subsidized graduate student health insurance is coming to an end. This issue was identified by benefits and plan design consultants almost as soon as the ACA was enacted. But, since the gradual roll out of the ACA meant this would not be a problem for several years, it appears to have been a low priority for some universities.   By this, I mean that universities  could  have begun to make plans to work around the bite of these rules and regulations as applied to university student common law employees as soon as  it became apparent, barring a change in the regulations and their interpretation, these “premium reduction arrangements” would need to go away.  It takes time to develop a plan to bring common law student university employees inside of ESI, for example, or to establish a separate health plan to cover them or, even, to figure out what the compensation increase would need to be to replace a lost benefit.

Instead, the announcement is made that the premium subsidy is going away and that the ACA took it away. How anyone sees that probably depends on how they view causation. All of this is (yes!) further complicated of course,  by the fact that some universities are self-funded in their ESI and some are fully insured, for ERISA purposes.  Self-funded plans, of course, are exempt from many but not all of the ACA’s regulatory requirements.

There are a number of “fixes” possible.  And the recently announced one  year extension of time to allow universities to plan makes some of them more likely, I suppose.  But, as far as I can tell,  all of them will cost universities more and not be as generous actuarially to the relatively young and robust graduate student common law employee cohort. So, there is a political as well as insurance design angle to consider here.

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