“We learned from our nationwide investigation of the student loan industry that some big businesses were focused on making profits on the backs of students,” Mr. Cuomo said.

-“Colleges Skirt Rules on Health Plans,” April 8, 2010 NYTimes

 

In the interests of protecting our members, as well as ensuring that public and tuition dollars are being invested in ASEs who provide frontline teaching, research and service work, we intend to pursue every possible legal remedy in identifying and recovering money that’s been overspent on insurance companies. Below are the details of our analysis so far, based on information provided by the University.

Background

The "Troubling Practices"

Medical Loss Ratio

Insurance Broker Arrangement

Contigency Reserve Fund

Ask President Emmert

Background
In November 2009, the University first revealed to UAW representatives that they had been overpaying the insurance company for the GAIP for several years. The explanation given by University reps was that the overpayment stemmed from the attacks on the Twin Towers in 2001, which had destroyed records that would have been used to underwrite the policy and serve as the basis for calculating premiums. Starting in 2002, the carrier/broker allegedly began calculating premiums based on national averages rather than the specific experience of Academic Student Employees (a group typically less expensive than average to insure), but accidentally had forgotten to re-calculate their premiums in subsequent years. This “accident,” we were told, resulted in the overpayment.

[click here to see a memo we’ve subsequently discovered making it clear that claims processing was handled in a separate facility that was unaffected by the Twin Tower attacks].

At the time of this initial revelation, and on subsequent occasions, we’ve asked for specific information detailing the amount of the overpayment and the University’s plans to recover it. UW has refused to provide this information.

In a communication to us dated December 3, 2009, the University wrote that its broker, Parker Smith and Feek (PSF), had successfully negotiated a partial refund for overpaid premiums from the insurance carrier, United Health Care. In their words,

PSF has …determined that the difference between the actual trends and the assumed trends, as well as the additional premium resulted in profits to UHC that exceeded the UHC risk charge in the underwriting renewal model. The low trends the plan experienced are potentially attributable to the effectiveness of Hall Health Primary Care and Rubenstein Memorial Pharmacy acting as the primary providers and gatekeepers for the plan. Under the current contract, UHC is not required to refund any money back to the University, however, PSF has successfully negotiated with UHC that the University will receive a partial refund.

But on April 7, 2010, UW told us in a bargaining session with us that talks with UHC had in fact broken down and that there was no negotiated refund. Since UW was now claiming that they did not recover the overpayments, and had no specific plans to recover them in the future, we intensified our investigation of the GAIP plan structure. In the process, we’ve uncovered a startling and complicated financing scheme that appears to result in unearned profits to the insurance company, its 3rd party administrator, a go-between firm who negotiates the plan, and the University itself. The components of this scheme appear to mirror the items identified by Andrew Cuomo in his recently announced investigation into abuses that he had found in student health plan across the country:

In many cases the amount of claims paid out by the insurance company is only a fraction of the premiums students pay, resulting in excessive profits for the insurance companies. The investigation also exposed troubling conflicted relationships between agents and health insurers involving undisclosed contracts that created incentives for the agents to work against the best interests of students and to persuade schools to take and maintain overly costly plans.

-“Attorney General Cuomo Finds College Students Nationwide May Be at Risk Due to Inferior Health Insurance Plans”

Three of the organizations Cuomo subpoenaed were connected with the GAIP: two insurance carriers (United Health Care and Combined) and a longtime broker for the plan (Mercer Health and Benefits, LLC).

“Troubling Practices”
Through our investigation of the documents we’ve obtained in negotiations, we’ve identified a few key features of the plan that are cause for major concern:

• More Money for Insurance Companies
The University and its agents have established inflated premiums such that overhead costs are paid at a higher proportion than average, and they have hidden these costs by using misleading reporting practices [see Medical Loss Ratio]

• Profit-Driven Contracts
The relationship between the University’s broker and the insurance carrier provides a financial incentive for the parties to negotiate higher premiums, as the commissions paid to the broker are calculated as a proportion of the overall premium paid to the carrier [see Insurance Broker Arrangements]

• Additional Profits for UW?
Since 2002, the University has maintained (at the urging of its broker) a “Contingency Reserve Fund” that allegedly is established to minimize claims fluctuations. However, due to premium inflation the fund appears to have gone virtually untapped while money collected from premiums (typically hundreds of thousands of dollars per year, funded primarily by public dollars) continues to flow into the fund. While agreeing to negotiate inflated premiums with the carrier, the University appears to be receiving additional profit from this fund. [see Contingency Reserve Fund].

What these plan features suggest is that University’s overpayment to insurance carriers was not the result of a historical accident. Instead it appears to have resulted from a financing scheme that provides an incentive to overpay by allowing all parties to profit from inflated premiums.

Medical Loss Ratio
In the health insurance industry the term “Medical Loss Ratio” is used to compare the amount of money spent on health care claims to the overall cost of the premiums. In the recently passed national Affordable Health Care Act Congress established a minimum loss ratio of 85%, and this serves as a near-industry standard. However, the GAIP plan medical loss ratio since 2002 has been approximately 71% (see spreadsheet): in other words, about 30% of premiums go to pay something other than claims.

While the University’s own utilization statistics bear this out, its presentation of the data is misleading and makes the loss ratio appear to be higher. Our understanding is that the conventional formula for determining a loss ratio is the amount expended in benefits divided by the premiums earned. This is the definition of loss ratio in WAC 284-60-30(2), (3). The University’s broker, however, does not use that formula for calculating the loss ratio (see claims data). The broker calculates the loss ratio as the amount expended in benefits divided by “Claims Funding” which is defined as the Gross Premium minus Retention minus Contingency Reserve. In other words, overhead charge is subtracted from the Total Premium before the loss ratio is calculated. While at first glance it appears that yearly loss ratio has been well over 85%, it in fact has been consistently lower.

Had the University’s loss ratio been 85%, it may have saved more than $10 million in premiums since 2002. We’ve asked UW for its own accounting of its overpayment but it has refused to provide us with the information.

Insurance Broker Arrangement
The University hires a broker to oversee negotiations with the insurance carrier. The broker is paid out of “Retention” premium dollars, not out of separate University funds. However, the structure of the negotiating relationship between the broker and the insurance carrier provides a financial incentive for either party to negotiate higher premiums, as the commissions paid to the broker are calculated as a proportion of the overall premium paid to the carrier. Although the University unilaterally cancelled its contract with Mercer in 2009 and changed to Parker, Smith and Feek, the agent involved in these negotiations remained the same.

Contingency Reserve Fund
Documents provided by the University show that each year a percentage of the Gross Premium (4.825% in the 2008-09 plan year) was to be set aside as a Contingency Reserve in an account held by the University. The asserted purpose of the Contingency Reserve is to pay any Incurred Claims which exceed Claims Funding. If Incurred Claims are less than Claims Funding, the University keeps the entire amount in the Contingency Reserve according to the Agreement between the University and its insurer. Incurred Claims have consistently been less than Claims Funding and therefore the Contingency Reserves have remained with the University. Recently the University claimed that no additional reserves have been generated for several years; however the documentary record shows no drop in premiums paid and no change in the Contingency Reserve portion of the contract between UW and the carrier.

We’ve repeatedly asked the University for a complete accounting of this fund to substantiate their claim that no extra profit has been generated through charging an increased premium. While they've provided some information, several questions remain.

Outstanding Questions:

• How much did the University overpay its insurance carriers?

• Why hasn’t the University recovered overpaid premiums?

• What happens to the money that is diverted to the “Reserve Fund”?

• How does the University justify investing no money in ASEs when it’s willing to overpay big insurance companies, and possibly receive additional profits in the process?