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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.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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One Response to "Getting Colleges Out Of The Insurance Business"

  • Jack Lambert
    December 18, 2013 - 5:28 pm

    I wish I would have ran across this post last year. My son got the fat envelope from his first choice (thankfully). Long story short we got the insurance the school offered. We thought we were alright but then an accident at school proved that wrong. He is ok but we are still paying bills. I wish I would have read the policy. It was sub-par. Pay attention to this post.