UNC Healthcare Costs Shoot Up 54%

The debate over last year’s tuition hike was well publicized, but an increase of a far greater magnitude for students who are covered by the UNC system Pearce & Pearce (now Chartis) health insurance plan hasn’t received nearly the same attention.

Dollar-for-dollar, tuition at UNC is going up $695 or 9.9 percent for academic year 2012-2013 while costs for the health insurance plan are increasing $497 or 54.0 percent for the same period. UNC is by no means alone—rates at UNC-Asheville will shoot up 95.0 percent from last year. This increase will affect the 5,895 students on the plan at UNC and the approximately 64,000 students on the plan system-wide.

The UNC General Administration gives two reasons for the increase—a high level of usage and the Patient Protection and Affordable Care Act (commonly known as ObamaCare). Approximately twelve percent of the increase this year is attributable to ObamaCare (about $60), according to Bruce Mallette, Vice President for Academic and Student Affairs. The rest of the increase is an attempt by Chartis/Pearce & Pearce to lower their loss ratio from the past two years closer to the contractual level of 77 percent. The loss ratios for the 2010-2011 and 2011-2012 academic years were 118 percent and 165 percent, respectively. Basically, this means that Chartis/Pearce & Pearce has been subsidizing UNC students. For every dollar paid in premiums, Chartis/Pearce & Pearce has been paying out $1.18 and $1.65 for the past two years.

There are some questions concerning the selection of Chartis/Pearce & Pearce. The main consultant that UNC GA used during the bidding process was the North Carolina Association of Insurance Agents whose specialty is property and casualty insurance, not medical insurance. They are also paid through a one percent commission fee on the premium meaning that the NCAIA is not incentivized to keep premiums low.

The university system chose to not rebid the contract because of ObamaCare and the short amount of time that has elapsed since the last bidding process, but given the fact that the insurance premium has almost doubled since the 2010-2011 academic year, the bidding process next year is long overdue.

There are many lessons to be learned here. The fact that a private company was unable to accurately predict the premium at which it would not be effectively subsidizing its customers for the services it provides makes one question the ability of our government to be able to control costs when there is no profit motive in play.

The UNC-Chartis/Pearce & Pearce experience also seems to contradict one of the underlying tenets of ObamaCare, i.e., pooling people together will lower costs across the board. Who would have thought that students—in what is traditionally thought of as the lowest risk category for health insurers—could manage to almost double premium costs in only two short years? Never mind the fact that ObamaCare—advertised as a way to reduce health care costs—is actually adding to the financial burden students must bear next year.

It also calls into question mandates generally. UNC’s “public option” has turned out to cost much more per monthly than an individual plan with Blue Cross/Blue Shield, for example. While 10-12% of students were uninsured at UNC before the mandate, it’s not clear that students have benefitted from the mandate with highly volatile, exponentially increasing costs associated with the UNC plan.

The students who are still covered by Chartis/Pearce & Pearce this year will have to suffer the consequences of this increase, but we can only hope that the three years with Chartis/Pearce & Pearce will help ensure that insurance companies know the level of claims to expect and that they will be able to provide students with a more predictable rate of increase.

4 comments

  1. I’m pretty uninformed about the ObamaCare concept and it’s effects. Could you post a few easy-to-understand, non-biased articles to help me out?

  2. Anthony Dent- CR Daily’s 2012 MVP! I really appreciate how much factual information you’ve managed to extract from the UNC system’s contractual relationship with Pearce & Pearce- this is much more than I’d ever hope to find in the DTH or a UNC press release, or really anywhere else. I hope we get a better health insurance company next time.

    I’d still say the part of Obamacare that allows children to stay on their parents plan until age 26 has done an enormous amount of good (2.5 million young people were covered as a result). I’d also hate to see where we’d be today if we stuck with George W. Bush’s health care strategy (do nothing about the problem of the growing uninsured and families bankrupted from medical emergencies, but pass a huge unfunded prescription drug benefit for Medicare to win key votes). I think Obamacare is far from perfect (originally being a GOP/conservative idea that feeds money to the for-profit insurance industry- though now it is considered outright radical socialism since a black center-left president has endorsed it), but think it’s a good start, and the GOP were certainly offering zero comprehensive solutions, only tort reform and selling insurance across state lines (which will happen in the ACA anyway).

    1. Who raises their children so that they can subsist off “Mommy and Daddy” until they are 26 years old? All this law is doing is encouraging them to “do their own thing” whatever that may be until they really have to buckle down sometime after the age of 26. As a parent, I darn sure don’t plan on supporting my children well into their adulthood.

      1. You do a great job of simplifying a complex issue, but this law is dealing with a real problem- young adults are the demographic with the highest rates of being uninsured (30% are uninsured), and they have the lowest access to employer-based healthcare (since it is incredibly difficult to find a job, much less one with health benefits). Purchasing health care in the free market is extremely difficult (http://www.nytimes.com/2011/02/20/opinion/20Dubinsky.html) and can be incredibly expensive for young adults since healthcare is so heavily subsidized through employers (and not having any health insurance is a terrible risk which can be very expensive), whereas staying on your parents plan is very easy and very cheap. Parents are free to charge the minimal (typically 1-2%) increase in premiums to their kids (lest you spoil them!)

        Many young adults have suffered as a result of not having access to affordable health care and this law has helped 1.2 million young adults overcome this. If you have a better idea, I’d be interested to hear it.

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