Monday, December 18, 2017

“Experience Ratings”

We cost too much to insure, because our employees’ average age is climbing.  And our employees’ average age is climbing because we can’t afford to replace most who leave.

(insert sound of head hitting desk, over and over again)

Insurers express the ratio of what they spend on claims to what they receive in premiums in the form of an “experience rating.”  An experience rating of 80 means that the insurance company pays out 80 percent of what it receives from a given employer.  An experience rating of 100 means that it’s paying out every dollar it receives.  An experience rating over 100 means that it’s actually losing money on that employer.

If your experience rating is over 100, you have no ability to shop around for different providers.  Any provider not required to cover you, won’t.  You’re too expensive.

My college’s experience rating is over 100, and climbing.

It’s not because our premiums are modest, heaven knows.  It’s because the combination of life tenure, the absence of a mandatory retirement age, and years of cutting by attrition -- that is, failing to replace retirees with new people --  means that our generational distribution is top-heavy.  In the aggregate -- meaning that yes, there are individual exceptions -- people in their 60’s and beyond consume more medical care than people in their 20’s and 30’s.  We can’t afford to hire very many people because we’re spending too much on insurance.  And we can’t get our insurance rates down because our average age is high and climbing.  

It’s a frustrating spot to be in, and not just for the obvious financial reasons.  It’s because the various elements of the dilemma came about independently of each other, and aren’t really subject to argument.  

When the Supreme Court outlawed mandatory retirement ages for tenured faculty -- a decision that took effect shortly before I went on the faculty job market -- it did not stipulate that states or counties provide extra money to colleges to compensate for the change.  It simply extended tenure, which the AAUP redbook originally stipulated would end at the “normal retirement age,” until death.  Suddenly, there was no fixed upper bound on employee age.  While that presented a windfall for some incumbent employees, it wreaked havoc on employers.  Cutting by attrition suddenly became both more haphazard and more urgent.

Meanwhile, collective bargaining agreements typically base salaries largely or entirely on seniority.  Theoretically, a contract could include a salary cap, but it would be impossible to bargain, and would almost certainly fall victim to claims of age discrimination anyway.  

Colleges responded the only way they could.  They started hiring far fewer tenure-track faculty, and placing more of the teaching onto the ranks of adjuncts.  By a sort of risk homeostasis, making one group bulletproof required shifting more risk onto another group.  The retirement age may have gone away, but institutional risk did not.  It had to go somewhere.

In the short term, it’s hard to argue with the economic logic of the move.  You may not be able to do anything about the cost of very senior employees, but you can convert their lines to part-time status when they go.  Health insurance may continue to go up, but if it applies to fewer people, you can blunt the rate of increase for a while.

Now we’re seeing the economic limits of that strategy.  If you don’t have a decent-sized cadre of younger employees in the insurance pool, the rates go up even faster.  (And that’s without addressing the impact on generations X and Y of having what used to be full-time jobs turn to adjunct positions.  As a gen X’er who got his start as a freeway-flying adjunct, I’m keenly aware of this.)  The very expedient that solved a short-term problem created a longer-term one.

To my mind, the blindingly obvious solution is to decouple health insurance from employment altogether, and make it a right of citizenship.  That would make experience ratings irrelevant, and would dissipate perverse incentives.  It would also be the morally right thing to do.  But that doesn’t appear likely, at least for a while.  

There’s a decent “intergenerational justice” argument for reinstating a retirement age, too.  Though given the size of the Boomer voting bloc, I’m not holding my breath on that.

So for now, we’re kind of stuck.  It’s not any one person’s fault, which is the good news and the bad news.  So I’ll just appeal to our political leaders.  If these are the rules by which we have to play, we need help.  Either change some rules or pony up some money.  We can’t keep doing this.  My certainty rating on that is well over 100.