Insuring Inefficiency

Oregon's seven state universities have been clamoring for years for more independence from bureaucratic state regulations.

As taxpayer support for them has waned, Oregon University System officials argue, the schools should have more freedom to run themselves like businesses and control their own costs.

And two years ago, Gov. John Kitzhaber agreed, signing a bill that gave the universities some of the freedom they sought.

OUS officials have found a way to use that newfound independence to save money—$67 million in the next two-year budget—on employees' health premiums.

That's savings that could lower students' tuition. But it's also too much independence for the governor: Kitzhaber has told the universities no.

"It's craziness," says state Rep. Mark Johnson (R-Hood River), who co-chaired the House Higher Education Subcommittee in 2011. "It's just another way of the system saying, 'We'd like to be efficient,' up until it threatens one of the sacred cows."

In this case, the sacred cow that's being protected is the Public Employees' Benefit Board, the insurance pool that negotiates health-care coverage for 50,000 state employees. Currently, 13,000 OUS employees—about a quarter of the pool—get their health coverage this way.

But an analysis by OUS finance chief Jay Kenton given to lawmakers last month shows the universities pay $33 million-plus a year more into the insurance pool than their employees get back in benefits.

In his report, Kenton says allowing OUS to find less expensive health insurance would have a real impact: In-state students pay $630 in tuition for every $1,000 OUS pays in employee health-insurance premiums.

The system costs OUS more because its employees tend to be healthier than state employees as a whole. As a result, universities (and students through their tuition) subsidize the state's health-insurance costs.

It's the first serious test of Kitzhaber's commitment to giving universities more independence. But Kitzhaber believes if OUS employees got out of the state insurance pool, premiums for the remaining state employees could rise—creating long-term consequences that are bigger than higher tuition costs.-

"The governor wants universities to be more efficient, but not if it merely shifts the cost to a bunch of other folks and possibly undermines the long-term interests of the OUS members," says Ben Cannon, Kitzhaber's education adviser.

Cannon says Kitzhaber's plan for health-care reform includes putting all public employees in one insurance pool. "The governor is concerned not to undermine the leverage of a larger system," he says.

"The governor is working on a transformational health-care reform," OUS's Kenton tells WW. "The problem is, students are paying for it."

To compensate the universities, Kitzhaber says he will add $20 million to OUS's budget. That requires the approval of lawmakers, some of whom would rather help OUS cut health-care costs than shovel more general-fund dollars into an inefficient system.

“Autonomy was supposed to bring efficiencies,” Johnson says. “That’s not happening here.” 

WWeek 2015