Stanford’s Student Family Health Plan: A Case Study in Fragmentation

For those of us who advocate eliminating the tax-prejudice that gives our employers, instead of ourselves, a subsidy for buying our health care, the collapse of family health coverage for students at Stanford and other California universities presents quite a challenging case study.

Stanford demands that its students have health insurance. If a student does not have health insurance from another source, he must buy “Cardinal Care”, the university’s student health plan (which appears to be run by Aetna). Until 2006, a student could also pay for dependent coverage, but the university eliminated it because only 110 families enrolled of 8,200 graduate students. Stanford found that only the grad students with very sick family members signed up, so that premiums went into a death spiral.

So, increasing numbers of these elite grad students (at Stanford, remember) are enrolling their dependents in Healthy Families, the state’s Medicaid program.

The question is: if the tax system were not biased towards employer-based health care (for which Stanford students cannot enroll), how would grad students and their families get health insurance? I pose the question because I really don’t believe that enough free-market health reformers have fully thought through the challenges of underwriting and guaranteed renewability versus community rating and guaranteed issue, as well as portability, in the new world where individuals and families will buy their own health care.

Why did only 110 (very sick) families sign up for coverage, out of 8,200 grad students? (There’s no way that 98.67% of the grad students were single!) Obviously, Stanford was not underwriting, so students with healthy families would not have found the plan useful. They would have had to pay too much.

I’ve always thought that some of us would buy guaranteed renewable health insurance through our colleges if we were free to buy our own health insurance (although I’ve never written about it). If a student association and/or alumni association could offer a health plan to its members with pre-tax dollars, and guaranteed that 75% of its members would sign up (a usual condition in large groups), perhaps it would not have to underwrite. The members could then vote annually on whether to maintain the contract with Aetna or go to another carrier. (A contract with a national carrier is one way to make coverage portable as the alumni move around the country.)

Now, I’m not saying that that is the coverage I would want – but I am an advocate of consumer-directed health care, not Graham-directed health care.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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