>From greene@choice.Princeton.EDU Fri May 7 15:36:26 1993 Due to widespread demand, I've decided just to post this to the list. Note it has been reformatted to reduce the line length to less than 80 characters. If you want something that more closely resembles the oringal formatting and you have NeXTmail, let me know. Also note that the original has no Section III. -Steve UNIVERSITY OF IOWA DOMESTIC PARTNER COVERAGE I. INTRODUCTION Background The Funded Retirement and Insurance Committee (FRIC) first considered the issue of extending health benefits to domestic partners of University faculty and merit staff in 1990. At that time a majority of the committee felt that such an extension was a humane and equitable response to the needs of University community members who live in stable long-term relationships but who are not able to provide for the health costs of their family equivalents because their relationships are not recognized by the legal system. Nonetheless some committee members were concerned about the financial implications for the University and its employees of extending these benefits at a time of rising health care costs and the uncertainties created by the advent of AIDS/HIV disease. For that reason, the issue was tabled until 1991 when these concerns could be explored more fully. To help FRIC assess the costs of providing these benefits, a subcommittee was formed to investigate the matter further. Sources ------- Domestic partnership coverage currently is an area of intense interest in both the public and private sectors. Several institutions and municipalities have already or presently are addressing this issue. For this reason, the subcommittee was able to assemble information from and rely on the experiences of those entities who have extended or are considering extending domestic partnership coverage to their employees. Particularly instructive were two task force reports from Ohio State University and the City of San Francisco. The City of San Francisco conducted an actual survey to determine what portion of its 31,000 employees would qualify for and utilize health care benefits for their named partners if the city offered such coverage. The San Francisco task force also did an actuarial study on the HIV-related costs of domestic partner coverage. The results of its employee survey and the actuarial calculations convinced the city that extension of benefits to domestic partners was economically feasible. San Francisco began extending such coverage to its employees in June of 1991. The Ohio State University task force also concluded that domestic partnership coverage was economically feasible. To date the University has not acted on the task force recommendation. In addition to these reports, the subcommittee did its own survey of many of the municipalities and private employers who currently offer health care coverage for domestic partners. Thus, the subcommittee was able to rely on the actual experiences of these providers in formulating its report. Currently, the cities of Seattle, Laguna Beach, Santa Cruz, Berkeley and West Hollywood extend health care coverage to named partners of their employees. Private employers such as the Village Voice, Ben & Jerry's, American Friends Service, Lotus, Levis Strauss and several others also offer domestic partner coverage. Finally, a report by Empire Blue Cross and Blue Shield of New York on AIDS cost and utilization, Abstract F.D. 812, which was presented at the Sixth International Conference on AIDS in San Francisco in June 1990 and a report by Fred Hellinger, senior economist with the National Center for Health Services Research, which appeared at 105 Public Health Reports No. 1, January-February 1990, were consulted for the projected lifetime health care costs of persons with AIDS. II. COSTS OF DOMESTIC PARTNER COVERAGE The costs to the University and its employees of extending health coverage to domestic partners fall into two main categories. One small direct cost to the University would be the additional charge paid to Blue Cross and Blue Shield of Iowa to administer the contracts for domestic partners. Another cost category to consider would be the potential increase in premiums for the group from any adverse claims experience from HIV-related disease. Presumably all of the employees who would sign up for domestic partner health coverage already receive health care coverage through the University health insurance group. Heterosexual couples already have a mechanism for obtaining family health care coverage by filling a common-law marriage affidavit with the University benefits office. In addition, even without filing an affidavit, cohabiting couples can falsely claim they are married. The University does not require proof of marriage for family health care benefits even when couples have different surnames. In conducting its survey, the City of San Francisco found that almost 1% of the heterosexual couples responding to the survey already were obtaining domestic partner coverage by falsely claiming they were married. For the foregoing reasons, the University chose to focus on those with no avenue of gaining group coverage for a partner for whom they are economically responsible. HIV-related Health Care Costs ----------------------------- The major category of additional cost considered by the subcommittee was HIV-related health care costs. For the purposes of this report, we assumed that all domestic partnerships in which both partners are male are in fact gay male partnerships. We also assumed that, within the domestic partnership population, only gay males would experience HIV-related costs. The potential number of gay partner enrollees was arrived at by using the two methods: employer survey and demographic data. The survey of employers presently offering domestic partnership coverage reveal a remarkably low utilization by gay couples. Total Gay % of Employer Total Employees Employees Enrolled Total ---------------------------------------------------------------------- West Hollywood, CA 105 1 0.6% Laguna Beach, CA 225 0 0% Santa Cruz, CA 650 0 0% San Francisco, CA [1] 31,000 594 1.9% (projected) Ben & Jerry's 355 0 0% Village Voice 231 5 2% ------------------- [1] As noted earlier, these numbers were obtained from a random survey of the City of San Francisco's workforce. Using demographic data, one learns that 1.8% of the national adult population live in same-sex relationships. Assuming that gay males form domestic partnerships at the same rate that lesbians do, then 0.9% of same-sex relationships in the general population are gay males. At the high end of projected utilization (San Francisco survey), we can expect that 1.9% of the University's 8,000 eligible employees or 152 of the faculty and staff enrolling for domestic partner health benefits will be gay men. The mid range utilization rate based on demographic data would be 0.9% of the University's 8,000 employees or 72 gay male employees who would sign up for domestic partner coverage. At the low end, we can expect that no gay men in the university's eligible employee population would sign up for domestic partner coverage. To estimate the potential HIV-related costs, the subcommittee relied on the actuarial calculations used by the City of San Francisco to forecast these same costs for its employee population. These calculations were performed to arrive at the load factor the city would pay per employee per month to its health care providers to defray the potential additional costs of domestic-partner coverage. The San Francisco load factor was based on actuarial calculations of the cost of prophylactic AZT for HIV-positive individuals and the lifetime health care costs for persons with AIDS once an active diagnosis is made. Based on actual studies of the gay population in San Francisco, the city determined that 50% of the gay population is HIV-positive. Of that number, 13% who did not have an active case of AIDS were taking AZT at any given time. Finally, the city determined that the conversion rate from sero-positive to an active case of AIDS was 6 percent per year. The figure used by San Francisco for the lifetime health care costs once an AIDS diagnosis is made was $50,000. All of these figures were well substantiated by the City and accepted by the three HMO's which will be providing the actual coverage. The subcommittee's estimate of HIV-related costs deviated from the San Francisco projections in one respect. They used a figure of $65,000 for the lifetime health care costs of individuals who have been diagnosed with AIDS. That figure was obtained from the Empire Blue Cross/Blue Shield Report and represents that insurer's experience of costs for 10,483 cases of AIDS among its insured's over a seven-year period. A copy of that abstract is available. Based on the actuarial data of the San Francisco task force report, we estimated expected HIV-related costs at the medium and high end ranges of utilization as follows. Medium Range Utilization .09% gay domestic partners (demographic data) .009 x .50 x .13 x $ 3200/12 = $0.156 or $0.16 .009 x .50 x .06 x $65000/12 = $1.46 Total cost per active employee/per month of prophylactic AZT and active AIDS cases = 1.66. Total cost per year = $1.66 x 8,000 x 12 = $159,360. Stated otherwise: 72 x .50 x .13 x $3200 = $ 14,976 72 x .50 x .06 x $65000 = $140,400 Total cost per year = $155,376 High End Utilization 1.9% gay domestic partners .019 x .50 x .13 x $3200/12 = $0.33 .019 x .50 x .06 x $65000/12 = $3.08 Total cost per active employee per month of prophylactic AZT and active AIDS cases = $3.41. Total cost per year = 3.41 x 8,000 x 12 = $327,360 Stated otherwise: 152 x .50 x .13 x $3200 = $ 31,616 152 x .50 x .06 x $65000 = $296,400 Total cost = $328,016. At the low end of 0% utilization, the extension of domestic partner health benefits would not entail any additional HIV-related costs. (It should be noted that the University already has incurred HIV-related claims for members of its faculty and staff who have suffered from AIDS.) To give some basis for comparing the projected HIV-related costs to current health care costs, one should note that the total claims for the employee population was $18,971,309. Thus the HIV-related costs at a mid-range utilization represent only .8% of our current costs. At the high end of utilization, these costs represent 1.7% of the current expenditures. The City of San Francisco which arrived at a lower projection of HIV-related costs of $3.00 per active employee per month felt the cost projections were overstated for a number of reasons. Specifically, the City felt that the survey overstated the actual rate of utilization by gay domestic partners, that an estimate of $50,000 for lifetime costs of AIDS after diagnosis was too high, and finally, that an estimated 50% HIV infection rate among gay domestic partners was too high. This assumption is borne out by the actual experience of those employees offering domestic partner coverage. Of those responding to the survey, only the Village Voice had a utilization rate approaching the San Francisco survey results. The cities of Santa Cruz and Laguna Beach and Ben & Jerry's Ice Cream of Vermont had no gay male employees enrolled in their domestic partner plan. West Hollywood, California, which has a substantial gay population, had only one gay employee take advantage of domestic partner coverage. Likewise our projections are based on lifetime AIDS costs of $65,000 per AIDS diagnosis while the San Francisco calculations are based on lifetime costs of $50,000. To the extent San Francisco is correct that the $50,000 figure is too high, our projections for HIV-related costs are grossly overstated. Finally, San Francisco and New York have been the epicenter of the HIV/AIDS epidemic. Consequently, even if the 50% infection rate for San Francisco is accurate, the rate of infection in Iowa is likely to be much lower and cost projections based on that rate would be too high. It should also be noted that fears about adverse impact on health care insurance because of catastrophic AIDS claims have not been borne out by the experience of employees offering domestic partnership coverage. For example, the monthly surcharge imposed by the Kaiser Health Maintenance Organization in 1985 when the City of Berkeley began to offer domestic partner coverage was first reduced and then eliminated after three years of experience failed to justify the need for a loading factor to cover the expected additional claims of domestic partners. Likewise, the early experience with claims of Seattle's domestic partners has been better than that of spouses and much less than the amount budgeted by the city for such claims. The experience of these two employers is similar to that of employers responding to our survey who uniformly reported no adverse claims experience from the extension of domestic partner coverage. Finally, a report on domestic partner coverage released by Hewitt Associates, a national health care consulting firm, found that the fears about catastrophic AIDS claims were not realized in any of the domestic partner plans that were studied. One explanation for the favorable claims experience of domestic partners could be that domestic partners on the whole are younger than the general employee population and thus have fewer health problems associated with mid to later life. Another reason could be that this group utilizes pregnancy benefits less than married employees. Pregnancy claims accounted for 27% of SUI hospitalization charges for 1989-90 and consistently represent the largest cost component of our inpatient charges. Interestingly, Kaiser, one of the HMO's that will be providing domestic partner coverage for the City of San Francisco, was more concerned about the high cost of maternity claims than HIV-related costs. While HIV-related costs are a valid concern in considering the extension of health benefits to domestic partners, they have not proven to have a seriously negative effect on other plans and should not be the linchpin upon which we make our decision. IV. COST CONTAINMENT AND PHASED INTRODUCTION One of the concerns about providing domestic partner coverage has been a fear that individuals with catastrophic health needs will overutilize this benefit or that employees will establish a domestic partnership with friends who have such needs for the sole purpose of obtaining this coverage. As noted earlier, adverse selection has not been a problem for those entities offering health care benefits to domestic partners. One way to minimize the risk of adverse selection is to require domestic partners to contractually assume financial responsibility for the common necessities of life, including health care costs, the same financial obligations undertaken by individuals when they marry. Few individual will be willing to obligate their assets and future earnings for another's health care, particularly for one with catastrophic health needs, unless they have a true domestic partner relationship. The University has established this requirement. The next step to limit risk to the health insurance group would be to provide a mechanism for domestic partners to obtain health care coverage while controlling to some degree the enrollment costs and the amount of the claims until the scope of the potential eligible population can be ascertained. One method of controlling the enrollment costs is to allow employees to sign up for domestic partner coverage but require those signing up to pay the additional cost of the coverage. In other words, such employees would have to pay the difference between what the University pays for individual health care coverage and the total cost of the particular family coverage they choose. In that case, the only additional cost to the University would be the third party administrative costs. The cost of claims from domestic partner coverage could also be controlled partially by requiring domestic partners to enroll only the Chip II plan. Under this plan, the first $800 of health care costs (up to a total of $2600 per year) for the employee and each alternative family would be paid out of pocket in any given year. V. CONCLUSION One impetus for extending health care benefits to domestic partners is the principle of equity, or the equalization of employee benefits. Stated otherwise, the extension of health benefits to domestic partners is the provision of equal pay for equal work of similarly situated employees. Thus to the extent the provision of health benefits seeks to distribute the risk of health care costs among the employee population and to avoid pauperization of an employee with a costly family illness, them employers are having to change the basis on which benefits are provided to meet the changing needs of their employee population. The extension of health care benefits to domestic partners is an issue of growing interest among employers. The cities of East Lansing, Michigan; Boston, Massachusetts; Madison, Wisconsin; and Minneapolis, Minnesota currently are considering the extension of health coverage for domestic partners. Montifore Hospital in New York City recently extended domestic partner health benefits to its 9,000 employees, and the City of San Francisco extended such coverage to its 31,000 employees last June. Moreover, the experience of those employers who have extended such coverage, some of which have had domestic partner plans in place since as early as 1982, has not borne out the fears about adverse selection and catastrophic health care claims among the domestic partner population. Indeed, the utilization rate among the perceived high-risk group, gay men, has been exceedingly low. It would appear from that experience that the extension of health care benefits to domestic partners is not only eminently fair but also economically feasible. ---- Scanned by D.P. Coster (dcoster@princeton.edu)