David R. Henderson  

Presidential Resignation: Good Move, Wrong President

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University of Missouri president Tim Wolfe announced today that he is resigning effective immediately. The incident that got much national coverage was a strike by many of the football players on the college team. But one of the earlier incidents, which seemed to have been a big motivator of the football strike, was a hunger strike by graduate student Jonathan Butler.

That's interesting because one of Butler's objections to President Wolfe was "graduate students being robbed of their health insurance." If this is a big concern of Butler's and not just a side issue, then Butler called for the wrong president to resign. He should have called for President Obama to resign. Why? Because what caused the University of Missouri to quit subsidizing graduate students' health care was, you guessed it, Obamacare.

Here's an excerpt from an August 17 report by Jennifer Kabbany:

The feds view grad students as "employees" and thus they are subject to the rules and regulations of Obamacare. With that, a bunch of University of Missouri grad students have lost their health insurance subsidies.

KOMU reports "MU said it can no longer pay for graduate students' health insurance because of changes in federal health care policy under the Affordable Health Care Act."

"MU said the IRS considers graduate students as employees of the university rather than students because they provide research and teaching assistance. The Affordable Care Act prohibits employers from giving employees money specifically to buy insurance under the individual market."

"If the university does not comply with ACA standards, it could be fined $100 per day per student by the IRS," KOMU pointed out.


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COMMENTS (21 to date)
Brandon Berg writes:

I don't understand how it came to this, then. Did he not explain this to the graduate students, or did they expect the school to eat the fine?

Brandon Berg writes:

Oh, never mind. This seems to have been more about racial activism.

Njnnja writes:

There is a lot of spin going on and I think if one looks at all the facts, the University is probably much more to blame than Obamacare. It appears that the way things used to be, the University offered health insurance to students, for a premium. However, since not all students are employees of the University, it was not an employer-sponsored health plan; rather, it is basically just a bunch of individual policies. However, if you worked for the University (like most grad students do), then in addition to whatever salary you would get, the university would also give you a reduction in the cost of the student health plan.

Note that this is an unusual arrangement; normally, when you pay somebody, they are either an employee and then questions of providing benefits come into play, or they are not an employee, and they are on their own. But the University (like most institutions of higher learning), wants to have it both ways, and deal with grad students with all the power of an employer/employee relationship, e.g. telling them when and where to show up in front of a bunch of undergrad students, but does not want to follow the laws and regulations (e.g. minimum wage) that would occur if they really were employees.

So with Obamacare, low wage employees who do not receive health coverage by their employers are supposed to be eligible for premium subsidies by the federal government. What employers would like to do for a maximum cost reduction is get rid of health insurance for their employees, allowing those employees to get insurance on the exchanges, and maybe get a premium subsidy paid by the government. But employees wouldn't be happy about that in most cases since the plans and costs in the exchanges are typically worse than what they currently have. In theory, a Coasean solution would have the employer dump their health insurance plan, and give employees a few extra bucks to help them buy coverage on the exchanges, leaving the employees in about the same position they were in the employer plan, and saving the employer money. However, that goes against the whole concept that PPACA wants employers to continue providing coverage (if they can), so that arbitrage is not allowed under the law. That disallowance is what the University is blaming for their stopping the reimbursement for grad students.

But that is dishonest. The University could have either: 1) allowed grad students who work for the University to enter the same employer sponsored plan as administration, faculty, or staff, but that would admit that they are employees and the University doesn't want to do that, or 2) just paid every grad student more money to reflect the increased costs that the grad students are bearing. My guess is that they didn't do that because few enough grad students were taking advantage of the student plan that stopping the reimbursement and redistributing that amount over the much larger number of all grad students was such a small number that it wouldn't have really helped.

David Johnston writes:

Njnnja,

I believe both of your options for the University would have ended up costing more money than the previous system. Therefore, the ACA imposed additional costs on the University which it passed on to students. Is the University at fault for that?

Njnnja writes:

I looked into the details a little and note that they actually did the second option, offering everybody about $1200/year to replace what used to be a $3,000 stipend. Which is exactly what I predicted; because they had fewer people elect the 3,000 medical reimbursement, but now need to give everybody the cash, the cash amount is much less.

But as for the first option, the subsidy was only about $3,000/year, which sounds about right for the actuarially expected costs for health insurance for a bunch of healthy, part time worker, part time student, 25 year olds. If the regular employee plan was anything other than fully community rated (and self-insured seems most likely for an employer of this size), it would have most likely been a wash in terms of dollars to extend benefits to these employees.

But how many grad students really understand health insurance? So by Occam's razor, I think they saw the opportunity to save a few bucks and said "Because Obamacare."

Khalid writes:

As a current University of Missouri-Columbia grad student, I can tell you, and for sure, losing the health care subsidy was not the issue. Our campus has been plagued with racial problems for months. Incidents of people driving around campus and yelling racial slurs have become all too common. I have personally witnessed an incident where a student dropped the "N" word to a FACULTY member! When the faculty member brought the issue to the Dean of their college, he simply told the faculty member to forget about the incident. I was there, I witnessed it! That's right. You can only imagine what some African American students have been going through on our campus - an institution of higher learning where tolerance and inclusion should be the backbone of the institution and where diversity is appreciated and encouraged, in and out of the classroom. So NO! It's not about the health subsidy, which the university paid back last month after we walked out. It's NOT Obama's fault. It is racism that exists within our institution. The university cut-off our insurance subsidy WITHOUT any prior notice which left many students, and families, in a very tough situation. Butler mentioned the insurance subsidy to show the university's lack of communication and poor handling of graduate student issues. To suggest that grad students do not understand health insurance only shows one's ignorance and stupidity. This has nothing to do with the health subsidy, Obamacare, or money, no matter what a local news report says. Come to campus, meet and talk to students, as I do, everyday, and then make a decision.

David R. Henderson writes:

@Njnnja,
But as for the first option, the subsidy was only about $3,000/year, which sounds about right for the actuarially expected costs for health insurance for a bunch of healthy, part time worker, part time student, 25 year olds.
Yes, doesn’t it? And there’s the rub. Actuarial expectation is down the drain with Obamacare. He has taken insurance out of insurance by not allowing rates to be based on risk. So it’s a huge subsidy from the young to the old.
@Khalid,
To suggest that grad students do not understand health insurance only shows one's ignorance and stupidity.
Normally, our editor of this site would contact you about your lack of manners. We do not allow people to call others stupid. So please apologize.
Oh, and by the way, I did not suggest that grad students do not understand health insurance. I have no idea whether they do or don’t. I’m sure some do and some don’t.

ThomasH writes:

One of the more positive side effects of ACA is that more people are getting their health insurance as individuals rather than through their employers. Ideally, all of the subsidies for employers to transact for health insurance for their employees would have been removed and everyone would buy their own, with the subsidies passed on to them through tax credits.

Among other benefits, this would avoid the atrocity of employers deciding on what kind of contraception can be purchased for the employee with the employee's own wages on grounds of the employers' religious beliefs which they have to gall to call their "liberty." EconoLog's Sumerian scribe (not to be confused with your Sumnerian scribe) must be spinning in his tomb. :)

Mark V Anderson writes:

@Khalid. I just read about this whole Mizzou issue in the paper today. I know I can't treat what reporters say as gospel, but it sounded to me as if various Black organizations were demanding the president's resignation for some minor racial incidents. Sounded nuts to me.

Your comments make it sound like there are more pervasive issues than that, but I am still confused as to why the president is at fault for the racial animosity. And your example was about as far from convincing as could be. Some random student called some faculty member the N word. Usually ignoring name calling is indeed the adult thing to do, so I don't understand why you are so outraged at this advice. What is it that the Dean should have done?

Robert Embry writes:

[Comment removed. Please consult our comment policies and check your email for explanation.--Econlib Ed.]

Harold Cockerill writes:

@ThomasH - I have seen atrocities up close and insurance issues do not qualify for that label.

RPLong writes:
I have personally witnessed an incident where a student dropped the "N" word to a FACULTY member! When the faculty member brought the issue to the Dean of their college, he simply told the faculty member to forget about the incident. I was there, I witnessed it!

Khalid, as a graduate student, why in the world were you a witness to this kind of a private faculty meeting between a professor and a dean?

If your account is true, then it sounds like many, many people at the university are violating all sorts of rules, norms, and best practices.

MG writes:

Sadly, this sensible way to look at the brouhaha will get a few hundred (maybe a few thousand?) pair of eyes. Can you get yourself on ESPN's expert list?

Hazel Meade writes:

One of the perverse effects of the ACA is that people are effectively forced to use their employer's health plan, which actually limited their options much more than if they went on the exchanges. For the university to provide a subsidy directly to employees to go buy insurance on the exchange is actually an innovative improvement that ought to be encouraged as a way out of the employer-based system's perverse effects. I have no idea why the government would ban this. The employee doesn't get a government subsidy, the subsidy is paid for by the employer, and is tax deductible just like paying for the insurance (or should be), so everything is tax neutral from the employers perspective. And the employee gets a much wider range of choices of plans. I don't see the downside.

Hazel Meade writes:

Njnnja: But employees wouldn't be happy about that in most cases since the plans and costs in the exchanges are typically worse than what they currently have.

I wouldn't be too quick to assume that. With employer-based plans, the employee has only a few options, usually from the same insurer. Those options are negotiated by the employer, not the employee. The employee thus has much less influence over what the content and terms of those plans are than he does in the private insurance market.

Of course, the ACA takes a lot of that power away from individuals too, by mandating certain coverages, deductible levels, and other terms. But at least in the private makret there is a little more wiggle room for individuals to shop around and bring some competitive pressure to bear. You can't really do that with employer based plans at all.

Also, I'm not sure why the Administration would want to admit that exchange plans are inferior to what is available via employers, especially when the "Cadillac Tax" is going into effect.

Njnnja writes:

@Hazel Meade
The reason I assume ACA will have worse choices for this population is as @David R. Henderson mentions, there are a lot of subsidies from the healthy young to the unhealthy and old so it is likely that they are already starting off at a big cost/benefit disadvantage compared to an employer sponsored plan, not necessarily that the individual plans in general are worse than employer based plans. $3000 for a pretty decent plan ($300 deductible even out of network, 80/20 coins in-network) is almost certainly only possible because of the population we are talking about.

But it still doesn't excuse the University from simply putting working grad students into a real employer based plan, which would have made all of this Obamacare individual coverage issues a moot point. The University is their employer, and they want to provide employees with medical insurance. It seems like there is a simple solution here and it doesn't involve creating $1200 stipends to all graduate student workers and giving a wink wink nudge nudge go buy individual medical insurance.

Hazel Meade writes:

@Njnnja:

I'm confused. Do you want healthy young people to be subsidizing unhealthy/older people or not? And why is it so important that people get insurance via their employers? Wouldn't it be better, from the standpoint of the ACA, for these young, healthy students, to be in the insurance pool for the exchange plans? I don't recall ACA supporters generally being big fans of the employer-based system, so why go out of the way to preserve it, especially at the cost of removing more healthy young people from the insurance pool?

Ron writes:

This article misses the obvious. We know what happened. Missouri is a refusenik state when it comes to Obamacare. The state of Missouri is not insuring grad students for the same reason they did not expand Medicare, even though the other 49 states would be paying 90% of the cost: politics.

ThomasH writes:

A useful reform that Republicans could propose would be to remove the subsidies for employer plans and to the people who are in them and give those subsidies to individuals as tax credits. The only downside I can see is that not being taxed for health insurance is a bigger benefit to highly paid workers than to low paid workers, so the shift would be mildly progressive. What am I missing?

Richard Ross writes:

If I had been President Wolf, I would have met individually with each protesting player with two piles of letters in front of me. One pile for those who want to play and the other to rescend the scholarships and the invoice for the rest of the semester and the bill for the following semester. I would have done the same to the coach.

To kowtow to a group sends a bad message to the students that the university is responsible for the actions of all of the students, and responsible for the actions of all the teachers. We are individuals and behave in what we believe is in our best interest. Sometimes we have to pay a penalty for what we believe.

Njnnja writes:

@Hazel Meade
Do you want healthy young people to be subsidizing unhealthy/older people or not?
It's not about what I want, I'm merely pointing out that grad student employees went from a benefits package with a net cost of $0 to the same benefits package at a net cost of about $1800/year. It does not surprise me that this was unpopular with grad students.

Wouldn't it be better, from the standpoint of the ACA, for these young, healthy students, to be in the insurance pool for the exchange plans?
Yes, but the complaint by the grad students *isn't* "We're not doing enough to ensure the success of the ACA." Their complaint, as far as I can tell, is that they used to have to pay nothing for health insurance, now they have to pay something. The University could have put them in their (I am sure it is a) self-insured plan for employees at the same cost as they were paying for the student plan, but they don't want to put them in an employee plan for reasons that have more to do with the status of grad student employees than it does with health insurance considerations.

And why is it so important that people get insurance via their employers?...I don't recall ACA supporters generally being big fans of the employer-based system, so why go out of the way to preserve it, especially at the cost of removing more healthy young people from the insurance pool?
You are correct that people on the left want a nationalized, or at least single-payer system, while those on the right want to move to a more individual based system. I don't believe that any system is perfect, all of them have different trade offs and benefits.

There are actually good reasons for pooling on an employer basis (e.g. it avoids twin problems of cherry picking and antiselection). Further, the vast majority of people not in Medicare or Medicaid get heath insurance from their employers. And a lot of those people don't want to make a change - think of the furor over "If you like your plan, you can keep it."

To forestall the usual objection, if the taxability of employer sponsored health insurance were the same as for an individual policy, I strongly believe that you would still see employer based policies as dominant because (in the absence of regulatory requirements like community rating, etc) individual policies would either enter a death spiral by insuring too many sick people or would simply deny coverage (or severely limit coverage) to those who would be high users of care, and employer based coverage would then be the only coverage that either 1) the majority of people could afford or 2) the people who most need it would qualify for.

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