Ailing sector hopes for financial transplant

Healthcare reforms could offer shot in the arm to the academy's balance sheet. Jon Marcus reports

April 15, 2010

Among the many interest groups with a stake in the contentious debate about healthcare reform in the US, public higher education would seem to be one of the more unlikely.

Yet the academy was one of the sectors watching most attentively as the healthcare bill championed by President Barack Obama was passed last month. Public universities have been lobbying for additional funding from state budgets that are already overstretched by the rising costs of covering patients without medical insurance - and they have been losing.

"Higher education is in a competition it has never been in before, and it is in competition with healthcare," said Charles Reed, chancellor of the California State University system.

Analysts have said that the reforms could rebalance the lopsided equation that has diverted government money into healthcare while leaving less for universities.

"I am an optimist in that I think that it could lead to some relief," Dr Reed said of the bill.

America's public universities receive varying but significant parts of their income from state funding. The states share with the federal government the cost of paying for medical care for the poor under Medicaid and other programmes, and they also reimburse hospitals and doctors for treating uninsured citizens.

Exacerbating this problem is the fact that when the economy shrinks, public medical costs rise just at the time that states have less tax revenue to spend.

The proportion of state budgets consumed by Medicaid increased from 25 per cent to 30 per cent last year with the US deep in recession.

In California, state spending on healthcare mushroomed by 40 per cent from 2001 to 2008, while higher education spending grew by just 2 per cent. The state fell to 29th out of 50 in education spending as a percentage of income, while rising to eighth in the proportion of its budget consumed by healthcare. In 2009, 31 of the 50 states reduced their spending on public universities.

"There has been a squeezing-out of higher education," said Robert Moran, director of federal relations and policy analysis at the American Association of State Colleges and Universities.

'Considerable' relief

Now, however, analysts are predicting that although healthcare reform will increase some states' costs still further, the extra expense should be more than offset by the fact that the changes will reduce significantly the number of people without medical insurance.

In New York, for instance, the implementation of the legislation is expected, over 10 years, to save the state nearly $108 billion (£71 billion) of what it now spends on uncompensated care, according to an estimate by the National Academy of Public Administration. The respected Council of Economic Advisers has also said that states will receive "considerable" relief.

Not surprisingly, given the partisan and fiercely divisive nature of the struggle over healthcare reform, there is no consensus about its impact on the academy.

"There is still significant debate among governors and states about the impact this will have on their budgets," Mr Moran said.

More than a dozen states' attorneys general - all but one of them Republican - have launched a lawsuit against the Department of Health and Human Services, the Department of Labor and the Department of the Treasury in an attempt to stop the implementation of the reforms.

However, the move is thought to have little chance of success.

No matter what happens, higher education experts say, any impact of the legislation could take years to measure because many of its provisions do not take effect until 2014.

Terry Hartle, senior vice-president for government and public affairs at the American Council on Education, said: "Could the healthcare bill make a positive change? It could. But public higher education is now facing its most dire financial situation since the Depression, and the benefits under the healthcare programme won't kick in for four or five years.

"So the question is: what's going to be left when they do kick in?"

He added: "Most college leaders who think about this are so worried about the next year or two that it is hard for them to speculate about the impact of something that may take years to show up."

Dennis Jones, president of the National Center for Higher Education Management Systems, which works with universities to improve their strategic decision-making, agreed that there may be some benefits at the state level from healthcare reform.

"But the other problems in the state budgets are still going to be so big, and there is going to be so much pent-up demand for state money when there is some, that higher education is still going to be fourth or fifth on the priority list," he predicted.

Another concern in the sector is whether Washington, having passed the healthcare reforms, will now turn its sights on further regulation of the academy.

Thought to be particularly likely to attract its attention are costs to students, which have soared in recent years, partly as a result of state budget cuts.

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