NCPA - National Center for Policy Analysis

A Health Care Plan for Colleges

September 21, 2010

Most parents probably don't realize how increasing health care costs are harming their kids' education, says Peter Orszag, former director of the White House Office of Management and Budget.

Consider this:

  • In 1980, a new associate professor at the University of Illinois at Urbana-Champaign, a public university, earned about the same amount as one at the University of Chicago, a private university; ditto for the University of Texas at Austin and Rice University.
  • By 2000, new associate professors at the University of Illinois and the University of Texas were earning about 15 percent less than their counterparts at Chicago and Rice.
  • And by this year, the differential had widened to 20 percent.

What does health care have to do with any of this?

  • Governments' general support for higher education 25 years ago was nearly 50 percent greater than state spending on Medicaid.
  • That relationship has now flipped: Medicaid spending is about 50 percent greater than support for higher education.
  • If higher education's share of state budgets had remained constant instead of being crowded out by rising Medicaid costs, it would be getting some $30 billion more than it receives today, or more than $2,000 per student.

Just 30 years ago, state appropriations generally accounted for about four times the revenue of tuition -- so offsetting a 20 percent reduction in state support would require raising tuition by a politically infeasible 80 percent.  The result is that public colleges haven't been able to stay competitive with private universities on salaries and spending on students.  Ultimately quality is going to suffer, says Orszag.

Source: Peter Orszag, "A Health Care Plan for Colleges," New York Times, September 18, 2010.

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