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Posted October 11, 2007 The full Governing Management Letter | Subscribe to The Governing Management Letter Bonus columns: GIRARD MILLER’S BENEFITS BEAT Health Care: Hard Numbers, Hard Choices Insurance premiums are up 78 percent since 2001. Questions, success stories or anecdotes about benefit issues in government? A recent Kaiser Family Foundation report sadly confirms what most public-sector executives know only too well: health care insurance costs have surged way beyond inflation and wages. Over the past six years, health insurance premiums have increased 78 percent. During this period, inflation and wages grew 17 to 19 percent in total, only one-fourth as fast. (The report, incidentally, is a treasure trove of statistics on health care costs over the past 10 years, and well worth reading by anybody who wants to get up to speed on this vital topic.) As the data below show, the cost impact has hit both employers and employees almost equally, with employers picking up the far greater dollar increases, but employees bearing similar percentage increases.
Although state and local governments do not offer health care benefits to as many employees as a few leading industries (because of disproportionate part-time and seasonal employees, such as lifeguards and parks and recreation workers), the percentage of eligible employees who actually receive worksite health benefits is the highest of all major industries and professional groups. As a result, the percentage of workers covered is the highest in the country.
Data on the employer/employee cost split for public-sector workers are not available, but the national data are illuminating. The percentage share of health insurance and medical benefits paid by employers and employees has remained remarkably stable over the past seven years. Employers have paid by far the greater absolute dollar increase, because their share is about 70 to 75 percent of the total expense for family coverage.
These are national averages, and there will be significant regional variation depending on general cost levels in different regions. But the trends are unarguable: Health care expenses are consuming a larger share of the national economic pie, and for state and local governments these expenses are rising much faster than the wages of their employees and taxpayers — and much faster than the tax base. If these trends continue, service-level reductions will become mandatory, especially in states and localities where tax limitations or weak economic conditions limit the revenues to inflation at most. Solutions? Unfortunately, they are few and far between these days. The managed-care industry sought to curb cost increases through better control of the expense structures, yet as the data above show clearly, the costs of unmanaged point-of-service plans actually increased at a slower rate than the more popular preferred provider arrangements. Wellness campaigns are now in vogue, as discussed in my companion column this month. And employers are clearly shifting costs to employees or at least increasing their co-pays and deductibles. According to the Kaiser survey, 45 percent of employers plan to increase the amount employees pay for health insurance premiums, and over 40 percent plan to increase the amount employees pay for prescription drugs, insurance co-pays and deductibles. As with the private sector, public employers are looking at so-called "consumer-driven" strategies, which shift the awareness and sometimes the burden of cost control to the employee. Purchasing consortia in some states (with CalPERS the strongest of all) may be able to compress costs, but where those plans have been in effect for several years, that cow has already been milked dry. As the presidential candidates proffer their national health care proposals to voters, it's worth noting that cost containment for existing employers is seldom part of their plans. Republican strategists prefer tax cuts, which will do nothing for state and local governments that pay no taxes anyway, but their individualistic approach does have the potential to force health care consumers to think more carefully about what they demand. Democrats, on the other hand, have tended to seek all-inclusive programs, and it remains to be seen whether those will provide state and local governments any kind of group bargaining power that they don't already have through their various consortia. Keep your eye on the aggregate demand for health care that will result from the various politicians' proposals. Inflation can be "cost-push" or "demand-pull." If we provide broader coverage to millions of uninsured Americans, state and local government leaders should not be surprised to see their health insurance premiums continue to increase because of rising fees caused by broader access and hence greater demand for a relatively finite supply of medical care professionals. There's an old rule in economics: When the price is zero, the demand is infinite. That's why half of the solution to health care inflation and taxpayer cost containment is to force public employees to have more skin in the game as buyers. The other half is supply-side stimulus of the health care infrastructure and talent pool. With Baby Boomers aging and making greater use of costlier medical systems, health care cost containment will continue to be a conundrum. As elections draw closer, state and local officials and public managers will be wise to keep a sharp focus on the proposals advanced at the national level and be sure that their taxpayers don't inadvertently end up holding the bag for increased health care costs. This could become a very nasty example of the Law of Unintended Consequences. Everybody wants to see a solution to the nation's health care crisis, but long-term expense management and some thoughtful long-term supply-side solutions must play a greater role in managing the affordability equation. Price controls won't work, so state and local leaders need to focus higher education funding and congressional attention on ways to help increase the supply of talent and resources in this high-inflation industry. Last month: Girard Miller, an analyst of benefits and investments with 30 years of experience in the public, private and nonprofit sectors, can be reached at Girardinmalibu@charter.net. © 2007, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. | ||||||||||||
