There's no question about it. Employer expenses for health care coverage are headed upward in 2003. "Health care costs for employers should rise 15 percent on average in 2003," predicts Eric Parmenter, practice leader, compensation and benefits, at the Chicago-based consulting firm Grant Thornton in Chicago. Another expert who sees double-digit increases in employer health expenses is Jim Mortimer of the Midwest Business Group. "Employers are seeing percentage increases in the 12 percent to 16 percent range on their health plans for 2003 ," he said. Employers are also concerned. "Like all other employers, we are experiencing rapidly escalating medical and prescription drug costs in the United States," said Kevin Lowery, a spokesman for Pittsburgh-based Alcoa. While Alcoa's actual cost increases have consistently been below national averages because of a plan that is designed to manage costs aggressively, Lowery said controlling costs is a never-ending battle.

"We are exploring ways to dampen the impact of health care cost trends in the years ahead, but we are concerned about the upward trend in costs in the U.S," Lowery said.

The concern over health care is not new. A September 2002 analysis from the Kaiser Family Foundation of Menlo Park, Calif., found that 53 percent of all U.S. businesses identified health insurance as the "greatest concern for the company."

In fact, the soaring cost of health coverage is fast becoming a major issue for all Americans.

"As baby boomers and other workers find that they are paying more dollars out of pocket than ever before for health care, you will see increased demands for major reforms of our health care system," said Pat Schoeni, director of public affairs at the National Coalition on Health Care. "I don't think we are going to see national health insurance coming down the pike any time soon, but I think you will see health coverage being a main issue in the 2004 presidential campaign."

With businesses trying to reduce expenses across the board, rising health care costs are having an increasing impact on the corporate income statement.

That's why Expansion Management decided to examine health care costs and availability to see if they varied enough from community to community to qualify as an important site selection factor.

What we found was a resounding yes.

What we've come up with is our 2003 Health Quotient(tm) (HQ), the latest in our long line of "Q" studies that includes the Education Quotient(tm), Logistics Quotient(tm), Quality of Life Quotient(tm) and Legislative Quotient(tm).

The top two finishers in the First Annual Health Quotient(tm) - Rochester, Minn., and Charlottesville, Va., - are also home to prestigious medical centers.

In Rochester, the Mayo Clinic rated No. 2 in U.S. News & World Report's "Best Hospitals Honor Roll." The Clinic scored quality points on 14 of the 17 specialties in U.S. News' rankings.

Charlottesville, meanwhile, is home to the University of Virginia Health Sciences Center, which scored quality points on 10 of the 17 specialties in U.S. News' "Best Hospitals" rankings.

"Health care is definitely an area that executives don't investigate enough before they make a site selection decision," said Jim Mortimer, president of the Midwest Business Group on Health (MBGH). "Typically, employers don't look at health care costs on a community level, because many times they don't have the information. Your magazine's Health Quotient(tm) may fill that important need."

MBGH is a coalition of more than 70 public and private employers in an 11-state region that works together to continuously improve the quality and cost-effectiveness of health services.

Along with doing a detailed site analysis, Mortimer urged employers contemplating relocation to evaluate their benefit plan design and their policies on payroll contributions - two potential tools that can help corral health care costs.

"I'm glad to see Expansion Management developing and publishing this Health Quotient(tm)," said Mortimer, whose background includes 14 years of experience as a bank human resources executive.

How the Rankings Were Produced

We've taken a variety of cost yardsticks, including employer insurance premiums and health care expenses, along with several community health resource indicators, as a starting point to develop our HQ metro rankings.

Health quality and performance rankings produced by several medical and health insurance organizations were added to the mix to produce our HQ metro rankings.

The number of hospital beds was an important figure in the HQ, and one expert said it's time to boost the number of beds available.

"We have stripped capacity out of health care in the United States for the past 10 years," said Dr. Brian Keaton, who serves on the board of directors of the American College of Emergency Physicians in Dallas. "In the name of cost containment, we went from 1 million hospital beds to 800,000. Now is the time to start reinvesting in the national health infrastructure. To that end, we need to move back toward 900,000 available beds."

Out-of-pocket costs for worker health insurance may be the most important measure for employers in the HQ mix. Therefore, we went to the Agency for Healthcare Research and Quality (AHRQ) - part of the Department of Health and Human Services - and used its Medical Expenditure Panel Survey as a guide to employer health insurance costs.

We used statistics from the AHRQ's Employer-Sponsored Health Insurance Data as our chief source. The AHRQ data was released August 2002.

Also on the cost front, we relied on health care cost data for U.S. metros from the ACCRA Cost of Living Index (third quarter 2002). Components of health care that ACCRA tracks in its index include average cost per day for a hospital room, doctor and dentist office visit prices, and average cost for a tube of antibiotic ointment.

Several community health resource indicators were part of HQ formula. Number of hospital beds per 1,000 population for metros and number of nurses per 100,000 population were two of the community health resource indicators that we used.

The nurse data, compiled by the Department of Health and Human Services' Health Resources & Services Administration, was taken from the Health Care State Rankings 2002 volume from Lawrence, Kan.,-based Morgan Quitno Press.

The Department of Health and Human Services was the source of data covering number of hospital beds per 1,000 population for metros. We also relied on HHS data for other community health resource indicators, including:

* Number of persons per physician weighted to metro area populations over age 65;

* Percent of metro area made up of low-income populations.

Another important indicator of health quality is the availability of one or more teaching hospitals in a community.

"Teaching hospitals don't have a lock on good doctors or good care, but when it comes to extremely ill patients, complicated surgeries, many cancers and serious heart problems, studies suggest that teaching hospitals offer better odds," said David Kessler, dean of the Yale School of Medicine and former head of the Food and Drug Administration, during a recent National Public Radio program. "[Other studies] have found that elderly patients who suffered a heart attack had better survival rates at top teaching hospitals."

Expansion Management relied on statistics from the Council of Teaching Hospitals & Health Systems to develop a geographic breakout of teaching hospitals around the country.

Another good indicator of health resources at a prospective site is the number of community health centers that meet the needs of America's medically underserved cities and communities. We relied on geographic breakouts from the National Association of Community Health Centers that we used in our Health Quotient(tm).

Besides health costs and health resources, we used health quality and performance rankings in our calculations. Rankings from the following organizations formed the health quality and performance segment:

* United Healthcare Foundation's (Minnetonka, Minn.) 2002 State Health Rankings;

* Physicians Committee for Responsible Medicine (Washington, D.C.) ranking of least-healthy states;

* Healthiest States Designation from 2002 Health Care State Rankings, Morgan Quitno Press.

What Does it Mean for Your Business?

Readers can add one other factor in the mix:

Do prospective communities on your short list of sites have employer groups working to put a lid on health care costs?

There are about 90 such groups in the United States that are involved at the local level to try to have an impact on the local health care delivery system.

"These groups often include manufacturers and service companies, public entities such as states and counties, and nonprofit employers," MBGH's Mortimer said. "They all have the same interest in getting fair value for their health dollars."

The National Business Coalition on Health can direct readers to local employer health care coalitions around the United States.

What's the link between costs and availability of health care?

"In general, what we have in the United States now is a situation which is somewhat reversed from what you might expect," said Mark White, a senior health benefits consultant and actuary with Watson Wyatt, a Washington, D.C.,-based human resources consulting firm. "That is, the more health care providers there are in a community, the more likely that the health care costs will be high. We don't have as much of the competitive marketplace in health care that we do in most products and services that are provided in this country."

Megan Cooper, editor of the Dartmouth Atlas of Health Care, agrees that too much in the way of medical resources does not necessarily translate out to lower health care costs.

"If you are in an area where there are fewer resources available, people are more likely to be treated as outpatients," she said. "On the other hand, if you are in an area where there are more health care facilities available, people tend to get treated as in-patients, which is obviously a lot more expensive. Once you've built a hospital bed, it's going to get used."

White offers a piece of advice: look at all aspects of your firm's health benefits package during the site selection process.

"Managed care features, cost-sharing formulas between employees and the employer, and prescription drug coverage - all of these areas and more can be addressed in a new, different plan as part of the relocation," White said. "The environment is changing rapidly right now in terms of benefits that are provided by employers. It's certainly worth looking at, particularly if you are dealing with a new location, and whether you want to provide the same benefit levels that you provide elsewhere."

Readers can take a couple of steps to get a handle on health benefits costs before they move.

"Identify the local HMOs that are operating in each of the sites you are looking at, and find out what their prevailing premium rates are, and that would be a pretty good surrogate for the rest of the market," White said.

Another way to gauge the market in a particular area is to speak with an agent or broker in that area.

"They deal with all health insurance carriers in the market, and can tell you what kind of plan would be available for a business of your size, and give you an idea of the cost - before the actual underwriting process, of course," said Kevin Corcoran, executive vice president of The National Association of Health Underwriters (NAHU).

NAHU has 17,000 members who can advise relocating businesses. (To find a list of agents/brokers in a particular area, go to www.nahu.org and click on the "Looking for a Health Insurance Agent?" icon.)

Beyond the Big City

The 2003 Health Quotient(tm) surveyed health care costs, quality and availability in metro areas in the United States. However, can companies insure that their workers will have adequate health care in non-urban areas? Should companies even consider locating facilities in non-urban areas?

The answer, according to Alcoa's Lowery, seems to be, yes.

"We have not experienced any difficulties with availability of network services although we do operate in some very rural settings," he said.

Paul Pietzsch, president of the Health Policy Corp. of Iowa, agreed that high-quality, cost-effective health care is not limited to the big cities.

"I think Iowa has good access and good health care quality," Pietzsch said. "We are working with the health care providers to improve efficiency and patient safety.

"There's a high level of collaboration in Iowa, which I think is good," he added. "Compared with other markets, we are much more positive in working together. That collaboration is between health care providers, the benefits community, employers and others."

The Health Policy Corp. of Iowa is a coalition of employers and other major stakeholders in Iowa working on health care access, quality and cost. In fact, Iowa boasts seven of the HQ's top 40 metros.

"It makes good sense for an organization to join our group if they are contemplating relocation," Pietzsch said. "We have 35 major companies in Iowa who are members now, and we are expanding that to other provider groups on some of the projects we are working on. We are always looking for strong leadership to help us in our efforts."

Michael Keating is research editor of Expansion Management magazine. He can be reached at MKeating@penton.com.