Healthcare costs are still keeping executives awake at night. In fact, healthcare will be the greatest source of cost pressure on companies for the first half of 2007, say more than half of the CEOs polled in the Business Roundtable's latest Economic Outlook Survey.
Healthcare spending, estimates the Center for Medicare and Medicaid Services, represents 16 percent of total U.S. economic output. And even though healthcare cost increases for U.S. employers moderated a little in 2006, those cost hikes are still climbing twice as fast as inflation and wage growth, reports the Henry J. Kaiser Family Foundation.
In 2007, businesses will pay more for employer-sponsored healthcare. Costs will rise by an average of 7.7 percent, to $8,340 per employee in 2007, reports a Hewitt Associates analysis of health plans sponsored by 400 major employers. Towers Perrin, likewise, predicts that employers will pay an average of 6 percent more for employee health benefits in 2007. PriceWaterhouseCoopers says that employers could face double-digit hikes in their healthcare costs in 2007, unless they trim their worker benefits packages.
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"Healthcare is indeed one of the many, many factors that we look at when we are determining where to put a new potential plant." — Daniel Sieger, spokesman for Toyota Motor Manufacturing North America |
Business leaders looking for the best place to expand their companies need to include healthcare measures in their site research.
"Healthcare is indeed one of the many, many factors that we look at when we are determining where to put a new potential plant," says Daniel Sieger, spokesman for Toyota Motor Manufacturing North America. "As part of the site location process in an area, our human resources group assesses a variety of healthcare services. For instance, does the area have an established industrial healthcare infrastructure, and are there wellness programs that reach out into the community.”
Toyota's just-opened $1.28 billion plant in south San Antonio, Texas, features a Family Health Center that offers nine kinds of wellness and health services — everything from pediatrics to physical therapy — to the 2,000 Toyota employees at the site, as well as their dependents. The 2,100 employees of Toyota's suppliers who work at the San Antonio facility can also receive needed healthcare at the Family Health Center. Toyota invested $9 million in the 20,000 square foot Family Health Center. Toyota's San Antonio plant has the capacity to produce 200,000 Tundra full-size pickup trucks.
Even smaller manufacturers see the importance of including healthcare costs, quality, and availability in the site location equation.
"We haven't implemented any significant expansions in a number of years, but if we did, healthcare quality and costs in a community would both be extremely important factors in the plant location process," says Ken Braun, director of corporate human resources, compensation and benefits at Republic Engineered Products based in Akron, Ohio. Republic's 2,500 workers make special bar quality steel that's used in cars, trucks, off-highway vehicles, machinery, and farm equipment.
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"Across smaller communities, for instance, there is a wide variance in the availability and effectiveness of healthcare and resources, and companies should not assume a location has certain capabilities (or conversely, assume a place does not) without doing the field work." — Mark M. Sweeney senior principal at McCallum Sweeney Consulting |
"Across smaller communities, for instance, there is a wide variance in the availability and effectiveness of healthcare and resources, and companies should not assume a location has certain capabilities (or conversely, assume a place does not) without doing the field work," says Mark M. Sweeney senior principal at McCallum Sweeney Consulting, headquartered in Greenville, S.C. His firm offers site location, incentive negotiation, and economic development consulting services globally.
To help executives in their quest to find the best place to expand their business, the editors of Expansion Management created their Healthcare Cost Quotient (HQ) study five years ago. The goal of the HQ: to examine healthcare costs, availability and quality in the belief that they varied enough from state to state to qualify as a crucial site location factor.
The Major Categories
The Healthcare Cost Quotient is based on a wide variety of data that is grouped into five major categories: healthcare facilities, healthcare providers, health insurance costs, healthcare provider visit costs, and malpractice costs. Cost-related factors were given the greatest weight, given the fact that the study looks at healthcare costs from the employer's perspective.
Healthcare Facilities. For the 2007 HQ, we tried to answer the broad question most employers ask themselves: Are the healthcare facilities adequate at a prospective location for their work force?
In addition to considering such basic data as the number of hospital beds per 100,000 population, and number of community hospitals per state, we also considered the number of top-notch healthcare facilities from U.S. News & World Reports' Best Hospitals 2006 list. The American Hospital Association provided the bed and hospital counts as well as the hospital expense per admission data.
Yet another measure used in the 2007 Healthcare Cost Quotient: hospital expenses per capita for persons admitted to hospitals. Data, based on community hospital admissions, came from the American Hospital Association's (AHA) 2005 Annual Survey of Hospitals.
Having a robust cluster of healthcare facilities may be crucial for communities hoping to attract a corporate headquarters relocation, says John H. Boyd, founder and president of the Princeton, N.J.,-based The Boyd Co. Inc.
"A city offering superior healthcare at an affordable cost contributes greatly to our clients' ability to retain top management talent in the initial move, and be in a superior position to attract similar talent in the years ahead," said Boyd.
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"A city offering superior healthcare at an affordable cost contributes greatly to our clients' ability to retain top management talent in the initial move, and be in a superior position to attract similar talent in the years ahead." — John H. Boyd, founder and president, The Boyd Co. |
Expanding businesses may want to look beyond the healthcare network in a community and consider incorporating wellness facilities into their new operations. While only 16 percent of multinationals currently offer some type of wellness program to promote healthy living among employees, 28 percent plan to launch such an offering in the next two years, according to Watson Wyatt Worldwide, the human resource consultants.
Lincoln Plating, a metals finishing company in Lincoln, Neb., will have a wellness center as part of a 40,000 square foot pipe fabrication expansion that is currently under construction at Lincoln's headquarters. The new fabrication operation will employ 100. Five sites in and around Lincoln were considered for the expansion.
"If you are trying to kick off a wellness initiative in your organization, it may make sense to start the program at your company's new location. That way the business climate begins with wellness as a front runner," says Tonya Vyhlidal, Lincoln's wellness/health enhancement manager.
Lincoln requires each of its 450 employees to undergo a quarterly health evaluation of such things as blood pressure, body weight and body fat percentages, and flexibility. Each employee gets a personalized wellness goal based on the assessment.
Healthcare Providers. To get an overall feel for the availability of healthcare providers in the states, the 2007 HQ looked at such yardsticks as the number of physicians and nurses per 100,000 population. Source of the data was the U.S. Census Bureau's State & Metropolitan Area Data Book 2006.
Health Insurance Costs. Out-of-pocket costs for worker health insurance may be the most important measure for employers in the equation. Therefore, we went to the Agency for Healthcare Research and Quality (AHRQ), a part of the U.S. 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 AHRQ's Insurance Component Summary Tables (Employer-Based Health Insurance Data section) as our chief source.
States were ranked on all of the following: the average amount employers paid for family coverage per enrolled worker, the average total employee contribution for family health coverage, and the average total family health premium per enrolled employee. The AHRQ data was released in July 2006.
The 2007 HQ also included U.S. Census Bureau data on statewide percentages of persons not covered by health insurance. No question about it. Businesses and individuals who have health coverage are paying the costs of providing treatment to the uninsured. One expensive cause of escalating healthcare costs in the U.S. is charity care for the uninsured that healthcare systems pass on in higher rates to businesses and insured consumers.
Healthcare Provider Visit Costs. To get a feel for the typical cost of a visit to a healthcare provider, we relied on healthcare cost data for the states from the ACCRA Cost of Living Index (third quarter, 2006).
We ranked states based on the ACCRA Index average cost data for patient visits to each of the following: doctor, dentist and optometrist. The Council for Community and Economic Research (www.c2er.org) produces the ACCRA Cost of Living Index.
Malpractice Costs. With skyrocketing medical malpractice premiums in the news on an almost-daily basis, we used three key malpractice measures in our state rankings: average medical malpractice premiums paid per doctor, average malpractice settlement costs per doctor, and how states stack up in the American Medical Association's (AMA) latest Medical Liability Crisis rating.
Sources for this malpractice information included the 2006 Insurance Fact Book from the Insurance Information Institute, the U.S. Census Bureau, the AMA, and the Kaiser Family Foundation's State Health Facts web site.
Malpractice litigation costs have a big impact, according to Maria Ghazal, director of public policy at the Business Roundtable, an association of CEOs of major corporations with a combined workforce of more than 10 million employees and $4.5 trillion in annual revenues.
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" Businesses absolutely should focus on the availability and quality of healthcare for employees when they expand. This is a key issue related to litigation costs; in many states we have a provider access issue because medical malpractice rates have risen so much due to litigation that there is a shortage of certain specialists.." — Maria Ghazal, director of public policy at the Business Roundtable |
"Businesses absolutely should focus on the availability and quality of healthcare for employees when they expand,” said Ghazal. “This is a key issue related to litigation costs; in many states we have a provider access issue because medical malpractice rates have risen so much due to litigation that there is a shortage of certain specialists. That is why we need federal medical liability reform legislation."
Efforts to Control Healthcare Costs
One organization that is working to minimize healthcare cost hikes is the National Business Coalition on Health (NBCH). This group has about 80 employer-based healthcare coalitions as members. NBCH and its member-coalitions advocate value-based purchasing of healthcare services by public and private employers.
The 2007 Healthcare Cost Quotient included state-by-state counts of NBCH coalitions in its calculations, since these groups play a critical role in controlling the healthcare cost spiral.
How important are these business-health groups?
"Through the negotiations of our coalition, the Employers Health Purchasing Corporation of Ohio, a smaller self-insured employer, with say, 150 workers, can get the same rates on prescription benefits that even the largest coalition members receive; it's a way for the smaller businesses to reap the purchasing power of a Fortune 500 company," says Ken Braun of Republic Engineered Products.
"As major purchasers of healthcare services, employers can realize significant economies of scale by working together in conjunction with a local coalition,” said Adds Mickeisha Armstrong, who is manager, benefits administration at Mitsubishi Motors North America in Normal, Ill. “By combining efforts to work toward value-based purchasing, while implementing various health/wellness-related initiatives at the community level, employers can increase productivity and have healthier employees." Mitsubishi's North American manufacturing operations can produce 135,000 vehicles each year.
As we close, one daunting statistic from McKinsey & Company, the management consultants: by 2008, the average Fortune 500 company will be spending as much annually on health benefits as it earns in profits.
If your company is in the process of deciding where to locate an upcoming facility, don’t forget that you can reduce your healthcare costs simply by choosing one state over another.
Click here to read Chief Editor's Commentary on Why healthcare costs are becoming a significant site selection factor.
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