There’s no question about it. Employer expenses for health care coverage are headed upward in 2004.

Employer health care costs are expected to experience a double-digit rise in 2004 (12 percent), but at a slightly lower rate than in 2003 (15 percent), according to Eric Parmenter, senior manager and practice leader for compensation and benefit consulting for Grant Thornton LLP.

“The good news is that we expect health care costs to begin to moderate over the next few years,” said Jack Bruner, national health care practice leader at the consulting firm of Hewitt Associates of Lincolnshire, Ill. “The bad news is that companies should still expect 9 percent to 14 percent rate hikes.”

Large companies will continue to absorb most of the cost hikes, but many are also making changes to the their plan designs, such as raising co-payments and deductibles, and increasing employees’ share of health care premiums, Bruner said.

Model Consulting’s recent survey of 60 Philadelphia-area businesses found that the rising cost of health care is the most critical issue facing human resource departments.

“In the past, too many firms have overlooked health care as an important consideration in making relocation decisions,” said Joe Marlowe, senior vice president for Chicago-based Aon Consulting (www.aon.com). “With the increasing importance of the cost of medical care, as well as the greater realization about how quality and cost of health care go hand in hand, it’s important for manufacturers to really do their homework before they make relocation decisions.”

That’s the reason why Expansion Management decided to examine health care costs, quality and availability to see if they varied enough from state to state to qualify as an important site selection factor.

The data we unearthed proves that the answer is a resounding, yes.

What we’ve come up with is our 2004 Health Quotient™, the latest in our long line of “Q” studies that includes the Education Quotient™, Logistics Quotient™, Quality of Life Quotient™, Legislative Quotient™ and High Value Labor Quotient™.

The top ranked state in this year’s Health Quotient is Pennsylvania, followed by neighboring Maryland at No. 2 and New Hampshire at No. 3. Among the top 20 finishers, the East and Midwest regions shared top honors, with seven states each. Five Southern states finished in the top 20, and one Western state, Washington, cracked the top 20. (For the rankings of all 50 states, see page 20.)

Representatives from Pennsylvania and Maryland are proud of their respective rankings.

“The burden of health care costs is an important part of the equation in making a decision on starting, expanding or relocating a business,” said David Yeager, director of the Pennsylvania Governor’s Action Team (GAT). “Having a high ranking in your magazine’s Health Quotient certainly bodes well, not only for large corporations and companies, but for small businesses as well.”

Yeager said he believes Pennsylvania’s strong showing on health care costs, availability and quality dovetails with the commonwealth’s strong employee work ethic and affordable cost of living.

The reaction from Maryland officials was similar.

“We’re proud of our health care system, a system that includes some of the finest hospitals, medical schools and health care providers in the world,” said Aris Melissaratos, secretary of business and economic development for the state. “In fact, Maryland’s reputation as a leader in health care is just one reason that people from all over the world come here for treatment.”

How the Rankings

Were Produced

As a starting point to develop the Health Quotient rankings, we took a variety of cost yardsticks, including employer insurance premiums and health care expenses, along with several community health resource indicators. Health quality and performance rankings produced by several medical and health insurance organizations were added to the mix.

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), an agency 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 Employer-Sponsored Health Insurance Data as our chief source.

States were ranked on both the average amount employers paid for single premium coverage per enrolled worker, as well as the average total employee contribution for single health coverage. The AHRQ data was released last July.

Also on the cost front, we relied on health care cost data for the states from the ACCRA Cost of Living Index (third quarter, 2003). 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 the average cost for 50 Advil Ibuprofen tablets.

Several community health resource indicators were part of the formula. The number of hospital beds per 100,000 population and the projected shortage of nurses as of 2005 were two yardsticks used.

Statistics on hospital beds came from the “Health Care State Rankings” 2003 volume from Lawrence, Kan.,-based Morgan Quitno Press. The nurse data was compiled from supply vs. demand projections of the Department of Health and Human Services’ Health Resources & Services Administration.

To measure other community health resources in the states, we used:

* The number of active, primary care and non-primary care physicians per 100,000 population — source: “The American Medical Association’s Physician Characteristics and Distribution in the U.S.” report, 2002-2003 edition.

* The ratio of public health workers to state populations — source: the Center for Health Policy at Columbia University’s School of Nursing.

* Statistics on the number of teaching hospitals by state — source: the Council of Teaching Hospitals & Health Systems.

* The percentage of people living in poverty by state, comparing each state’s three-year average (2000-2002) — source: the U.S. Census Bureau.

* The number of community health centers in underserved communities among the states — source: the National Association of Community Health Centers.

* The percentage of health insurance plans in each state that are rated highly by accrediting groups — source: The latest “Consumers’ Guide to Health Plans,” published by Consumers’ Checkbook.

Besides health costs and health resources, we used health quality and performance rankings in our calculations.

Rankings from the following well-respected organizations formed the health quality and performance segment: Morgan Quitno’s Healthiest States Designation from the “2003 Health Care State Rankings,” and United Healthcare Foundation’s “2003 State Health Rankings.”

Thoroughly Evaluating Health Factors of Sites

Aon Consulting’s Marlowe offered some advice for executives leading their companies through the relocation process.

“Don’t focus strictly on health care costs,” he said. “Employers should be looking at the quality components here. They should be examining, for instance, what are the rates of board certification for physicians who are practicing in a particular area. That’s where you can see considerable variation.”

About 70 percent of physicians nationally are board-certified, and it varies from 50 percent in some areas to as high as 85 percent or 90 percent in other areas. That’s a strong indicator of training and experience on the part of physicians, and will likely result in differences in quality of care, Marlowe said.

“With more public awareness of health care quality, I believe employers will have difficulty recruiting management (and possibly skilled workers) to a location lacking access to perceived quality institutions,” he said.

There’s no shortage of quality health care resources in and around New Hampshire, said Michael Bergeron, recruiter for the New Hampshire Division of Economic Development.

Southern New Hampshire is only 45 minutes from downtown Boston, so the region has the best of both worlds, he noted.

“We’re able to access some of the finest health care in the world, with a wide selection of the best specialists, and yet we don’t have the burden of Boston’s high cost of living,” Bergeron said.

Businesses in expansion mode may find that their current carrier is unable to provide coverage at the new location, said Ivy Silver, principal for Philadelphia-based CCG (www.tccgroup.com).

“The first place site selection executives will look to is their current carrier, and whether that firm is able to provide benefits within the new region. Oftentimes, that is not the case,” said Silver, who is a benefits consultant and broker. “There aren’t that many national vendors left. Clearly, the executives may have to look for a new carrier for the new location.”

Silver advised companies on the prowl for a new site to gather information through the state’s insurance commissioner’s office.

“The insurance commissioner or department of insurance within the state has a full listing of all the carriers operating in the state,” she said. “The insurance commissioner can also advise on the fiscal health of those vendors, their financial status and how many complaints have been launched against those carriers.”

State government policies can have a major impact on employer health care costs, said Bing Ticse, director of health and welfare services for Rockford, Ill.,-based RSM McGladrey Retirement Resources, which serves as a consultant on health and welfare issues to many companies.

“Some issues that affect health care for businesses include the nature and cost of health benefits mandated by the state or region being considered,” Ticse said. “Other issues include workers’ compensation net insurance cost and mandated leave policies.”

Look at Employer

Health Care Coalitions

As executives mull the location for a plant expansion or relocation, they should add one other factor to the mix: Do prospective communities on the short list of sites have employer groups working to put a lid on health care costs?

There are about 90 groups in the United States that work at the local level to try to have an impact on the local health care delivery system. These groups often have the following as members: manufacturers and service companies, governmental entities, non-profit organizations and other employers — all with the same interest in getting fair value for their health dollars.

The National Business Coalition on Health’s Web site, www.nbch.org, can direct executives to employer health care coalitions around the country.

Maryland, for example, has the Maryland Health Care Coalition (MHCC), which provides a forum to promote the delivery of cost effective, high quality and accessible health care, and helps businesses on health care issues in a variety of ways.

“We hold educational sessions on subjects like patient safety, consumerism and their impact on health status and cost,” said John R. Miller, executive director of the MHCC.

In Pennsylvania, there are at least five employer groups working to improve the value of health care provided through employer-sponsored plans.

Pennsylvania’s strong showing in the health care costs portion of the Health Quotient may be partially because of organizations like the Pittsburgh Business Group on Health, which counts 53 employers as members. The organization has a cost-effective program that enables members to offer a prescription drug benefit to employees at a lower cost than they could on their own.

What’s in Store for 2004?

Health care costs and availability will definitely be big issues in the 2004 presidential campaign, predicted Christine Stroh, a clinical specialist at the Group Health Cooperative in Seattle.

Two factors are leading to a potential health care crisis in the United States, Stroh said — the increasing patient loads in Medicaid and Medicare programs, and the growing number of elderly Americans who will increasingly rely on overburdened health care facilities.

That’s not a very cheery picture for America’s employers, who bear the brunt of the increasing cost of health insurance.