Healthcare, and healthcare costs, continue to be big concerns for businesses. How big?
"After raw materials and payroll, healthcare costs are the largest single expense line item in our financial statements," says Brian Peterson, CFO, at Liebovich Brothers, a steel manufacturer and metals fabricator that employs 600 in Rockford, Ill.
He’s not alone in that belief.
"Aside from our pension costs, our healthcare costs are probably the second-most significant employee-related cost that we have," says Ken Garrett, vice president of human resources and corporate communications at FMC Corp. in Philadelphia, Pa. FMC produces agricultural, industrial, and specialty chemicals, and employs about 2,700 workers in the U.S.
| "Healthcare costs are a dramatic part of our total expenses. It's a big chunk of change for us; it's one of our biggest expense groups. You have the cost of goods, then salaries, and then benefits, including healthcare, right after that.” — Jay Tihinen, Costco Wholesale Corp. assistant vice president-benefits. |
"Healthcare costs are a dramatic part of our total expenses," says Jay Tihinen, Costco Wholesale Corp. assistant vice president-benefits. “It's a big chunk of change for us; it's one of our biggest expense groups. You have the cost of goods, then salaries, and then benefits, including healthcare, right after that.”
At any time, up to 85 percent of Costco's 113,000 employees are enrolled in Costco's self-insured health plan. Costco Wholesale is the largest wholesale club operator in the US with more than 460 membership warehouse stores serving 45 million cardholders in 39 U.S. states as well as overseas.
A September, 2005 survey by the Robert Wood Johnson Foundation of 600 corporate benefits executives and business owners shows more than half think making healthcare more affordable is a top priority, and is the most important healthcare goal that should receive the greatest attention in health reform efforts. These survey respondents expect their firms' healthcare costs to jump by 12 percent in 2006.
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U.S. employers will see an 8 percent increase in their 2006 healthcare costs, predicts the Towers Perrin consulting firm of Stamford, Conn. Other consultants, including Mercer Human Resource Consulting and Hewitt Associates, predict increases in employer healthcare costs for 2006 ranging from 6.4 percent to 9.9 percent.
In constant dollars, employers will face an average total cost of $8,424 per employee for healthcare in 2006 — that's a 140 percent increase over the last 10 years, notes Towers Perrin.
It's not just employer healthcare costs that are taking a bigger piece of the pie. The overall cost of healthcare — everything from hospital and doctor bills to the cost of prescription drugs, insurance, medical equipment, nursing home stays, and home-healthcare — doubled from 1993 to 2004. Today, healthcare consumes 16 percent of the nation's economic output, the largest share ever, reports the federal Centers for Medicare and Medicaid Services.
Business leaders looking for the best place to expand their companies need to include healthcare measures in their site research.
"My advice for executives moving into new communities where they are not now headquartered, is that there clearly are differences in regions around healthcare costs, quality, and availability," says FMC's Ken Garrett.
| "My advice for executives moving into new communities where they are not now headquartered, is that there clearly are differences in regions around healthcare costs, quality, and availability." — Ken Garrett, vice president of human resources and corporate communications, FMC Corp. |
Dale Whitney, who is health and welfare manager for United Parcel Service (UPS) and its 384,000 employees in Atlanta, Ga., concurs.
"There have been a lot of studies from Dartmouth College and elsewhere that show that different communities have different healthcare costs, and that certain parts of the U.S. are more expensive than others in healthcare."
Four years ago, the editors of Expansion Management created their Healthcare Cost Quotient (HQ) study 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 2006 Healthcare Cost Quotient is the latest in our long line of "Quotient" studies, which include the Education Quotient, Logistics Quotient, Quality of Life Quotient, Legislative Quotient and Knowledge Worker Quotient. This is the fourth year we've produced the Healthcare Cost Quotient.
| Top 10 States Overall
1. Louisiana
2. Nebraska
3. Pennsylvania
3. Wisconsin
5. South Dakota
6. Alabama
7. North Dakota
8. Minnesota
9. Iowa
10. Ohio
SOURCE: Expansion Management, 2006 Healthcare Cost Quotient
|
This year's top-ranked state in the HQ is Louisiana, followed by Nebraska, Pennsylvania, Wisconsin, and South Dakota. Among the top 20 finishers, the Midwest took top honors with eleven states. Five southern states finished in the top 20, while the eastern region had three and the western U.S., one. (For the rankings of all 50 states, see link above.)
The Major Categories
The Healthcare Cost Quotient is based on a wide variety of data that 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.
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 and the average total employee contribution for single health coverage. The AHRQ data was released in July 2005.
| The Healthcare Cost Quotient is based on a wide variety of data that grouped into five major categories: healthcare facilities, healthcare providers, health insurance costs, healthcare provider visit costs, and malpractice costs. |
Yet another measure used in the 2006 Healthcare Cost Quotient: hospital expenses per capita for persons admitted to hospitals. Data, based on year 2004 admissions, came from the American Hospital Association's AHA Hospital Statistics report.
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, 2005).
We ranked states based on the ACCRA's average cost data for patient visits to each of the following: doctor, dentist and optometrist. (ACCRA was formerly the American Chamber of Commerce Researchers Association.)
Yes, healthcare expenses were given extra weight in the 2006 Healthcare Cost Quotient.
"Rising healthcare costs are the single biggest concern for many businesses when it comes to continued profitability,” said Louisiana Gov. Kathleen Blanco, commenting on her state's No. 1 finish in the 2006 Quotient. “This study demonstrates how the cost of providing healthcare benefits to employees remains very affordable for businesses in Louisiana." Last year, Louisiana ranked No. 3.
One organization that is working to minimize healthcare cost hikes is the National Business Coalition on Health (NBCH). This group has about 90 employer-based healthcare coalitions as members. NBCH and its member-coalitions advocate value-based purchasing of healthcare services by public and private employers. The 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 business-health coalitions?
| "Our health plan is consistently viewed as being very important in attracting and retaining our valued employees.” — Brian Peterson, CFO at Liebovich Brothers. |
"Our health plan is consistently viewed as being very important in attracting and retaining our valued employees,” said Brian Peterson, CFO at Liebovich Brothers. “Unfortunately, with the competitive nature of not only ours but most businesses, the cost of providing this benefit must be controlled like any other. Long term, I feel that the only way to truly control healthcare costs is to focus on its quality, and empower our employees to make choices that reflect upon that quality. Our local Employers Coalition on Health (ECOH, Rockford, Ill.) has that as its objective. When a business community can come together with its healthcare facilities and providers towards this common goal, it creates an economic environment which is positive not only for the existing employers, but also for prospective new employers as well."
Membership in the ECOH includes more than 120 northern Illinois companies, representing nearly 60,000 covered individuals.
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.
| Most Healthcare Providers
1. Massachusetts
2. Rhode Island
3. Pennsylvania
4. Connecticut
5. Vermont
6. Minnesota
7. Maine
7. New York
9. Wisconsin
10. New York
|
Sources for this malpractice information included the 2005 Insurance Fact Book from the Insurance Information Institute, the U.S. Census Bureau, the AMA, the American Academy of Family Physicians, and the Robert Graham Center for Policy Studies in Family Medicine and Primary Care.
To get an overall feel for the availability of healthcare providers, we looked at such yardsticks as the number of active non-federal physicians and nurses per 100,000 population.
Sources of the data included the AMA, U.S. Department of Health and Human Services' Health Resources and Services Administration, the U.S. Census Bureau and the Statistical Abstract of the United States: 2004-2005.
Health provider information is key, says Paul Shoemaker, who is president and chief executive officer of American Hospital Directory, Inc. in Louisville, Ky., an Internet service that provides hospital information from public and private data sources.
"The big initiative we are seeing right now are efforts by businesses to make usable information available to their employees when one of them is faced with needing to access medical care," said Shoemaker.
Finally, 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 list.
Find out about healthcare facilities at a prospective site, urges George Metzger, vice president of human resources and benefits at Textron.
"When assessing potential sites, community infrastructure is frequently undervalued in the decision making process,” said Metzger. “Failure to assess cost, access and quality of healthcare frequently results in systemic issues impacting employee retention and operating costs.
| Lowest Health Insurance Costs
1. Mississippi
2. Oklahoma
3. Arizona
4. North Carolina
5. Louisiana
5. Iowa
5. Nebraska
8. Utah
9. New Mexico
9. North Dakota
|
"Mitigation of healthcare costs and employee dissatisfaction can be achieved by evaluating access to healthcare providers by practice specialty, hospital surgical units, bed utilization, trauma centers proximity, and the diversity of the provider community. This evaluation is relatively easy, and quantitative data is readily available."
Besides getting quality measures from groups like the National Committee for Quality Assurance (NCQA) and its Health Plan Employer Data and Information Set (HEDIS) and the Leapfrog Group, Metzger urges contacts with other companies at a prospective site.
"Perhaps the most reliable measure of perceived quality can be obtained during the site due diligence process by talking with other employers and getting their assessment of the cost and quality of healthcare in the community, and what their assessment is of the healthcare community's ability to absorb additional patients," he said.
How Business-Health Coalitions Can Help
Textron, based in Providence R.I., has five operating segments, including Bell Helicopter, Fastening Systems, and Cessna, which makes business jets and turboprops. Textron employs 44,000.
A robust healthcare system at a prospective site is essential, says Jack Alonge, director of Human Resources at Outokumpu American Brass in Buffalo, N.Y.
"Find a location where you have a wealth of providers,” said Alonge. “In Buffalo, not only do we have some special expertise with our Roswell Park Cancer Institute, but we have an abundance of healthcare providers, so there's some good competitive pressure that keeps prices relatively reasonable."
| Lowest Doctor Visit Costs
1. Alabama
2. Nebraska
3. Arkansas
4. South Dakota
5. Kansas
6. Tennessee
7. Utah
8. West Virginia
9. Iowa
10. Oklahoma
|
Alonge, who serves on the board of the Niagara Health Quality Coalition (NHQC), urges businesses planning to expand to consult with business-health coalitions at prospective sites.
"The NHQC and its New York State Hospital Report Card can give a business a good flavor of not only what's available from a supply point of view, but also the level and quality of care,” he said. “And it keeps these providers, including hospitals, MDs, and health insurers, on their toes." Outokumpu American Brass employs 650 at its Buffalo operation.
Besides looking at an area's health systems, an expanding business should also analyze the health and productivity of the area's future workforce to make sure it will meet the company's needs down the road, says Dale Whitney, UPS Health and Welfare Manager.
Find out, says Whitney, whether a prospective community has any positive health initiatives underway.
"Here in Georgia, we have the Healthy Georgia Diabetes and Obesity Project, where what we are trying to do is improve the health of the citizens of Georgia so that they are able to be the kinds of productive employees that firms are looking for," said Whitney.
North Dakota, which finished a strong No. 7 in the 2006 Healthcare Cost Quotient, is the home to many healthy workers, says Shane Goettle, commissioner of the North Dakota Department of Commerce.
“Our low healthcare costs are consistent with North Dakota's overall strong health rankings,” said Goettle. “We were ranked the sixth healthiest state in United Health Foundation's annual America's Health Rankings report (issued December, 2005). Good health certainly contributes to our state's low absenteeism rates, and lessens the overall cost of healthcare for North Dakota businesses."
| Lowest Malpractice Costs
1. Wisconsin
2. California
3. Minnesota
4. Colorado
5. Indiana
6. Hawaii
7. Louisiana
8. Vermont
9. New Mexico
10. Nebraska
|
Minnesota is another healthy state that scored well (No. 8) in the 2006 Healthcare Cost Quotient. Here's Matt Kramer's reaction to his state's strong showing.
"Minnesota consistently ranks among the best in the country in the quality of its healthcare and businesses benefit—not just in terms of cost—but in productivity,” said Kramer. “Minnesotans' life expectancy is the second highest in the country, and we have the highest labor force participation rate in the nation. And per capita healthcare spending here is 9 percent below the national average." Kramer is commissioner of the Minnesota Department of Employment and Economic Development.
While digesting Expansion Management's 2006 Healthcare Cost Quotient, readers need to keep a global perspective, since we are in a global economy. A recent Commonwealth Fund survey shows Americans pay more when they get sick than people in other Western nations. What's more, the treatment U.S. residents get may be more likely to have errors than the healthcare that residents get in the other nations.
The survey of about 7,000 sick adults in the United States, Australia, Britain, Canada, Germany, and New Zealand, found Americans were the most likely to pay at least $1,000 in out-of-pocket expenses. More than half went without needed care because of cost, and more than one-third endured mistakes and disorganized care when they did receive treatment.
All in all, healthcare costs, quality, and availability are becoming increasingly important factors for business executives looking for the best location for their next manufacturing or service sector facility.
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