There’s simply no question about it: if you are engaged in a future facility site location analysis and you don’t factor in the differences in healthcare costs from location to location, you are failing to do a thorough due diligence. While that seems like a no-brainer, it’s amazing how many people I talk to who do not.
Most corporate site selectors tend to concentrate on the traditional business costs — wages and salaries, real estate costs, taxes, utility costs, transportation access, etc. — that have always had a major impact on a company’s operating costs. They also usually look at indirect cost factors such as schools and cost of living.
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In 2005, the CEO of Starbucks predicted that his company would spend more money on employee healthcare costs than on coffee, while McKinsey & Co. predicts that, by next year, the average Fortune 500 company will spend more on healthcare than it makes in profits.
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For some reason, though, despite years of media frenzy and political hot air about wildly escalating healthcare costs, it’s nothing short of incredible how many site location consultants and corporate executives, when asked about how they factor healthcare costs into their location searches, respond by commenting that that’s an interesting question and that they’d never really thought about it in those terms.
Are you kidding me?
In 2005, the CEO of Starbucks predicted that his company would spend more money on employee healthcare costs than on coffee. McKinsey & Co. predicts that, by next year, the average Fortune 500 company will spend more on healthcare than it makes in profits. If that doesn’t get the attention of corporate site location leaders, then that fact ought to be setting off alarm bells among the corporate CEOs who employ them.
Healthcare costs unquestionably vary from state-to-state and, for the past five years, our Healthcare Cost Quotient™ has attempted to rank the states according to several broad categories. We do so because we believe healthcare costs to business are becoming an increasingly significant factor when deciding where to locate a future business facility.
For example, health insurance costs differ dramatically by state, as does the percentage of those costs that are borne by the employer. Likewise, the average cost of a visit to a healthcare provider — doctor, dentist or optometrist — is important not just to the employee’s family, but also to the employer, who picks up everything but the co-pay.
If you want to know — and you should — where healthcare costs for a particular state are likely headed over the next, say, five years, take a look at the malpractice costs. How much is the average doctor paying in malpractice insurance? What’s the average malpractice settlement? Those are pretty good leading indicators of your future costs and, as those dollar figures get significantly higher, on the availability of healthcare providers who choose to practice in those states.
Those are just a few of the important variable costs a prudent company should examine closely before making any decision about a future facility location. After all, an expense is an expense, whether it goes to wages, taxes, transportation, energy, real estate … or employee healthcare.
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