Health Care Cost Growth and Small Employers: What Can Government Do to Help

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Health Care Cost Growth and Small Employers What
Can Government Do to Help?

Len M. Nichols

for Hot Issues In Health Care

Denver, Colorado

March 15, 2004

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About HSC

• Objective research on changes in the organization
  and delivery of care and their impact on people
• Emphasis on market dynamics
• Combination of data collection and research
  strategies
• www.hschange.org

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The CTS Sites
Cleveland, OH
Seattle, WA
Lansing, MI
Syracuse, NY
Boston, MA
Northern NJ
Indianapolis, IN
Little Rock, AR
Phoenix, AZ
Orange County, CA
Greenville, SC
Site visits and surveysSurvey only
Miami, FL
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Overview

• Health care cost trends and related facts
• Problems unique to small business
• Proposed or attempted solutions
• Challenges presented by lingering cross-subsidies

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Opportunity Cost is Rising
National Health Spending as a share of Gross
Domestic Product

Source CMS, National Health Accounts Data
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Some International Rankings of US

• Expenditures per capita, share of GDP 1
• Infant Mortality 28 (right behind Cuba,
  Ireland, and Portugal)
• Life expectancy at birth 29th
• Life expectancy at age 60 26th (tied with Cuba,
  Slovenia, and Korea)

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Some Rankings of Colorado

• Median income 7th
• Infant mortality 24th (16/38, 25/37)
• Cancer deaths 3rd
• Hearth disease deaths 2nd
• Aids Cases 20th
• Expenditures per capita 16th
• Physicians per 100k pop 12th

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Percent of Recommended Care Adults Get
Source E. McGlynn et al. NEJM, 20033482635-45.
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Recent Premium, Cost and Wage Growth
Source KFF Employer Survey, premium data Strunk
and Ginsburg, cost data 2003 EROP, wage data.
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Percent of median family income required to buy
family health insurance policy
Source Authors calculations, using KFF and AHRQ
data.
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Low Income Take-Up is Falling
Sources Cunningham, CTS HH survey data.
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Contributions to Hospital Cost Increases
Source Stunk and Ginsburg, Health Affairs, 2003.
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Summary of Cost Growth Trends

• Recently, cost growth has been driven by price
  increases
• Price increases reflect unleashed demand
  increasing relative market power of providers
• Cost growth slowing, still above wage growth
• Increasing fraction of our work force cannot
  afford health insurance
• Policy choices are stark pressures for action
  will increase

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Small Employee Offered-To Rates, and Overall
Rates of Uninsurance

of workers in small firms Uninsured as
that offer of state population US
Average 64.5 14.7 Colorado 72.2 15.3
Idaho 38.3 16.4 Arizona 57.6 17.1
Washington 59.4 13.6 Texas 52.2 24.1
Utah 55.2 13.6
Sources offer rates, MEPS-IC, 2001 uninsured,
CPS, 2000-02 3 year average.
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Problems unique to small business

• Administrative loads
• Too small to self-insure, captive to commercial
  insurers
• Too small to have much bargaining power with
  plans
• Risk profile more variable than for larger firms,
  turnover matters more

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Proposed or Attempted Solutions

• Barebones (exemptions from benefit mandates,
  usually with high deductibles)
• High Risk Pools
• Multiple Employer Welfare Associations (MEWAs)
• Pooled Purchasing Arrangements
• Comparative premium information

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Lingering Problems of Cross-Subsidies

• Public Program underpayments
• Uninsured
• Limited (or Specialty) Hospitals

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So, What Can Colorado Do?

• Nothing, and live with growing uninsured,
  income-based rationing
• Pay providers in public programs enough to
  minimize cost-shifting
• Strive for pay-for-performance / evidence-based
  medicine payment mechanisms throughout Colorado
• Medicaid state employees clout as purchaser
• Information technology may be good public
  investment
• Give small employers a home in which to buy
  insurance as efficiently as possible