What is Driving Local Healthcare Costs and What Can Be Done?
President and CEO
The Business Council of New York State, Inc.
Dutchess County Economic Development Corporation - Power Lunch
Poughkeepsie Grand Hotel, Poughkeepsie
May 21, 2009 – 12 noon to 1:30 p.m.
Introduction and Thanks
Thank you, Paul. Good morning, ladies and gentlemen, and thank you for inviting me to participate. I’d also like to thank John MacEnroe and Cathy Maloney from Dutchess County EDC for hosting this discussion.
Health Insurance for Employees - #1 Cost-of-Doing-Business Issue for Our Members
We’re discussing an issue that Business Council members have identified as their top cost-of-doing-business concern: the cost of employee health care and how to pay for it.
As the costs of health care and health coverage continue to rise, the burden on New York’s employers – particularly small businesses – is heavy and getting heavier.
It’s hurting New York’s economic growth and competitiveness. That’s why healthcare system reform, getting to the underlying cost drivers, and lowering costs are so important. That’s why innovative solutions are so important, and ensuring that value and quality are part of the dialogue.
New York: A High Cost State
New York’s current system of high Medicaid spending, billions in taxes levied on health coverage, dozens of benefit mandates, and an historic, institution-based health-care delivery system have impeded New York’s economic potential and appeal, and contributed to the high cost of health care, health insurance, doing business and simply, the high cost of living in New York.
Things are starting to change, though certainly not without controversy - with Medicaid reimbursement reform and shifting the focus from acute care to primary and preventive care – an area that some of New York’s largest employers and Business Council members like GE and IBM have embraced.
And, you’re regularly hearing about the importance of wellness, medical homes, and more efficiently managing chronic illness, among other cost-containment strategies.
The High Cost of Health Care
There isn’t one big fix, and certainly not one quick fix. Healthcare in New York is a huge part of our economy and one of our biggest employers. It’s one-third of the state budget, and one of the biggest, if not the biggest, bills that many of New York’s private sector employers pay to provide health coverage to their workers.
So we have to take the problem on from a number of angles. We must focus on the cost of health care as well as the cost of health insurance because the former drives the latter. Impact the cost and use of health care and the underlying cost drivers, and you’ll impact the cost of coverage.
Employers need to know that we’re getting value for those things that our premium dollar buys – health care goods and services like hospital care, prescription drugs, and physician services.
Data on Health Insurance Costs
Before I go into a little more detail on some cost drivers and some possible solutions, Cathy Maloney asked me to come prepared with some data on the cost of coverage.
First, some data on job-based coverage collected by the federal Agency for Health Care Research and Quality.
The data is for 2006, the most recent that A.H.R.Q has, until this summer when they come out with 2007 numbers:
- The average annual premium for job-based family coverage in New York State was $12,075 – the 9th highest among the 50 states. (For an individual policy, New York was 4th highest, at $4,605.)
- Who else is there at or near the top of the list with New York? In this 12 thousand-dollar range is a cluster of nearly all the Northeast states. (PA, RI, NJ, MA, ME, CT, DE. NH came in highest at $12,686. WY and AK also in the mix. VT is close by at $11,600.)
- In terms of sharing the cost of coverage, on average the employer’s share of a family policy was 79 percent, and the worker’s share was 21 percent.
Again, this data is an average of what job-based coverage costs and how it’s shared. It will and does differ by employer, the size of the business, where the business is located in New York, type of coverage, benefits offered, fully insured, self-insured, among other factors.
We did an unscientific survey of some Business Council members last week. A member employer in the Capital Region with about 20 workers saw their premiums increase between 26 and 50 percent in the past five years. A family policy – not too robust in terms of benefits, they reported - costs about $8400 dollars. And, after previously picking up nearly the entire cost of coverage, just this year the employer initiated a 50/50 split for new enrollees.
Down in this region, a large, fully insured employer saw the same range of increase. A family policy costs about $15,000, and cost-sharing has been steady at a 70/30 employer/employee split. This employer is afraid that if costs continue to escalate, they will be forced to drop coverage altogether, or offer plans that do little to help their workers manage their health care.
Needless to say, an apples-to-apples comparison among Business Council members and employers in general is difficult to make because there are so many factors at play.
What’s Driving Health Care Costs and What Can be done to make health care more affordable?
There are many factors that drive the cost of health care such as unhealthy personal behaviors that lead to expensive health conditions (obesity/diabetes, smoking, alcohol and substance abuse), the practice of defensive medicine due to liability fears (an estimated 10% of the premium dollar reflects the cost of liability and defensive medicine), and advances in medical technology (help us live longer lives, but very costly investments; “if you build it, they will come” mentality – invest in the technology, you need to cover your costs).
These can’t be ignored, but I won’t go into detail on them today. They all impact costs in New York, and get to important issues such as treating chronic illness and medical malpractice reform.
Stop Making Healthcare More Costly Through
Taxes and Insurance Mandates
There are things that add even more costs to the system.
It sounds odd to say, but for starters, state policymakers need to realize that health care can’t get more affordable if the state keeps making it more expensive by enacting more insurance mandates and by increasing taxes on health insurance.
Out of the gate, these make us less competitive and add to the cost of doing business in New York.
Health insurance mandates make coverage more comprehensive by making more services covered benefits. That’s wonderful – who doesn’t want the most robust benefit plan they can get! New York has more than 40 insurance mandates.
But, mandates also make coverage less affordable. And, that isn’t wonderful for employers and individuals that are struggling to maintain their current level of coverage, much less add more benefits they may not even want but would be required to pay for.
And, it is not wonderful for the 2.5 million New Yorkers without coverage, many of whom would probably purchase it if they could afford it.
Every new mandate that’s added makes coverage more costly.
We hear from various advocates and lawmakers that a one percent premium increase here or there from a proposed mandate won’t hurt. But, it’s the cumulative effect that really adds up and really hurts an employer’s ability to provide health coverage to their workers.
Solution: Mandate Review Commission
There is some good news. New York finally joined 28 other states in establishing a mandate review commission charged with analyzing the impact of proposed mandates on cost, access and quality.
The bad news? The commission was created more than two years ago – in April 2007 as part of the 07-08 state budget agreement – but still has not met. In fact, the process of appointing the 13 individuals to this state commission has not been completed yet. Three appointments still have to be made by the Legislature.
With between 75 and 100 proposed mandates in the State Legislature today, let’s finish the appointment’s process and get the commission seated and their work underway before passing any more mandates.
Taxes on Health coverage
Also under the category of “you don’t make healthcare more affordable by making it more expensive” are the surcharges, assessments and taxes imposed by the state on hospital patient services, insurance policies and health insurers.
New Yorkers — individuals and businesses — that voluntarily purchase private health insurance coverage pay more than 4 billion dollars in “hidden” state health taxes that are assessed on health care services and insurers, and then reflected in your health insurance premiums.
Because employers pay for most New Yorkers’ health benefits, the various private insurance surcharges are viewed as a business tax. Compared to other state business levies, private health coverage taxes would rank as the largest business tax.
These taxes fund dozens of state healthcare initiatives including hospital and clinic bad debt and charity care and graduate medical education, medical malpractice coverage for physicians, government insurance programs as well non-health-related state General Fund spending.
Seven hundred million dollars in taxes on health care and health insurance were enacted as part of the state budget last month. As a result, taxes on New Yorkers that voluntarily purchase private health coverage increased from $3.5 billion to $4.2 billion, reflecting as much as 10 percent of the cost of coverage in some areas of New York.
As a result of these new and increased taxes, a small business in New York City can expect to pay $708 more for an HMO family policy; in Long Island, $508 more; in Albany, $368 more.
These taxes — as well as a tax on hospitals’ gross receipts that was also passed as part of the budget — will provide no additional covered benefits or do anything to address the rising cost of health care.
Rather, they create obstacles to private sector growth by adding to the cost of doing business in New York. They increase premiums and could force many business owners — particularly small business owners — to reduce or eliminate coverage for their workers, driving up the ranks of the state’s uninsured.
Using a medical turn of phrase, my message to lawmakers in these remaining five weeks of session is “do no MORE harm.” My message to the business community is make sure your representatives in Albany know how you feel. If they don’t hear from business about taxes and about mandates - and frankly, other legislative proposals - that drive costs higher – they will assume you and your workers can absorb the impact.
Regional and Community Health Planning – Post Berger Commission
The medical arms race for duplicative provision of high end services and health care infrastructure in general adds to cost.
In terms of policies that can help make health care more affordable, The Business Council supported the Berger Commission’s mandate to right-size and reconfigure New York’s acute and long term care facilities.
If Berger was a first step in the process to reform the healthcare delivery system, what comes next? It’s clear that a Berger Commission, Part 2 is not part of the state’s plan. But, we think that regional and community health planning is the natural progression. And, agreement on this seems to be widespread.
There is consensus among state government, hospitals, insurers, businesses, foundations and health planning agencies that if New York’s healthcare system is to be sustained, planning at the local level is needed.
There must be collaboration among stakeholders to consider current and future health system issues such as healthcare workforce, medical technology capacity, delivery system infrastructure and quality as a means of balancing community need with marketplace reality.
As some of you know, these collaborations are happening in some parts of the state, including the Finger Lakes and in Central New York where health system agencies have been in place for years. There’s also an active collaboration underway in Rochester
Health Information Technology
Health information technology holds the potential to improve healthcare quality and outcomes, enhance efficient and effective care, reduce costs and promote innovation. We have identified the advancement and adoption of HIT as a top policy priority, and we support continued state investment in HIT.
The issue has certainly gotten a lot of press lately, with news that the federal government is committing $36 billion to health IT.
Electronic prescribing of prescription drugs, computerized medical record keeping and billing, the secure electronic exchange of health information between healthcare consumer and healthcare provider are all elements that will be vital in avoiding lost time and the expensive duplication of care.
Will it happen over night? No. Is it the “silver bullet” to solve the escalating cost of health care and health insurance? By itself, no. But, it is a vital part of healthcare reform. In fact, at meeting last year at The Business Council, a national HIT expert said that “health IT undergirds virtually every major health care reform initiative being advanced today.”
In the months and years ahead, The Business Council will be working to generate business community support for the widespread adoption of HIT. I may be preaching to the choir, as some of you may already be involved with the THINC RHIO (the Taconic Health Information Network and Community Regional Health Information Organization.) If you’re not involved, I encourage to get engaged in the dialogue.
Thanks very much.