Health Care Costs A Lot

January 6, 2006
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GRAND RAPIDS — Is it possible to maintain a healthy work force and a healthy bottom line? In 2005, that question seemed to pop up at least once in every issue of the Business Journal. In fact, many of the biggest stories of the year centered around either growth in the health care industry, or businesses struggling to maintain profitability while continuing to provide their workers with health benefits.

Health care costs are increasing. Health insurance premiums are up, too. So is the number of people without insurance. According to the Henry J. Kaiser Family Foundation’s commission on the uninsured, there are about 45 million Americans at any given moment who do not have any form of health insurance. A study by consulting firm Deloitte & Touche shows that 63 percent of hospital CEOs consider finding health coverage for those individuals to be the “greatest need in health care.” That issue doesn’t just affect hospitals. It also affects consumers. Hospitals lose money on treating the uninsured. They make up for that with higher profit services paid for by private insurers. However, as hospitals begin to treat more uninsured patients, they often compensate by increasing rates on profitable services. As fees for those services increase, health insurance premiums rise along with them. Premiums become unaffordable. Businesses drop benefits. More people become uninsured. The problem snowballs.

Michigan’s weakened economy makes the rise in health care costs all the more troubling. At year’s end, Michigan had the third highest unemployment rate in the nation. Only Katrina-damaged Louisiana and Mississippi had a worse rate than Michigan’s 6.6 percent. Meanwhile, only seven states in the nation spend more than Michigan’s $38 billion in annual personal health care expenditures, according to data from the U.S. Department of Health and Human Services.

Efforts continue within the health care and insurance communities to control the increased costs of providing comprehensive, high-quality care. During 2005, several organizations argued that allowing more competition in West Michigan’s surgical services field would help bring health care costs into check. Proponents of the state’s certificate of need program — which aims to control health care costs by eliminating duplication of services and facilities within a given community — argued that allowing more competition would siphon off profitable services from community hospitals, leaving them with a disproportionate level of unpaid and under-reimbursed care. That, of course, would lead to higher costs all around. The state shored up its CON regulations and, at year’s end, it appears that several proposed surgery centers will not be granted CONs and will therefore not be built.

Beyond the political wrangling in Lansing, 2005 also saw federal lawmakers weighing in on the issue of controlling health care costs. Changes enacted in the fall of 2004 allowed for the first health savings accounts to come to fruition in 2005. These unique health care arrangements combine a high-deductible insurance plan and a special pre-tax savings account which is used to pay out-of-pocket medical expenses. HSA proponents have hailed the new coverage as the salvation of the country’s troubled heath care system. Opponents have suggested that HSAs — which can be more affordable for companies to offer than standard health plans — are nothing more than a way for corporations to cut their employees’ benefits without looking bad. So far, only a small percentage of the nation’s insured workers have made the switch to HSAs. That is expected to change this year, as several studies have suggested that a majority of American companies would like to offer an HSA plan as a coverage option for their employees.

HSAs are one part of a much larger movement that will be hogging headlines in 2006: consumer-driven health care. In short, this concept suggests that by putting more onus on the health care consumer, insurers and health care providers will be able to control their costs. For example, a patient in need of an MRI who will be paying out of his own savings account is much more likely than a traditionally insured patient to shop around for the lab with the best price on diagnostic scans. That “bargain hunting” will in turn cause providers to offer competitive prices.

Also within the scope of consumer-driven health care is the introduction of “wellness programs.” These are employer or insurer-sponsored programs designed to educate health care consumers and encourage healthy habits such as exercise and quitting smoking. In some cases, employees incur penalties (or pay higher insurance rates) if they don’t participate in the programs.

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