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 user 2005-03-12 at 10:48:00 am Views: 101
  • #10820

    unhealthy trend in medical expenses

    care costs account for a bigger share of North Carolina’s
    March 2005

    APEX – Three years
    ago, managers at Toner Solutions Inc. decided they had to switch to a new
    medical insurance plan to cover the company’s 20 employees.

    Greg Hrabec,
    general manager of the 15-year-old, family owned business, says the company
    didn’t want to make the change. But after annual premium increases ranging from
    20 percent to 40 percent, they felt compelled to shift a little more of the cost
    of coverage to workers.

    “We used to cover
    100 percent,” says Hrabec. “Now we cover 95 percent, but you hear about some
    companies that have reduced their costs to only 50 percent. We don’t want to do
    that. We’d like to hold the line. But once a year, when this issue comes up, you
    start wondering what’s going to happen next.”

    The total annual
    cost of providing medical coverage for employees of Toner Solutions, which
    remanufactures laser printer cartridges, is now around $100,000. Less than five
    years ago, it was $50,000.

    Those are big
    numbers for a small company – a company that’s far from alone in struggling with
    what’s arguably an unsustainable phenomenon – rising health-care costs.

    Though pegging
    precisely how much is spent on health care in North Carolina each year is
    conceded to be a towering task, state researchers who gave it a shot came up
    with some sobering numbers.

    spending in the state rose from $33 billion in 1998 to $53 billion in 2004 – an
    eye-popping increase of 61 percent, according to the work done by fiscal
    researchers with the General Assembly.

    Federal research
    determined that the per-capita cost of health care across the nation in 1998 was
    $4,098 – a number that had increased to $6,167 in 2004. State analysts
    multiplied those numbers by the state’s population to derive their benchmark

    At least one expert
    in the health-care field sees no reason to take issue with the gargantuan
    increase. “It’s a plausible number,” says Chris Conover, a senior fellow at Duke
    University’s Center for Health Policy, Law and Management. “And it’s a big

    Gnawing into the economy

    The figures
    demonstrate how health care is claiming larger chunks of the state’s economy.
    The 1998 figure represented 13.6 percent of the gross state product of $241
    billion. In 2004, health-care spending was 16.1 percent of the state’s estimated
    gross domestic product of $330 billion.

    “I don’t think we
    can sustain that much of an increase,” says state Rep. Jeff Barnhart, a Concord
    Republican and member of a commission that recently recommended changes to the
    state’s $7 billion Medicaid program.

    “I mean, look at
    the business world,” says Barnhart. “We need to be creating jobs and looking
    toward economic development. How can we do those things and at the same time
    absorb such increases? Business can only deal with so much.”

    Experts and
    observers have various explanations for why costs are spiraling so dramatically.

    Conover points to
    rising drug costs and consolidation in the hospital industry. “As far as the two
    single biggest drivers, I think you’d have to say they are the ones,” he says.

    “I don’t want to
    say that I think the pharmaceutical industry is to blame,” Conover says,
    pointing out that new medications have added to both the quality and length of
    human life. “In a way, it’s been a terrific deal.”

    In North Carolina,
    the amount of money spent on prescription drugs rose from $2.4 billion in 1998
    to around $6 billion in 2004, according to estimates based on a February 2005
    report by the U.S. Centers for Medicare and Medicaid Services.

    Rising drug costs
    is a trend that Conover doesn’t see ending any time soon. “Now that we are
    having Medicare carry more prescription drugs, I don’t think the trend will get
    any better. I believe it will accelerate the trend.”

    Fewer, bigger
    hospital systems

    As for hospital
    consolidation, a 2003 study by the Blue Cross and Blue Shield Association found
    that price increases of 20 percent to 40 percent often follow in the wake of
    hospital mergers.

    consolidations have been prevalent across North Carolina over the past
    half-dozen years. The Duke University Health System bought Raleigh Community
    Hospital in February 1999, and the UNC Health Care System in April 2000 bought
    Raleigh’s Rex Hospital.

    In Asheville,
    recent mergers have brought a multiple hospital system under a single umbrella.

    North Carolina
    Hospital Association spokesman Don Dalton says he knows of no comprehensive
    study of post-consolidation price increases in the state. But he argues that
    mergers have not played a key factor in cost increases.

    “Consolidation is
    not nearly as significant a factor as demand,” he says. “And demand is driven by
    population growth.”

    Another cost
    driver, Dalton says, has been the use of more sophisticated – and more expensive
    - medical technology such as CAT scans and resonance imaging machines.

    “And the fact is
    people are going to their doctors more often, and the doctors are ordering more
    tests and writing more prescriptions,” he says.

    As for the state
    fiscal researchers’ study, they considered total spending for health care,
    including personal costs. They also took into account administrative expenses to
    run state programs such as Medicaid and to operate county health departments and
    programs. The figures also include money spent for nursing homes, investments
    for research and money earmarked for medical-related construction.

    Whatever the reason
    for rising costs, the burden on businesses, large and small, is becoming a major
    concern, says Todd Yates of Chapel Hill-based Hill, Chesson & Woody, an
    insurance brokerage and consultant that helps midsize business clients look for
    ways to shave their coverage expenses.

    “Years ago, in the
    mid-1990s, when Blue Cross and Blue Shield first came out with a managed-care
    product with 100 percent hospitalization and no deductibles, the employee costs
    were in the $60 to $70 range,” he says. “Nowadays, it’s not usual to find those
    employee costs in the $300 range.”

    Toner Solutions’
    Hrabec is just one small business operator looking for an end to the cost

    “We can’t keep
    hitting 20 percent to 30 percent increases,” he says. “If it continues, we’ll
    have to start looking at that those plans that put more of the burden on
    employees. We don’t want to, but it could come to that.”