TONER SOLUTIONS CAN’T AFFORD HEALTH INS.

[Anonymous]

An
unhealthy trend in medical expenses
Health
care costs account for a bigger share of North Carolina’s
GDP
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.

Health-care
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
figures.

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
number.”

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.

Hospital
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
spiral.

“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.”

[Author]

March 12, 2005 at 10:48 AM