Health insurance costs sicken businesses

Brush, Cassandra Hemenway

Although self-employed consultant Jane Brown earns between $40,000 and $60,000 a year, she has enrolled her children in the state-run Medicaid program Dr. Dynasaur. Brown herself hasn’t seen a doctor in three years.

In fact, “Brown” (who asked that her real name not be used) would prefer to buy her own insurance, but even with the newly instituted tax-free health savings accounts, she would have to pay $1,000 a month to cover her family in a high-deductible insurance policy, plus set aside enough money to cover expenses until she hits the deductible.

Instead, she and her husband have decided to forego insurance for themselves, and use the state program for their children.

“It’s not the greatest solution,” she said. “It’s a lot of dice rolling.”

Brown said she would really love a low-cost, very high deductible health insurance, something with a deductible around $10,000 or higher.

Brown is just one small business owner struggling with the overwhelming issue of health insurance.

“Dr. Dynasaur is definitely an option that more and more people are looking at,” said Liz Schlegel, who runs the Solo Circle, a networking group for self-employed people sponsored by Vermont Businesses for Social Responsibility. “The consultants and entrepreneurs I talk to are realizing that the program – which has an income limit of up to $80,000 applies to them, and they are signing up their children.”

Is Vermont health care really so expensive?

Yes, says Jim Hester, MVP Health Care’s Vice President for Vermont.

MVP did a study two years ago comparing Vermont hospital services with those in New York state, where it also does business. It compared inpatient and outpatient surgical, and emergency room visits in comparable hospitals.

“We went to some trouble to make this an apples to apples comparison,” Hester said.

What MVP found was the Vermonters pay twice as much for hospital care than New Yorkers.

“If hospital costs are twice as much, what’s the impact on premium?” Hester said. “It’s about a 25 percent differential.”

But, Hester said, “The price employers have to pay for hospital services in Vermont are significantly higher than employers pay in New York. They’re essentially paying double.”

Hester said he believes Vermont is at a competitive disadvantage when it comes to attracting new businesses. Having to pay a higher health insurance premium is “Just one more item,” he said.

Hester said the primary reason for the difference is that in Vermont Medicare and Medicaid simply don’t pay the full amount for costs. The result is a cost shift, meaning hospitals raise their rates to make up the difference. With a $250 million deficit spread out over five years in Vermont’s Medicaid program, that problem doesn’t appear to be going away.

Hester said MVP offers a high deductible insurance policy, something that might be just what Jane Brown is looking for.

“We have deductibles going up to $40,000 or $50,000,” Hester said. “People are buying it because they are desperate for insurance and they can’t afford anything else.”

Why is health insurance so expensive?

Waste accounts for a third to one half of the health care costs says Hester. ‘Waste” includes: preventable accidents such as the kind that the Institute of Medicine says causes 50,000 to 100,000 American deaths per year; prescribing cures that are not “evidence based” or “don’t add value or make people better”; and not doing “simple things” such as best practice and good chronic care management.

The fact that some doctors “still scrawl out prescriptions,” rather than entering them instantly into computer systems “is small, but an enormous amount of error creeps into the system based on that kind of thing,” says John McClaughry, president of the free-market think tank Ethan Allen Institute based in Concord.

We’re doing things no rational person would do if they were entirely rational and had all the information at hand,” McClaughry said.

McClaughry, a former state senator, and Hester both credit technology for adding to insurance costs as well. As technological advancements improve health care, individuals expect them. Magnetic Resonance Imaging – or MRI scans – have become commonplace. PET scans are the “new MRI” says McClaughry.

Each advancement requires expensive equipment, and expensive treatments. As a rural state, the cost of expensive equipment (or in the case of Fletcher Allen Health Care in Burlington its capital improvements) gets spread out among a smaller population than do costs in urban areas.

McClaughry, who advocates a private, free-market based insurance system in which individuals buy their own insurance and are responsible for managing their own health, believes the main reason health care costs so much is because of the Japanese concept of “muda” – or “glue in the works.”

For example, says McClaughry, Medicare alone has 118,000 pages of regulations. Large employers often have to hire an employee just to handle employee health care plans, while smaller businesses contract out to companies such as Business Review Services of Vermont, which handles health insurance issues for them.

“It’s all muda,” McClaughry says. “It’s easy to see a new PET scanner (as a cost driver). All this other glue in the works doesn’t show up as a line item anywhere. It’s a result of how the system is organized. So you have to reorganize the system.”

In that spirit, Ethan Allen Institute has outlined a multi-point health reform plan which includes: educating people about the health affects of personal choices such as smoking, drinking, nutrition, or sexual activity; offering insurance discounts based on healthy lifestyles; repeal community rating, the law that requires all people get covered equally regardless of how high risk they are; create a high-risk pool to cover the “uninsurable”; stop underfunding Medicaid; encourage the use of MSAs medical savings accounts – coupled with high-deductible low-cost policies; and revamping the state’s tort liability laws.

Otto Engelberth, CEO of Engelberth Construction, Inc agrees that the health insurance system is failing, but he has other ideas about how to fix it.

The 64-year-old founder of ECI employs 230 people in his 31-year-old business.

“You could also say that I have 31 years of experience in the business of health insurance,” writes Engelberth in his paper Fixing Vermont’s Coming Health Insurance Train Wreck, posted on the Vermont Health Care for All website (www.vthca.org). “In 31 years, I’ve seen the yearly cost of a family’s health insurance plan go from $1,500 to more than $9,000.”

Health insurance increases at 10 percent a year or more; while wages increase less than 5 percent a year. Engelberth points out that this year’s health insurance increase went up 15 percent; at this rate, a family insurance plan will double to $18,000 in five years, and double again to $36,000 in 10 years.

“I do not believe that it will be possible for the economy to continue to absorb the ever-increasing cost of healthcare,” says Engelberth. “The way the system is set up, there is a disconnect between the individual and their health care costs, so there is no natural mechanism to restrain costs. The system is a mess.

While Engelberth agrees with McClaughry and Hester about why health care costs so much, he advocates a system in which the government collects the money, but a “super HMO Plus singlepayer licensed non-profit company manages the care.

In Engelberth’s vision, this entity would “function as a healthcare insurer, healthcare advisor, healthcare mentor advocate, and lifestyle mentor for every Vermonter. Funding for this entity would be by government collected health insurance premium.”

“Health care is a genuine Vermont crisis,” says Representative Steve Hingtgen (P-Burlington), who is running for lieutenant governor on the sole platform of health care reform. “It is hurting business and is a drag on our economy. … The fact that most Vermonters get their health insurance through their employers makes it very difficult for individuals to become entrepreneurs. Starting your own business or becoming self-employed is a huge risk for a person who has been working for an employer and needs to keep employer-provided insurance.”

Health care costs affect property tax rates, he pointed out, because it’s one of the largest drivers of school and town budgets.

Hingtgen believes one of the reasons health insurance, is so expensive is profit.

“Studies show that approximately 30 percent of health insurance costs are due to insurance company profit, marketing, and the bureaucratic problems of having multiple payers,” he said. “And there are huge costs at the providers’ offices in hiring staff to juggle multiple payers”

Hingtgen sees a universal health care system without premiums as a fix.

“Employers will no longer be expected to manage the health care of employees,” he says. “Instead we will design a tax system that will likely include a combination of payroll and income taxes that will fund the system.”

Hingtgen also expects a universal system would eliminate profit, and bureaucracy, along with provider costs for juggling multiple insurers. It would eliminate employer management costs, he says, and it would encourage preventative care rather than solely acute care – an issue all sides of the issue agree is important.

Until the system gets fixed, however, small business owners like uninsured Jane Brown will be cautious with their health.

“I drive carefully,” says Brown, “and I wash my fruits and vegetables.”

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