Health Care Costs More in Rural States

May 10, 2006 ( - A new study supported by The Commonwealth Fund (CWF) found that employees in states with large urban populations, like California, Massachusetts, New York, and Pennsylvania, are getting better benefits and more value in their health plans than those in rural states.

According to a publication summary on CWF’s Web site, when study authors adjusted premium costs for the quality of benefits, Maine, West Virginia, Wisconsin, and Wyoming – states with substantial percentages of rural residents – got the least value for their money. As an example, CWF said the study found the average adjusted premium for Wyoming employees with average benefits is $4,001, compared with $3,203 on average across all states, and $2,833 in California.

Type of health plan was found to be the key determinant of both actuarial value and adjusted cost. The overall actuarial value in health maintenance organization (HMO) plans was 90%, 84% in point of service (POS) plans, 81% in preferred provider organizations (PPOs), and 74% in indemnity plans, according to the study. Additionally, adjusted premiums are 25% higher for indemnity plans and 18% higher for PPO plans than HMOs.

It is because of the strong effect of plan type that adjusted premiums tend to be higher in rural states (where indemnity plans have large market presence) than in urban states with strong HMO market shares, the study authors concluded.

In addition, the study found that, on average, employees in America’s smallest firms (one to nine workers) pay 18% more in health insurance premiums for the same benefits than do those in the nation’s largest (1,000 or more workers) firms. Firms with 10 to 24 workers pay 10% more. The study attributes this to the higher administrative costs from marketing, medical underwriting, greater risk, and other factors associated with small size.

The study report, “Generosity And Adjusted Premiums In Job-Based Insurance: Hawaii Is Up, Wyoming Is Down,” is here .