Segal: Health-Care Costs Equal 16% of State Employee Wages

November 14, 2003 ( - The average health expense for state employees reached $5,571 in 2002, representing 16% of a state employee's wages.

Of the total medical plan cost, 82% of the tab is being subsidized by the states, but the cost is not being placed solely on the state’s taxpayers, those ultimately responsible for civil service salaries. Only about a third (36%) of the 34 states that responded to the survey still require no monthly employee contribution, according to the 2003 Segal State Health Benefit Survey, which covers 80% of total state health plan enrollment.

Much of the state subsidiary many be related to state governments placing a high level of importance on health-care benefits in the total compensation package, ranking health care second only to wages and salary as the most important benefit offered to employees. This surpassed retirement benefits/pension, paid time off, life insurance and disability benefits.

Most popular among state employees across the country were preferred provider organization (PPO) plans, with 33% of state employees choosing this type program. A close second was health maintenance organization (HMO) plans, selected by 32% of state employees. Point-of-service (POS) and Indemnity plans rounded out the enrollment figures, with enrollment figures of 16% and 19%, respectively.

By region, HMO plans dominated the Western half of the nation, selected by 60% of state employees in the Midwest and 57% in the West. In the Northeast, HMOs even edged out PPOs as the health plan of choice, chosen by 28% of the region’s employees, compared with 26% picking PPOs. The South was where PPOs reign supreme, with 38% of participants enrolling in this plan, compared with just 21% opting for an HMO plan.

Cost Pressures

As with all other health-care plans across the nation, state plans can expect to see double-digit increases going forward with the average medical cost trend rate showing a 14.5% increase in 2003. Similar to Segal’s Health Plan Cost Trend Survey (See Segal Sees Continued Double-Digit Health-Care Increase in 2004 ), the largest increases will be in state indemnity plans (16.2%), followed by:

  • PPO plans – 14.5%
  • POS plans – 14.9%
  • HMO plans – 14.4%.

However, the trend varies depending on where one lives. Ironically, workers in the region with the lowest current composite annual medical cost for employees, the West, are the ones now confronted with the highest rate of increase, 17.1%. In fact, the West region’s hike was almost twice the trend rate of the Midwest region (9.2%). Other regions can expect to see a trend rate increase in the most prevalent plan of 16.0% in the Northeast and 14.1% in the South.

State governments are not taking the health-care cost lying down, however. Every participant in the survey had at least one cost management program in place. Most common, utilized by 81% of the respondents, was hospital inpatient precertifcation. Other common strategies included:

  • 75% – disease management program
  • 72% – prescription drug prior authorization
  • 69% – claims payer audits
  • 50% – outpatient precertification
  • 50% – hospital bill audits
  • 47% – prescription drug clinical intervention
  • 44% – utilization of centers of excellence.

Not being utilized by many states were health reimbursement accounts (HRA), with only 6% claiming such a program, and consumer-driven health plans, which had no utlization by state survey respondents.

The swath cut by the Segal survey covers the health benefits of more than three million state employees and retirees. Segal plans on future releases of data from the study in the coming months. The future data releases will cover prescription drug coverage, dental coverage and medical plan design. A copy of the most recent data can be found at .