States Forced to Ponder Health Care Reality

March 9, 2004 ( - While large private employers may have adjusted health care premium contribution levels to steer employees to the most cost- effective carriers, state governments haven't been able to use such strategies quite as aggressively.

Constrained by strong unions, regulations and politics, state employers have traditionally contributed more for individual and family coverage than large private employers, with a third of states footing the whole bill for individual coverage, according to a new study. That compares to a scant 8% of Fortune 500 employers.

In Private Health Purchasing Practices in the Public Sector: A Comparison of State Employers and the Fortune 500, co-author James Maxwell, of the JSI Research and Training Institute, explained that while private employers have used negotiating tactics such as competitive bidding to discipline their health carriers on price, states couldn’t pull off the same leverage in their relationships with carriers. Unlike the private sector, the majority of states continue to offer a wide choice of health carriers to their employees, which diminishes their purchasing leverage.

But that approach may be changing due to the current budget crisis in state capitals across that country that has forced a reevaluation of health care purchasing practices, the study said. Some state employers are considering private sector practices that they likely would not have considered before.

These include increasing employee cost-sharing through lower employer contribution levels and higher co-payments for drugs, hospitals, and doctor visits. However, as co-author Peter Temin, professor of economics at the Massachusetts Institute of Technology, said, “These cost-sharing strategies, in the context of rising health care costs and declining state budgets, have resulted in a loss of real wages for state employees, and hit low-income employees particularly hard.”

Since states purchase health care for more than 4 million employees and retirees, and millions more dependents, the effects of this crisis on health benefits offered to state employees is far reaching.

To access the paper, please see the Health Affairs Web site at .