The Soaring Public Health Tab
Health-care costs for government workers are rising fast.
Aug 2, 2011 Wall St Journal
Government pension liabilities have been in the news, but
an even more urgent problem is the skyrocketing cost of health benefits. That's
the gist of a new study by Josh Barro of the
Manhattan Institute which finds that health-care costs for local and state
governments have tripled in 15 years, outpacing the growth in private insurance
premiums by about 20%.
Governments typically offer a choice of several managed
care plans that include comprehensive medical coverage and supplemental
benefits like vision and dental care. Governments are also three times more
likely than business to provide retiree health insurance. Many companies
stopped covering retirees in the 1990s when the Financial Accounting Standards
Board began requiring them to report these liabilities on their balance sheets.
Governments have since accrued a $1 trillion unfunded liability.
Businesses are passing some of the rising premium costs
to workers, but governments are reluctant to do the same. Public employees on
average pay 15% of their premiums compared to 25% for their private
counterparts. About a dozen states don't require workers to contribute
anything. So how are governments paying for these benefits? Property taxes,
which readers may have noticed keep going up.
In the dozen or so states with property tax caps, local
governments and school districts are finding savings by modifying their health
plans. Other governments will have to do the same to avoid a taxpayer exodus.
Mr. Barro estimates that governments could save
$1,376 per employee merely by realigning premium contributions with those in
business.
But a better solution would be to offer consumer-driven
plans that encourage workers to use health resources more judiciously since
they must pay higher out-of-pocket expenses. Such plans are becoming more
common in business because they yield huge cost savings to both employers and
employees. Whole Foods CEO John Mackey wrote in these pages in 2009 that his
company's high-deductible plans, which include a lump-sum contribution to a
health savings account (HSA), have held down his company's health-care costs.
In 2006 Indiana
Governor Mitch Daniels introduced consumer-driven options and increased
employee cost-sharing for managed-care plans. Employee premium contributions to
the consumer-driven plans average about $260 per year versus $6,000 for managed
care. It's no shocker that 70% of workers have opted for consumer-driven plans.
A study by Mercer Consulting
found that the consumer-driven plans saved Hoosier taxpayers as much as $23
million and employees as much as $8 million last year. According to Mr. Barro, governments nationwide could cut $20 billion from
their $130 billion health-care bills by adding HSAs
to their plan options.
Alas, ObamaCare may poison the
well for reform if Health and Human Services Secretary Kathleen Sebelius decides that HSAs don't
meet the law's requirements for mandated "essential" coverage. Add this
to the long list of ways that ObamaCare will inhibit
innovation, but it's getting hard to keep track of them all.
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