State Worker Health Costs - A $31B Political Football
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The Fiscal Times
August 13, 2014

Every year states spend a total of $31 billion to provide health care to their government workers. It’s one of the largest health care expenses for states, second only to their Medicaid programs.

A new joint report from the Pew Charitable Trust and the John D. and Catherine T. MacArthur Foundation offers a detailed look into the costly health programs – and paints a picture of which states are paying the most and the least to insure their employees.

Related: Obamacare Boosted Health Care Spending and GDP

The report comes as cash-strapped states are looking for ways to rein in spending. Every year, states and localities spend more on employee benefits like pensions. At the end of the first quarter of the year, the Federal Reserve reported state and local defined benefit assets are at $3.66 trillion. So exploring the employee health benefits expense is only a small piece of the picture.

The report said state policies were quite generous on average, covering 92 percent of total worker health care costs.

That’s compared to plans sold on the health care exchanges that pay out an average of 70 percent on the standard plan. Premiums, of course, vary widely from state to state, and employer-based plans typically cover about 80 percent.

States spend about $808 per employee each month on premiums. That figure does not include dependents.

In southern states, for example, premiums tend to be lower – especially in places like Alabama, Arkansas, and Mississippi. Alabama’s employee-only premiums were the lowest at $383. Northeast states like New Hampshire and New Jersey have higher premiums; New Jersey’s employee-only premiums were $758, for example.

Related: Vermont’s Grueling Stab at Single-Payer Health Care

The analysis found that the varying price of premiums depends mostly on how states structured their plans.

Wisconsin, for example, has one of the most generous plans, which covers 97 percent of total worker health care costs. That would be considered the “premium” or top-level plan under the state or federal marketplaces.

Still, Wisconsin’s premiums are some of the highest in the country – at $1,331 per worker in 2013, compared to the national average of $963. And state workers pay about 13 percent of their premiums, compared to the 6 percent they paid before 2011, when Scott Walker proposed doubling that as part of a law called Act 10 to rein in health care costs at the state and local level. That law also revoked workers’ collective bargaining rights.

Walker says Act 10 has helped reduce taxpayer costs and a spokesperson for his administration says the report justifies that action.

Related: Healthcare.gov Not Fully Ready for Round Two

Increasing employee health contributions has received support on both sides of the aisle. Even Walker’s challenger, Democratic gubernatorial candidate Mary Burke, said she would keep the increase but reinstate workers’ collective bargaining rights. Wisconsin reduced its spending on health benefits by 3 percent after changing the law in 2011.

Meanwhile, New Jersey also had one of the most expensive health plans in the country – with monthly premiums costing $1,334 in 2013 and the Garden State picking up all but 5 percent of the costs to its workers.

Gov. Chris Christie recently called the state’s employee health care plan “unsustainable” and labeled it a “Cadillac Plan.”

Researchers cautioned against comparing state spending on health policies, citing a range of factors, many of which are out of policymakers’ control.

“Because of the range of variables that influence spending, higher spending is not necessarily an indication of waste and lower spending is not necessarily a sign of efficiency,” the report said.

Even after adjusting for a plan’s structure and richness, the analysis revealed big ranges in premiums, from $387 to $846 – likely meaning the prices are influenced by things that state lawmakers can’t control, such as worker demographics, including age, gender and whether they tend to be healthier than employees in other states.

The researchers suggest a number of ways for states to control the costs of their plans, including cost sharing, offering a variety of plans, and adjusting their premium contributions.

Cost sharing, for example, could impact consumer behavior, since people are less likely to opt for certain plans with extra services if they cost more. Adjusting premium contributions can also impact consumer behavior. North Carolina, for instance, bases its contributions on the lowest tiered plan.

Workers who want a more robust plan have to pay the difference, which has prompted many to select cheaper, lower level plans. That’s compared to states like Oregon that offer a fixed percentage contribution to all plans. Those plans create a greater incentive for workers to opt for more expensive plans, the report said.

The researchers also say another cost savings strategy is for states to offer a three- or four-tiered structure instead of a two-tiered structure. They say more variety in policies can keep costs down and provide employees with more choices.

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Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.