Health Care Expenses ARE An Important Site Location Factor

March 29, 2006
When it comes to health care coverage, which states offer the lowest costs, adequate coverage and least risks to employers?

Editor's Note: This is the first in a two-part series exploring health care costs.

Health care and health care costs continue to be big concerns for businesses.

How big? "Aside from our pension costs, our health care costs are probably the second-most significant employee-related cost that we have," says Ken Garrett, vice president of human resources at FMC Corp. in Philadelphia. FMC produces agricultural, industrial, and specialty chemicals and employs about 2,700 workers in the United States.

A September 2005 survey by the Robert Wood Johnson Foundation of 600 corporate benefits executives and business owners shows more than half think making health care more affordable is a top priority, and is the most important health care goal that should receive the greatest attention in health reform efforts. These survey respondents expect their firms' health care costs to jump by 12% in 2006.

U.S. employers will see an 8% increase in their 2006 health care costs, predicts the Towers Perrin consulting firm (Stamford, Conn.). Other consultants, including Mercer Human Resource Consulting and Hewitt Associates, predict increases in employer health care costs for 2006 ranging from 6.4% to 9.9%.

Top 10 States For The 2006 HCCQ

1. Louisiana
2. Nebraska
3. Pennsylvania
Wisconsin (tie)
5. South Dakota
6. Alabama
7. North Dakota
8. Minnesota
9. Iowa
10. Ohio

View the complete list.
In constant dollars, employers will face an average total cost of $8,424 per employee for health care in 2006 -- that's a 140% increase over the last 10 years, notes Towers Perrin.

It's not just employer health care costs that are taking a bigger piece of the pie. The overall cost of health care -- everything from hospital and doctor bills to the cost of prescription drugs, insurance, medical equipment, nursing home stays, and home-health care -- doubled from 1993 to 2004. Today, health care consumes 16% of the nation's economic output -- the largest share ever, reports the federal Centers for Medicare and Medicaid Services.

Business leaders looking for the best place to expand their companies need to include health care measures in their site research. "My advice for executives moving into new communities where they are not now headquartered, is that there clearly are differences in regions around health care costs, quality, and availability," says FMC's Ken Garrett.

Adds Dale Whitney, who is health and welfare manager for United Parcel Service (UPS) and its 384,000 employees in Atlanta: "There have been a lot of studies from Dartmouth College and elsewhere that show that different communities have different health care costs, and that certain parts of the U.S. are more expensive than others in health care."

Comments like the above were reason enough for Expansion Management to examine health care costs, availability and quality in order to determine whether they varied enough from state to state to qualify as a crucial site location factor.

The data we uncovered proves that the answer is a resounding 'Yes.'

What we've come up with is our 2006 Health Care Cost Quotient. This year's top-ranked state in the Health Care Cost Quotient is Louisiana, followed by Nebraska, Pennsylvania, Wisconsin, and South Dakota. Among the top 20 finishers, the Midwest took top honors with eleven states. Five southern states finished in the top 20, while the eastern region had three and the western U.S., one.

The Major Categories

The Health Care Cost Quotient is based on data grouped into five major categories: health care facilities, health care providers, health insurance costs, health care provider visit costs and malpractice costs.

Cost-related factors were given the greatest weight, given the fact that the study looks at health care costs from the employer's perspective.

Out-of-pocket costs for worker health insurance may be the most important measure for employers in the equation. Therefore, we went to the Agency for Healthcare Research and Quality (AHRQ), an agency of the U.S. Department of Health and Human Services, and used its Medical Expenditure Panel Survey as a guide to employer health insurance costs. We used statistics from AHRQ's Employer-Sponsored Health Insurance Data as our chief source.

States were ranked on both the average amount employers paid for single premium coverage per enrolled worker and the average total employee contribution for single health coverage. The AHRQ data was released in July, 2005.

Yet another measure used in the 2006 Health Care Cost Quotient: hospital expenses per capita for persons admitted to hospitals. Data, based on year 2004 admissions, came from the American Hospital Association's AHA Hospital Statistics report.

To get a feel for the typical cost of a visit to a health care provider, we relied on health care cost data for the states from the ACCRA Cost of Living Index (third quarter, 2005).

We ranked states based on ACCRA's average cost data for patient visits to each of the following: doctor, dentist and optometrist. (ACCRA was formerly the American Chamber of Commerce Researchers Association.)

Yes, health care expenses were given extra weight in the 2006 Health Care Cost Quotient. Commenting on her state's Number 1 finish in the 2006 Quotient, Louisiana Gov. Kathleen Blanco explained: "Rising health care costs are the single biggest concern for many businesses when it comes to continued profitability. This study demonstrates how the cost of providing health care benefits to employees remains very affordable for businesses in Louisiana." Last year, Louisiana scored Number 3 on Expansion Management's Health Care Cost Quotient.

The research compiled for the Health Care Cost Quotient points to the importance of considering health care costs when determining the best location for a company's next manufacturing or service sector facility.

Michael Keating is senior research editor for Expansion Management. He can be reached at [email protected] You can visit the Expansion Management Web site at

Complete Health Care Quotient Rankings

1. Louisiana
2. Nebraska
3. Pennsylvania
5. South Dakota
6. Alabama
7. North Dakota
8. Minnesota
9. Iowa
10. Ohio
11. Missouri
12. California
13. North Carolina
14. Michigan
15. Indiana
16. New York
18. Kansas
21. Vermont
22. Texas
23. Arkansas
25. Virginia
26. Oklahoma
27. Mississippi
29. Colorado
30. New Mexico
31. Hawaii
32. West Virginia
33. South Carolina
34. Arizona
35. Florida
38. New Hampshire
39. Massachusetts
40. Delaware
42. Montana
43. Maine
44. New Jersey
45. Rhode Island
46. Connecticut
47. Idaho
48. Wyoming
49. Nevada
50. Alaska

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