Wages and Economy and Health Care Costs and Health Care & Life Sciences

State feels pain from health care costs

October 15, 2007

Is health care making Indiana's economy sick?

Spending on health care is rising faster in Indiana than it is across the country. Yet the state's job and income growth continue to lag national norms.

In 1991, the average Hoosier spent just 94 cents on health care for every dollar the average American spent. But in 2004, Hoosiers matched the rest of the nation dollar for dollar, according to Centers for Medicare & Medicaid Services data released last month.

Meanwhile, the average Hoosier earned just 91 cents for every dollar earned by the average American in 2004. And Indiana has yet to regain the number of jobs it had in 2000.

"If your cost escalation there is greater than earnings, it does affect job growth," said Deborah Chollet, a senior fellow at Mathematica Policy Research in Washington, D.C.

Higher costs for everything from doctor visits to diagnostic tests could explain Indiana's run-up in health care spending. But many other factors--poorer health, more frequent trips to the doctor, an older population--could be at play, too.

Whatever the drivers of health care spending in Indiana, the rising trend would concern any employer looking to add jobs. On average, employers pay about 80 percent of total health care costs for their workers, according to a 2006 survey by Hewitt Associates Inc., a benefits consulting firm.

"It's certainly an issue," said Nathan Feltman, Indiana secretary of commerce, who is responsible for helping Indiana companies expand here and drawing out-of-state companies to operate here. He said employers bring up health care to him a couple of times each month, though he added that he never has lost a deal solely because of health care.

"When I get asked the question--What is the one area where Indiana struggles when it comes to economic development, where do we need to improve?--this is the first one that comes to mind," he said.

Feltman said state economic developers are touting Gov. Mitch Daniels' INShape Indiana program and a recent cigarette tax hike that will produce revenue to provide health coverage for an estimated 132,000 uninsured Hoosiers.

But Feltman still must work around statistics like ones Hewitt gathered in its survey. It found employers in Indiana pay, on average, $8,606 in health costs per employee. That's 11 percent higher than the national average. It's also higher than the four states surrounding Indiana.

Most Midwestern states have seen their health care spending rise against the national average. These states' populations are not growing as fast as those of states in the Southeast and Southwest. The fast growth in those areas has brought an influx of younger professionals with fewer health care problems.

In addition, states where fewer people receive health benefits through HMOs, or health maintenance organizations, have seen higher spending increases since the 1990s, according to a September article in Health Affairs magazine. Hoosiers historically have avoided HMOs. And now, Indiana's largest HMO, M-Plan, is in the process of shutting down that part of its business.

"Indiana is not a highly efficient and high health state," said Ned Lamkin, a doctor and former state legislator who leads an employer group focused on improving health care in Indiana. Speaking of companies looking to add jobs, he added, "If they look at health care, to the extent they look at health care, Indiana probably doesn't get positive comments."

Unhealthy Hoosiers

Higher health care spending could be good--if Hoosiers are getting healthier. But the state still ranks second-highest for smoking, fourth-highest for cancer deaths and ninth-highest for obesity.

Meanwhile, as Hoosiers' spending on health care rises against the national average, their incomes aren't keeping pace. Nor is the state adding jobs as fast as the nation.

Employment in the state peaked in May 2000 to 3.05 million jobs. According to the U.S. Bureau of Labor Statistics, the state is still 27,000 jobs short of that mark. National employment, meanwhile, has grown 4.5 percent during that same time.

But Morton Marcus, a retired Indiana University economist, said health care spending is not the main factor hampering job growth in Indiana.

"It's much more complicated than that," he said, citing Indiana's lower overall skill level, a less-than-ideal image of the state and "a host of other things."

Rising health care spending isn't entirely a drag on the economy. In fact, it can spur job growth--a fact Chollet, the Mathematica researcher, acknowledged in a 2004 study of health care in Indiana commissioned by the state.

A growing industry

The silver lining to growing health care costs has been a surge in health care jobs. From 1991 to 2004, health care employment in Indiana jumped by 80,000 jobs, or 42 percent.

"In many communities in Indiana, the hospital is one of the largest if not the largest employer in the community," said Doug Leonard, president of the Indiana Hospital & Health Association and former CEO of Columbus Regional Hospital. He added, "During the last recession, when a lot of other employers were slowing down, the hospital was a stabilizing force."

Since that 2001 recession, however, hospitals around Indiana have gone on a building spree. Clarian Health has added facilities in Avon and Carmel, is building another in Lafayette, plans another in Fishers, and is eyeing Johnson County, Porter County and Yorktown.

The existing hospitals in Lafayette are building a facility to match Clarian. Bloomington has a second hospital. And Fort Wayne has shiny new facilities along Interstate 69.

Specialty hospitals--such as the Indiana Heart Hospital, the Indiana Orthopedic Hospital and the Heart Hospital of Indiana--have also cropped up.

Leonard agreed that the new facilities have contributed to greater spending on health care. But he's not so sure that's a bad thing.

"More access might be a contributing factor to increased life expectancy, too," he said, adding, "There's an argument, a clinical argument, for access closer [to patients]."

But many others argue the hospital arms race is just one more thing driving up spending unnecessarily.

"It is amazing how much money is spent that doesn't need to be," Chollet said. "It's across the board."

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