There is too much money in unhealthy behavior

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On New Year’s Day, the folks over at The Health Care Blog kindly posted a piece of mine in which I described, perhaps counter-intuitively, how health insurers benefit financially when the price of health care steadily rises.

Peter Burchard, an employer health consultant in the Chicago area, wrote a comment on my post that perfectly sums up the fundamental challenge for Indiana’s health care sector:

“There is too much money in unhealthy behavior,” Burchard wrote.

More succinctly than anything I’ve written, that statement captures the major theme of The Dose since I launched this blog in May 2013.

And perhaps I’m drawn to statements that wrap things up well because, well, I’m wrapping things up. Monday will be my last day as IBJ’s health care reporter. I’ll hand those duties, including maintaining The Dose blog, over to John Russell, who is joining IBJ after stints covering health care at The Indianapolis Star and the Chicago Tribune.

I’ll still be here—writing and editing in-depth stories on a variety of topics, as well as overseeing IBJ’s various opinion columns.

But before I exit stage left, let me you give you one final Top 5 list to sum up why health care in Indiana is even more messed up than it is around the rest of the country.

1. Hoosiers are unhealthy.

This is hardly a secret. The average Hoosier smokes more and exercises less than the average American. Hoosiers suffer from more obesity, more diabetes, more infant mortality than do Americans in general. Heck, Hoosiers are even more likely to have missing teeth than other Americans. So we need lots of health care.

2. Because Hoosiers are unhealthy, they are even more lucrative than the average American to doctors, hospitals, nursing homes, drugmakers, device makers, health insurers and benefits brokers. None of these players have strong reasons to hold down the cost of health care.

Hospitals in Indiana charge higher prices and reap higher profits than do their peers in other markets. This is even true now for most of Indiana’s county-owned hospitals. As I wrote last month, moms in Indianapolis pay 50 percent more to have  a C-section here than they would in Manhattan.

Health insurers make higher profits here than in other states. This is especially true for Anthem, which dominates the market: Indiana is typically its most profitable state. So why would it work hard to change things here? Furthermore, as I argued in my Health Care Blog piece, Anthem’s profits are now defined, across nearly all its products, as a percentage of premiums. So the surest way for Anthem to grow its profits is for premiums to rise.

Benefits brokers derive much of their income from commissions paid by such companies as Anthem. Those commissions are often a percentage of premiums. So the higher premiums, the higher their commissions. More brokers are being paid fees by employers, rather than commissions. But those fees will run higher if the size of the spending bucket is bigger.

3. Because Hoosiers’ poor health employs so many people in every community of the state, most folks in government encourage the industry’s growth, even though it hinders job and wage growth (and therefore tax revenue) at other companies.

A 2013 study by Indiana University researchers found that health care jobs had grown 36 percent since the mid-1990s, compared with just 2 percent for the economy overall.

Because hospitals and nursing homes are the largest employers in many rural counties, many state lawmakers are reluctant to do anything to hinder their growth or profits, Rep. Tim Brown, R-Crawfordsville, told me last month.

“Legislators are sensitive to local economic impact,” he said.

However, few legislators seem to have read a fascinating study commissioned by the state of Indiana in 2004. It found that a 25-percent decrease in health care premiums would eliminate more than 19,000 health care jobs from the state, but that the relief in costs on all other employers would help them grow, thereby creating nearly 84,000 jobs.

Yes, you read that right: Decreasing health care spending would create four jobs in non-health care industries for every job it removed from health care. But that's not what's happened.

4. Employers keep spending more money to pay for Hoosiers’ unhealthy habits (and the health care industry’s ever-rising prices) because federal tax incentives and the realities of the labor market make it attractive.

The exemption of health benefits spending from Social Security, Medicare and corporate incomes taxes represents the single-largest tax break in the entire U.S. tax code. When that discount is factored in, spending more on health benefits is often cheaper than spending that money in other ways. That dampens employers’ motivation to push back on the high prices of health insurers and hospital systems.

Also, spending more on generous health benefits creates a nice recruiting advantage for the employers that can afford it. It makes it more likely that talented employees will work for established firms, rather than on their own (where health insurance receives no tax break) or for small firms–two-thirds of which in Indiana do not offer health insurance to their workers.

5. Because Hoosier employers have traditionally offered such generous health benefits, Hoosiers have limited financial reasons to get healthy.

Until very recently, the standard for health benefits plans in Indiana was effectively set by the United Autoworkers contract with the Big 3 car companies. The UAW health coverage was generous, with limited contributions by workers, and typically included health plans offering broad choice of doctors and hospitals.

Both features hindered anyone who wanted to pressure providers’ prices or get Hoosiers to be more health conscious.

To see the consequences of that trend in microcosm, read my 2011 article on the city of Anderson.

And that brings us back to the first point.

Is this doom loop bound to go on forever? No, because it can’t. The country already spends $3 trillion a year on health care, and the population is aging rapidly, promising to push that bill ever higher.

At some point, taxpayers and consumers will say, “Enough.”

Obamacare introduced some new incentives to encourage hospitals and doctors to reduce the cost of care, but the amount of money in the system that is currently being affected by those incentives remains small.

The federal Medicare program has promised to make 50 percent of this spending run through value-based contracts by 2018. Such contracts do force health care providers to focus on the cost of patients’ care.

But even these contracts only make a small percentage of overall revenue hinge on healthy outcomes. The lion’s share of the money will still hinge on getting patients into the hospital for care.

Obamacare’s Cadillac tax on employer health plans has already slowed down employer spending on health benefits. But now that tax has been delayed for two years and could be killed, especially if a Republican becomes president next year.

Health savings accounts have proliferated, faster in Indiana than the rest of the country. Those have had an effect on consumer spending on health care and, possibly, on Hoosiers’ health consciousness. Health savings accounts have also spurred doctors and hospitals to get more creative about how they price and package their services.

So there are lots of reasons to be optimistic. But with so many people making a living off of Hoosiers’ unhealthy behavior, these efforts have a long way to go before this Top 5 loses its freshness date.

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