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An Unhealthy State
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Business New Haven
12/23/2002
By: BNH
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Health-care costs for Connecticut businesses are out of control, and threaten to suffocate the goose that has laid the golden egg.
The state's political leaders appear too distracted by government's own fiscal problems to address this issue. Moreover, many of Connecticut's business advocacy groups, such as the Connecticut Business & Industry Association (CBIA) and various chambers of commerce, appear compromised on this issue because they themselves sell health insurance to members.
Nevertheless, if health-care costs continue to go unchecked, Connecticut will experience profound business erosion, labor-management disputes and a steep fall-off in state tax revenues. Even tax increases will be insufficient to stanch the erosion, as employee wages and corporate profits are eaten up by non-taxable benefit costs.
As has been the case with many business costs, the roaring economy of the 1990s enabled companies to absorb the three years of double-digit health insurance costs they received. While that growth has disappeared for most businesses, the increases continue.
For small businesses, start-ups and industries under intense competitive pressure, health costs have become unbearable.
In response, Connecticut companies are reducing coverage, shifting costs to employees or dropping coverage entirely. Some may argue that Connecticut has always been a high business-cost environment - so nothing has really changed. Indeed, Connecticut's business and government cost structure is at the very heart of its slow population growth and anemic business expansion of the past two decades.
The state's competitive position has been seriously eroded as several of its core industries - such as pharmaceuticals and manufacturing - have come under attack, and its strategy of encouraging the growth of technology and biomedical companies has foundered with the national meltdown in investment in new technology companies.
Legislative leaders need to see that older workers and lower-income workers are at great risk. Connecticut's workforce is aging, and along with that aging workforce are enormous increases in health-care insurance costs. The health-care reform package enacted several years ago guaranteed coverage to nearly all workers seeking it. Ironically, it accomplished that at the expense of older workers. Health-based underwriting was largely replaced by higher costs and age-based pricing models at the state's leading insurers.
The small-business market has seen the costs of insuring a single employee (and spouse) at age 55 skyrocket to between $8,000 and $11,000 per year for a typical HMO product. A young single worker can cost the company one-fifth that amount.
Lower-income workers are likewise vulnerable as they find it difficult ot impossible to afford the employee contribution or rising deductibles and co-payments. Their loss is government's loss, too, as it picks up many of these costs.
Insurers and HMOs may not be the only cause of these unintended consequences, but industry consolidation and earlier financial problems have set a course for higher rates. A healthy industry cannot exist in an unhealthy environment, and HMOs can expect to come under attack – perhaps legally – by older workers.
Small business will likewise ask - increasingly aggressively and perhaps through the courts as well - whether insurance discounts to government employees and large companies are defensible.
We call on Governor Rowland, legislative leaders, health insurers and business advocacy groups to confront this problem as the crisis it is. Connecticut businesses and workers cannot be expected to finance state government's excessive costs or the “economic development” dreams of certain business groups if leadership doesn't really lead on the business issues that matter most.
As a start, Connecticut should no longer remain a holdout on medical savings accounts - a cost-reduction mechanism of importance to small businesses in other states. Small businesses in particular need significant tax relief targeted toward helping them pay for health insurance, especially for older and lower-income employees.
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