Any relief? Why are Indiana's health-insurance premiums higher than in neighboring states? What can be done?

HEALTH-INSURANCE COSTS are higher in Indiana than other Midwest states. So say government and private statistics, which show Indiana's average family premium above that of surrounding states, and higher than the national average. Mercer Human Resources Consulting confirmed this unenviable ranking when it released its "National Survey of Employer-Sponsored Health Plans" last mouth.

"I think primarily it's provider pricing," says Scott Wayne, a senior consultant for Mercer in Indiana and Chicago. "There's not a lot of competition." Indiana has never really embraced managed care either, he says, helping keep costs higher, in Indianapolis, he points to large companies with rich benefit plans such as Eli Lilly & Co. and Anthem, which help "drive it up a good bit." In other Indiana cities, he cites union bargaining as a factor.

There's not a lot of employer pressure to get hospitals to discount charges, says Wayne. "There's a lack of discounts in Indianapolis. There are plenty of providers, they just tend not to compete. Virtually all hospitals are in each network. Why lower your price?" A 20 percent discount sounds good to some in Indiana, he says, but in Chicago the discount might be 50 to 60 percent. Comparing provider fees as a percent of Medicare rates, Chicago was 110 percent, Indianapolis was 125 to 130 percent. "It makes Chicago look cheap."

The high cost of health care in Indiana has made it an economic-development issue, says Wayne. Looking at per employee health-care costs, "Indiana is now at a $1,000 minimum disadvantage to the rest of the Midwest."

A PROVIDER'S PERSPECTIVE

But laying blame at the doorsteps of providers misses a big piece of the picture, according to the head of the state's largest producer. For a variety of reasons, health-care utilization is high in Indiana, says Dan Evans, president and CEO of Clarian Health Partners in Indianapolis.

One reason, he says, is the generosity, of benefit plans serving some of Indiana's many manufacturing employees and retirees. "Toledo, Ohio, and Anderson, Indiana, are the two highest-expense cities in the region, and what do they have in common? Retired UAW workers," Evans says.

Another factor is the health of Hoosiers. "We're one of the top 10 smoking states and one of the top 10 overweight states," he points out. "If these are indicators of poor health, then our costs should be higher."

"One of the biggest reasons, arguably, is health status," agrees Alex Slabosky, president of The HealthCare Group, Indianapolis, one of Indiana's largest managed-care organizations. "There's overwhelming evidence that smoking alone leads to health problems. There's even more overwhelming evidence that obesity leads to health problems."

The HealthCare Group is owned by 18 hospitals and hospital systems in the stake, four that take an active role in governance, says Slabosky: Clarian Health and Community Hospitals in Indianapolis, Deaconess Hospital in Evansville, and Parkview Hospital in Fort Wayne. Its preferred-provider-organization arm, Encore, serves 350,000 people through a network that is leased to insurance companies, self-funded employers and third-party administrators. The network includes 130 hospitals and 11,000 physicians. Its health-maintenance organization, M-Plan, serves 200,000.

Trying to tackle the problem of overweight Hoosiers, M-Plan introduced its 10,000 Steps program last year, demonstrating that even a little exercise will help lose weight and improve health. While most adults average only 3,000 to 5,000 steps a day, 10,000 will help maintain a healthy body. Participants are given a pedometer to measure steps and are hooked up to an Internet program to monitor progress. Healthier M-Plan enrollees might result in holding down premium increases, which have been in the double digits in the last three years, says Slabosky.

Regarding smoking, Slabosky thinks Indiana's law prohibiting employers from discriminating against tobacco users in benefits needs to be changed. "One employer wanted to provide a different payroll contribution for health insurance for people who didn't smoke," he says, but couldn't because of the state's prohibition.

Leah Fouts, vice president employee benefits for Forrest Sherer, an independent insurance agency in Terre Haute, agrees that Hoosier's unhealthy lifestyles are a major concern. More women die of lung cancer than heart disease, she says, and obesity is causing a diabetes epidemic. In 1990, 14 percent of Indiana's children were obese, she says, but in 2003, 24 percent were.

"Part of the problem are the people with chronic conditions who are costing plans," says Fouts. "Eighty percent of claims in a group are caused by 20 percent of the employees, it's an interesting role of thumb that holds tree to each group regardless of size."

Clearly, Indiana needs to address the health risk factors that drive up costs, but the truth is that health-care utilization would still be on the rise, according to Evans. Innovations in pharmaceuticals and medical technology are driving utilization, along with the increasing age of the population. "Twenty years ago, heart catheterization was rare, but now it's common," he offers as an example.

Tackling the subject of utilization can lead to some uncomfortable public-policy considerations, according to Evans. As little as 1 percent of all insured employees represent as much as 30 percent of all expenses, he says. "That 30 percent is high-end stuff that in Europe and Canada is rationed."

In fact, Level 1 trauma care like that provided at Clarian's Methodist Hospital is all but non-existent in Canada, according to Evans. "If you're in a terrible car accident in Canada, you'll die."

Evans isn't suggesting that Americans take up the practice of rationing health care. But he says it's important to realize that American health care is likely to be more expensive than in many other countries because our culture believes in providing the best possible care, and providing it to everyone. Not a bad philosophy, but a potentially costly one.

DISEASE MANAGEMENT

Those Hoosiers with chronic diseases who use the bulk of the medical care need to be managed differently, says Paul Moss, senior vice president for business development at Lutheran Health Network, Fort Wayne. Therefore, it offers disease management services as an add-on to its Lutheran Preferred PPO, a wholly owned subsidiary offering a network of 4,000 physicians and 43 hospitals serving 65,000 members.

For about 50 cents per employee per month, someone with diabetes, for instance, would be monitored to see if they are regularly checking their blood sugar and seeing the physician on schedule, to minimize costs. The interest to date in disease management has come primarily from large employers.

Disease management for chronic conditions and case management for high-risk patients is also a priority at SIHO, headquartered in Columbus and providing services statewide to nearly 800 employers and 70,000 members. Case management is a service that pays for itself, says president Dave Barker. "In Indiana, there's $5 saved for every $1 spent on case management."

Barker cites a few examples to prove his point. A 19-year-old girl, pregnant with triplets, checked herself out of the hospital. A persuasive call from the case-management nurse convinced her to check herself hack in and she had full-term babies. Potential price tag without the intervention: $300,000.

A man with high blood pressure was told by his physician to write down his blood pressure three times a day. When the case manager called he reported he was doing just that. But when asked what the readings were, it turned out they were off the chart. He was immediately referred to his doctor.

"Utilization is what's driving increased costs," says Moss, "from aging, unhealthy lifestyles, and the patient's desire for more testing." Lutheran's wellness programs are designed to encourage and reward healthy lifestyles, helping reduce utilization. But it has had mixed results. "People that are already well jump in and participate," he says.

"As an employer, you're not able to discriminate against employees based on their health status," says Moss, so you can't force employees through their pocketbook to get healthy ... yet. "Efforts are under way by various payers to figure out a way to discriminate based on health status and lifestyle." Of course, there's a flip side to every coin, he adds. You wouldn't want to see a person with a congenital deject discriminated against.

TRY SHOPPING AROUND

It used to be common for employers to stay with one insurance carrier for five to 10 years, says Keith Saunders, employee-benefit consultant for Tobias Insurance, one of the largest independent agencies in the state. Now employers will shop around every year to find the best deal. Three months before a renewal, Tobias will request quotes from 10 companies and present the three most competitive options to the employer or TPA.

For small employers, shopping around might also mean considering a professional employer organization, PEO, to handle all human-resources needs, including moving employees into a larger group to leverage lower health-insurance rates. Instead of a 15- or 20-member group, the business could come under a 1,500-member group under WorkSmart's PEO blanket, says president Matt Thomas. In business for six years, the Indianapolis PEO operates under a co-employment relationship with small businesses and has held down annual increases in its PPO plan to an average of 13 percent. Not had when some small employers on their own have seen increases of up to 50 percent.

One growing trend is giving more than one medical plan choice to employees to make it more affordable to them, says Saunders. A core plan might have a $1,000 deductible and a very high physician co-pay in exchange for a low payroll deduction. Singles, the healthiest employees, and lower-paid workers who can't afford to have much taken out of their check have been selecting this type plan. A traditional plan, with maybe a $250 deductible, lower co-pays and a higher payroll deduction would also be offered. Since most plans allow for a change of plans once a year, employees can switch if they know their medical expenses will be higher in the future and the additional premium would outweigh the expenses.

While this type of option can help the employee, smaller employers have lost an option, says Saunders. Where it was three year ago to partially self-fund a health plan with 50 employees to save money, "the bar has been raised to 100." Fewer reinsurers providing stop-loss medical coverage is the reason, with the ones remaining steadily raising the number of lives for coverage.

HELP SELF-FUNDED EMPLOYERS

If you're big enough to self fund, Apex, an Indianapolis-based broker and consultant, can help you drill down into the claims data, identify problem spots and suggest modifications in future coverage, says president John Gause. "Depending on how much the employer wants to save--or hold the line--we can back into it."

Prior experience as an underwriter helps Gause understand what information insurance companies need to negotiate down from the standard rate offered. That could mean providing an attending physician statement to show that a claimant who used $300,000 in health care last year isn't expected to use more than $50,000 this year.

Helping pick the best network for the employer is another forte for Apex. "There are 20 different networks that use St. Vincent Hospitals," says Gause. "Not all get the same discount. We do an analysis. Are they in the best network?" One might give a 12 percent discount, he says, another 20 percent. If most of the employer's claims flow through one hospital, the network choice could save big bucks.

Lutheran Preferred generally works with self-funded employers, says Moss. In the past, when the labor market was tight, they provided a generous benefit package with access to a wide range of providers. A tighter labor market has enabled them to make some adjustments. A more restricted network within Lutheran Preferred was launched about 18 months ago, offering just 800 physicians and limiting hospitals to the five within the Lutheran Health Network. "The more restricted, the better pricing they can negotiate."

WILL HSAs HELP?

Nestled in the Medicare drug bill signed in December is legislation creating health savings accounts, another so-called "consume-driven" health-care product, intended to give employees the incentive to shop wisely and control costs. Similar to the medical savings accounts passed as part of the Health Insurance Portability and Accountability Act (HIPAA) in 1996, they aim to couple a high-deductible insurance plan with a savings account that can grow tax-free and be used for qualified health expenses. HSAs, however, allow for much broader usage than MSAs and are more flexible.

The account itself is like an IRA. An individual and/or the employer will make deposits, which grow tax-deferred. If withdrawn for qualified health purposes they can be withdrawn tax-free, otherwise they are taxed and penalized. If there's anything left at age 65, it can be withdrawn with no penalty, but is taxable.

What's the advantage? For the employer, a high-deductible plan could amount to a savings of $200 to $300 per month per account, estimates SIHO, some of which could be given back to employees to fund their HSA. For the employee, having control over the money in the account will be an incentive to shop around for the best deal on health care.

Through its insurance-services arm, SIHO is getting ready to roll out an HSA program this quarter called SIHO Select Savings, and is working with banks to be the depository for the accounts.

Whether or not HSAs or any other type of consumer-driven plan helps, one thing is clear: employers will have to analyze and adjust their health plans each year. People are getting older and fatter and incurring more costs, better technology is more expensive, and the government is shifting more costs, says Mercer's Wayne. "If you don't do anything as an employer--you will get killed."

Monthly Family Health
Insurance Premium

IN   $747
OH   $718
IL   $716
MI   $686
KY   $578

Source: Compdata Surveys, 2003.

Annual PPO Costs

Indiana   $6,370
Midwest   $5,173

Employers with 500 or more
employees.

Source: Mercer Human Resource
Consulting, 2003.