Around this time each year, the all-volunteer personnel committee at Unitarian Universalist Society: East in Manchester sits down with a broker to select an employee health insurance plan for the coming fiscal year.
Only three of the church’s six employees are on the plan, yet it costs about 10% of the nonprofit’s annual $500,000 budget. And each year, their carriers’ rates have gone up — often by double-digit percentages.
“There was just no possible way the church could absorb that kind of increase in a premium,” committee chair Vivian Carlson said, recalling a recent year when UUS:E’s carrier was poised to raise rates by 25%. Reluctantly, the church has switched carriers and upped the deductible several times over the last few years, enabling it to stay within budgetary constraints but creating confusion and higher costs for staff members.
Many small businesses and nonprofits in Connecticut face a similar conundrum, weighing the solvency of their business against how generous they’d like to be with employee health benefits.
“We hear from employers every day that providing health care for their employees is either the No. 1 or No. 2 expenditure they have, and if that continues at this rate, they won’t be able to locate here and provide good quality insurance and attract employees,” said Vicki Veltri, director of the state’s Office of Health Strategy.
As health care benefits gobble up larger shares of their budgets, small businesses and nonprofits are forced to make tradeoffs. UUS:E delayed hiring a part-time membership coordinator, a position the Rev. Joshua Pawelek says would help the church’s congregation boost its funding base. Instead, the church has to put those dollars toward insurance premiums.
“We don’t have a big endowment. We get our money from the members of the church,” Pawelek said. “They’re very generous, but if we have to add another six grand every year for health insurance, that makes it difficult to do other things,” he said.
Why so expensive?
Health insurance premiums are going up largely because health care costs are rising. Over the past two decades, the cost of hospital and medical care has risen faster than inflation.
“The carriers are continually seeking to bring innovative, more affordable products to market that include a focus on value-based care in recognition that affordability is critical,” Susan Halpin, executive director for the Connecticut Association of Health Plans, said in emailed comments. “To better achieve that goal, focus needs to be directed at how to best reduce the underlying cost of care.” Halpin also said changing state and federal regulatory requirements, such as the Affordable Care Act’s elimination of limits on pre-existing conditions, contribute to rate increases.
In 2019, OHS found that hospital inpatient and outpatient spending were primary contributors to rising health care costs for commercially insured individuals. Nationally, hospital care accounted for 31% of all personal health care spending in 2019, rising 6.2% from the year prior to nearly $1.2 trillion.
Jill McDonald Halsey, spokeswoman for the Connecticut Hospital Association, said the hospitals support the state’s effort to limit the annual growth rate of health care spending — an initiative, passed via Executive Order two years ago, known as the health care cost growth benchmark. She attributed the rising costs of care to several factors, including labor, the pandemic, inflation and inadequate state and federal payments for patients on Medicare and HUSKY plans.
“We need to examine the entire system if we are to be successful, including providers, health insurance companies, and drug manufacturers,” McDonald Halsey said in emailed comments. “OHS’s analysis to date has been too narrowly focused and relies on incomplete data. If we are to be successful in achieving greater affordability, OHS will need to broaden its view to all stakeholders and focus on a more comprehensive list of contributing factors.”
The state General Assembly is currently considering legislation that would codify the governor’s executive order on limiting rising health care costs through data transparency. House Bill 5042, which passed the House 119-29 last week and awaits a vote in the Senate, requires insurers and providers to make cost and quality data public and calls on OHS to hold public hearings with entities that don’t meet state targets.
The bill is part of a broad package of legislation, proposed by Gov. Ned Lamont, aimed at reining in health care costs across the state.
On Friday, Lamont held a press conference at UConn Health in Farmington to push the Senate to pass H.B. 5042. Joined by Sen. Matt Lesser, D-Middletown, and Sen. Tony Hwang, R-Fairfield, he told the gathering of doctors and state administrators: “This allows private sector employers across the board [to] be able to make the most informed decisions — where you get the best value, where you can get the best return, and where you can get the highest quality health care.”
Hospital consolidation plays a role
Academic researchers have attributed much of the steep rise in hospital costs in recent years to poorly functioning markets for hospital services — namely, the consolidation of hospital systems through mergers and acquisitions, which reduces competition.
In Connecticut, the health care field has consolidated significantly, with Hartford HealthCare and Yale New Haven Health steadily gaining share in markets around the state. Another piece of legislation proposed this session sought to outlaw anticompetitive practices among hospitals.
Hartford HealthCare is fighting two civil lawsuits over allegedly “unfair methods” and “attempted monopolization” of the market. Competitor Saint Francis Hospital and Medical Center sued HHC in January, and a group of consumers filed a proposed class action lawsuit against the hospital system in February.
UUS:E’s Rev. Pawelek is one of the plaintiffs in the second case. In their complaint, he and his fellow plaintiffs alleged: “There is a direct connection between higher hospital prices and higher insurance premiums, and … one of the primary drivers of an increase in premiums is consolidation in the relevant hospital market.”
The economic effects of hospital consolidation can be far-reaching.
Research from the RAND Corporation has tied hospital mergers — and the higher prices for hospital care that result — to declines in wages in their local markets. In a 2020 study, RAND’s Daniel Arnold and Christopher Whaley found that hospital mergers between 2010 and 2016 reduced average wages of local residents by about 1%.
Both Connecticut’s Attorney General and the Office of Health Strategy have said they’re paying close attention to the issue of hospital consolidation and the impact it can have on the cost of care.
H.B. 5042 contains some minor adjustments to OHS’s authority in reviewing and approving proposed mergers; OHS has recommended expanding that authority further.
“We need access to insurance that’s affordable, flexible and predictable,” said Andy Markowski, Connecticut director of the National Federation of Independent Businesses. “But before you even get to affordable, flexible and predictable, it needs to be in a competitive market.”
Multiplier effects
When health insurance premiums go up, businesses pass along about half of that increased cost to their employees, said Priyanka Anand, a health economics researcher and associate professor of health administration and policy at George Mason University.
“I kind of see it as a shared burden among the employer and the employee,” Anand said.
Reduced compensation can take a broader toll on the economy, Anand said. “If you have less money to take home, that’s less for rent, it’s less for food, it’s less for all the other things you’re spending on,” she said.
Smaller businesses, which make up 97% of all companies in Connecticut and employ roughly half of the state’s workforce, often experience a more acute impact from higher health care costs. According to the National Conference of State Legislators, small businesses pay between 8% and 18% more than large companies for the same health insurance policies.
While most working people (56%) are on insurance plans provided by their employers, smaller businesses are less likely to provide health benefits.
That’s partly because it costs more. Annual employee premiums at Connecticut companies with 10 or fewer staff can be hundreds of dollars more than the private sector average, according to data from the Medical Expenditure Panel Survey.
The decision to take on that cost — or not to — can fundamentally change the way small businesses and nonprofits operate.
State Sen. Christine Cohen and her husband own Cohen’s Bagel Co. in Madison. After covering 100% of their employees’ health insurance for many years, they recently decided to eliminate the benefit because it got too expensive.
“It’s a frustration as a business owner — I want to attract talent, I want my employees to come work for me and stay with me,” Cohen said.
“Small businesses are out there every day begging for something to stop this,” said Wendy Traub, co-owner of Hemlock Directional Boring Inc. in Torrington, which does contract work digging tunnels.
With a very small staff, Hemlock used to cover all of its employees’ health insurance at 100%, but now the company can only afford to cover 70% of the premiums — with employees paying the other 30%.
“It just starts to get unmanageable,” Traub said.
