Tough times have befallen state, county and municipal governments between plummeting tax revenues and unpaid employee furloughs, but reducing costs associated with their employee health care benefits is a surefire path to fiscal responsibility. And despite the widespread perception of public-sector establishments as monuments to inefficiency, there are mission-critical lessons that can be gleaned for all employers.

“What makes public-sector benefit plans different is that they operate in a very political environment and fishbowl where decisions are made in public forums. They also have different rules to abide by in terms of government accounting standards and benefits legislation,” says Tom Weatherup, Thomson Reuters’ public employer practice leader. Government entities also face tremendous pressure to reduce costs in a difficult economic climate.

Public-sector employers have always been part of Thomson Reuters’ client stable, with this group having emerged in recent years as a unique line of business serviced by a dedicated team of consultants.

Sicker employees

A Thomson Reuters analysis of public-sector employee data has found that these populations tend to be sicker than those who work in the private sector reflecting a much higher medical risk.

Among the key findings: medical and drug claims were 17% higher per member per year (PMPY) in the public sector at $3,814 than private sector at $3,256, while prescription drug costs were 18% higher in the public sector at $854 than private sector at $724 because of a higher prevalence of chronic conditions, many of which require pharmaceutical treatment.

Unfortunately for those managing public-sector plans, this disparity is increasing, as medical and drug costs rose 7.5% between 2007 and 2008 in the public sector compared with 5.5% in the private sector.

Among the theories to explain this phenomenon: adverse selection because of richer benefit packages, a correlation between lower-pay scales and poor health status, and the presence of unique jobs such as law enforcement and corrections officers. Higher costs triggered by more maternity benefit claims are another factor that Thomson Reuters is examining as part of its next level of public-sector analysis.

Another area worth noting is that inpatient and outpatient costs were 14% to 22% higher in the public sector than private sector, while utilization for these services were found to be about 15% higher in the public sector than private sector. One stark contrast to these findings is that ER visits cost 25% less among public-sector employees than their private-sector counterparts.

“It appears as if the public sector has as good, if not better, care that’s both efficient and effective,” Weatherup reports. “They have higher use of preventive screenings and fewer avoidable admissions than we see in the private sector. There are very dedicated, hard-working, smart folks who are managing benefits in the public sector and making good use of data to shape their benefit programs.”

With the exception of asthma, public-sector employee populations had a much higher incidence of chronic disease than those in the private sector. Public-sector hospital admissions were higher for nearly all chronic conditions (except asthma and depression), while avoidable admissions were 35% higher in the public sector – with diabetes and hypertension considered the worst culprits. According to Weatherup, “the 25% higher health risk in the public-sector population cost is driving the cost difference.”

This higher health risk exists despite higher screening rates in the public sector for cholesterol (43% versus 36%), colon cancer (24% versus 21%), breast cancer (49% versus 45%) and prostate cancer (39% versus 32%).

Jury still out

Retailers and other industries in the private sector known for high employee turnover have tended to avoid making investments in wellness and disease management programs for fear that they will be squandered when people leave their jobs, Weatherup notes.

That’s not the case for public-sector employers with many high-tenured workers. “And with that,” he says, “I think there’s more of a willingness to make that investment, particularly once you have thoroughly analyzed and understand your adverse risk profile.”

But Weatherup explains that arguing the business case for wellness and disease management programs is a much tougher sell to public-sector leaders today given the depth of budget deficits.

Nonetheless, these customers continue to make the case for funding wellness and disease management programs and feel comfortable appearing before administrative and legislature leadership armed with credible data from Thomson Reuters, which has an established track record as an independent third-party source for employee health care analytics.

“There is tremendous pressure on all of our public-sector customers to figure out a way to lower health care spending,” he says, “and that’s a very tough thing to do that takes a lot of creativity, hard work and can involve making unpopular decisions.”

Join Thomson Reuters, Tuesday, November 24 or Wednesday, December 9 at 2 p.m. (Eastern) for an hour-long Web seminar. In this presentation, we’ll do a deeper dive into the results of a recent analysis of public sector healthcare cost and utilization compared to the private sector and discuss what you can do to narrow the gap. Visit http://healthcare.thomsonreuters.com/ PublicEmployees/ to register.