Policy Brief: How to Cure Pennsylvania’s Health Benefits Crisis

Published June 11, 2018

Pennsylvania’s state government faces severe financial strains. A major cause of the state’s growing fiscal crisis is the rising cost of state employee health benefits. Over the past 14 years, state spending on employee health care has skyrocketed, from $395 million in 2002 to $866 million in 2016, a 119 percent increase. In addition, taxpayer spending on retiree health care rose from $1 billion in 2009 to $1.5 billion in 2016, a 45 percent increase.

An underlying reason for this spending increase is employees have little incentive to control health care costs. The price of health care services can vary by tens of thousands of dollars between hospitals only a few miles away from each other, but Pennsylvania’s state employees and retirees have no financial reason to seek lower-cost providers since the Pennsylvania Employee Benefit Trust Fund (PEBTF) charges workers low deductibles and other out-of-pocket fees. This inefficient system wastes taxpayer dollars and crowds out spending for other vital state services, creating an excuse for policymakers to raise taxes even higher.

Patient-centered reforms can stop this unsustainable spending trajectory while ensuring workers continue to enjoy reliable access to quality medical professionals and facilities. Other states offer lessons instructing Pennsylvania how it can successfully transform public employees from passive beneficiaries into engaged, cost-conscious consumers.

Such reforms include:

Health Savings Accounts (HSAs): Michigan encourages state and local government employees to enroll in HSAs, which reduce spending on unnecessary treatments and procedures by imposing healthcare spending caps on public employers.

Cash Rewards: Kentucky and New Hampshire allow state employees to compare medical procedure prices between providers. When workers choose less expensive providers, the state health plan sends them cash as a reward for seeking savings.

Direct Primary Care: Union County, North Carolina and Arvada, Colorado partner with direct primary care physicians to deliver routine
and preventive treatments for public employees, reducing health care spending on specialists and emergency rooms.

Reference Pricing: California encourages government workers to visit less expensive doctors and hospitals by establishing a maximum contribution limit for elective medical procedures and requiring patients to pay the difference.