How Health Care Costs Affect Small Town Living

By the time people feel the effects of reduced city services, it's hard to tell that medical spending is a part of the problem.

A patched road near China, Maine.

If roads in your town look like this, health care cuts could be impacting your town's ability to repair roads properly.

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A half century of rapidly escalating health care costs has taken a toll on every village, town and city in America, including China, Maine. The town in the far northeast corner of the country has a population of about 4,500 in the off-season, 5,500 when the fish are biting in China Lake. Town officials face the same economic challenges in maintaining roads and infrastructure and in providing education, library, recreation and emergency services as any other place in America.

[SPECIAL REPORT: Hospital of Tomorrow]

Spending $2.8 trillion on healthcare in America has ripple effects that spread far and wide. And the town manager of China, Maine, Dan L’Heureux, who is also a member of Maine Quality Counts, an independent healthcare collaborative focused on improving health and health care in the state, has spent a lot of time thinking about the trade-offs in his town’s budget decisions forced by rising health care costs.

Health insurance premiums have grown nationally by 138 percent between 1999 and 2010, while wages have gone up 42 percent in that same period. Of the estimated $765 billion in wasteful healthcare spending in the U.S. in 2009, $210 billion was attributed to overuse of medical services. Health care spending has roughly doubled between 2000 and 2010 while simultaneously citizens and governments have struggled with recession, unemployment and a slow economy. Everyone feels the pain.

[READ: What Happens When a Town's Only Hospital Shuts Down?]

It’s nearly impossible to connect the dots to show a direct line between the high cost of medical services and cutbacks in everyday needs like schools, fire departments, public safety, roads, parks and public transportation. There are countless other variables—national, regional and local--in a struggling economy. By the time most people feel the effects of stagnant or diminished paychecks and reduced city services, they are scarcely aware that medical spending is a big part of the problem.

Yet it’s more than just instinctive to feel that rising medical costs have far-reaching consequences. L’Heureux and Rosemary Gibson, a senior advisor at the Hastings Center and author of “The Treatment Trap,” about the overuse of unnecessary medical services, met at a meeting of Maine Quality Counts last year, and L’Heureux opened the meeting with some remarks about his picturesque but struggling town. “Dan said that in his small town in rural Maine, there were 11 municipal employees,” Gibson says. “And the cost of providing health insurance was close to $200,000.”

To put in another way, L’Heureux says, the cost of health insurance for one individual with dependents is equal to the town’s entire annual parks and recreation budget or the operation’s budget for one of the town’s three volunteer fire departments.

No one is suggesting that the town drop health insurance for employees in favor of the recreation budget. But as one piece of the budget pie continues to get bigger, cuts have to be made in other places, or taxes must go up. “It’s a sacred topic,” L’Heureux says. “People worry about losing the benefit if it gets talked about.”

L’Heureux and Gibson participated in a session at a recent conference in Boston on the high cost of inappropriate and unnecessary care hosted by the Lown Institute. And even some of the most astute followers of health care who attended—physicians, hospital executives, nurses and policy experts—said they had never thought so deeply about all the ripple effects of rising medical costs. The kind of discussion prompted by L’Heureux’s frank look at his town’s budget needs to spread, says Dr. Vikas Saini, president of the Boston-based Lown Institute, which focuses on waste and unnecessary overtreatment in medicine. “Inside that opaque area called health care, there is a lot of stuff that can come out,” he says -- stuff like repeated laboratory work, duplicative CT scans, and unnecessary procedures and hospitalizations.

People are used to seeing health care expenditures measured in billions, even trillions, of dollars. But to look at the spending in the microcosm of one small town offers a down-home perspective that people can understand.

“These are simply trade-offs. It’s not blaming anyone,” says Gibson. “This isn’t to cause worry among state employees. It’s not their fault. Health care has gotten so expensive, and that falls in the lap of the system. We keep robbing Peter to pay Paul.”

In the last decade, officials in China, Maine, have seen health insurance costs go up 141 percent. In that same time period, the overall budget for the town went up only 42 percent. With health care so clearly taking a disproportionate amount of the annual budget increases, something has to give.

“In budget deliberations, one of the questions will be, what do you have included for employee remuneration? And then, how much is health insurance going up?” says L’Heureux. Each dollar increase in health insurance translates into less money available to pay town employees, or to fix roads or fund libraries. Or it might increase pressure to raise taxes.

One recent compromise in China, Maine, has been to put off repaving some of the town's roads. “We’ll do whatever we can to extend the life of a road. If there are potholes, cracks or ruts in the road, you might see some patching or crack-sealing applications,” he says.

When drivers see those shiny, snakelike streaks of tar on a road or highway, it’s probably an indication that some state or municipality has decided to put off a full re-paving and make do with temporary patchwork to stretch budget dollars.

Cities and citizens across the country have been forced to be ever more resourceful. In suburban Baldwin, N.Y., the town of 26,000 people was forced to close two schools. The folks in town most likely blamed a bad economy and cuts in state aid, says Gibson, but the previous year, health insurance costs for the town had gone up 27 percent. And when afterschool programs were threatened with elimination, students started a fundraising drive: They collected seven tons of old shoes, raising $6,000 to save the afterschool programs. Again, it’s unlikely any of the students was aware that America’s high-cost medical system and overuse of unnecessary medical tests and procedures played a part in their need to raise money for school programs.

Some 61 cities across the country that don’t have the money in hand have committed to $118 billion in retiree health benefits, according to research by the Pew Charitable Trusts. One of those cities, Portland, Ore., has recently undergone an audit that found that drivers for TriMet, its public transportation system of buses, light rail and streetcars, are sometimes stretched to 14 hour shifts, and that the system is behind on maintaining its infrastructure. The audit noted: "The most serious and looming concerns are the health benefit costs of employees and the $852 million unfunded liability to pay these benefits for current and future retirees, as well as their beneficiaries.”

The links are not simple cause-and-effect connections. But every time a school arts program is cancelled, or a bus schedule is cut back, or a road gets patched instead of re-surfaced, or a municipal swimming pool falls into disrepair, or bridge inspections are carried out less frequently, it’s a good bet that somewhere lurking in the shadows of a public budget is a whopping increase in health care costs.

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