Coverage conundrum: the challenge of rising state employee health insurance costs is hitting states hard.

• Author: Boulard, Garry

In the fall of 2001, only weeks after the deadly terrorist attacks of 9/11 (when many Americans were issuing calls for unity), nearly 30,000 state employees in Minnesota went out on strike. The move was characterized by the American Federation of State, County and Municipal Employees as the "single largest union action in the state's history."

The walkout had nothing to do with salaries or work conditions. It dealt with what Steve Kreisberg, AFSCME's collective bargaining director, calls "the most important, emerging state worker issue of the new century:" the increasing cost of health insurance and how much of those costs should be borne by the employees themselves.

The strike lasted for 21 weeks. Negotiators for AFSCME, which represents more than 19,000 state employees in Minnesota, as well as the Minnesota Association of Professional Employees, representing another 10,500 workers, came to an agreement that marginally held down insurance costs.

Last year, when Minnesota again sat down with union negotiators to renew the two-year state employee contracts, labor representatives agreed fairly quickly to the terms offered. The agreement was then, almost as quickly, ratified by two-thirds of AFSCME's Minnesota voting rank and file.

Outside observers may have been stunned by the contrast between the state negotiations in 2001 and 2003. But for David Haugen, the differences were easily explainable.

"By 2003, we had had a cost-tiered structure for state employee health insurance in place for two years," says Haugen, the assistant commissioner for employee insurance with Minnesota's Department of Employee Relations. "I just think many people came to the conclusion that this particular approach was working. It wasn't perfect, but it was perceived to be a step in the right direction."

A NATIONAL PROBLEM

As the continuing cost of employee health insurance challenges both the imagination and resources of administrations and lawmakers in virtually every state, the Minnesota story has become a subject of interest far beyond the state's borders.

That the challenge is nationwide and is being felt by private and public employers is without question. "Everyone is feeling their health care dollars being stretched to the limit today," says Mohit Ghose, director of public affairs for America's Health Insurance Plans in Washington, D.C., which represents private and public health plans.

Average premium increases of nearly 14 percent for the last three years in a row have prompted many private employers to shift costs onto their workers, according to the Kaiser Family Foundation.

Only 4 percent of the large employers surveyed by Kaiser were still paying 100 percent of the premiums for their employees' family coverage in 2003--down from 21 percent in 1988.

At the same time, more and more employers have imposed annual deductibles and co-payments of 20 percent or more for prescription drugs, doctor visits and hospital care.

"Obviously this is one instance where the private sector has had a clear advantage over the public sector," says Stephen Rinaldi, an employee benefits consultant with Everett James Inc. in Ridgefield, Conn.

"Regular businesses can...