Health Care Cost Concerns Intensify in Little Rock

Community Report No. 8 | Summer 2003 | By Debra A. Draper, John F. Hoadley, Jessica Mittler, Sylvia Kuo, Gloria J. Bazzoli, Peter J. Cunningham, Len M. Nichols, and Leslie Jackson Conwell

In January 2003, researchers from the Center for Studying Health System Change (HSC) traveled to Little Rock to examine the local health care system as part of the Community Tracking Study. The research team interviewed close to 60 health care leaders across the market. Little Rock, encompassing Faulkner, Lonoke, Pulaski and Saline counties, was one of 12 communities that HSC monitored through biennial site visits and triennial surveys. Earlier visits in 1996, 1998 and 2000 had established the baseline against which subsequent shifts were measured.

Rising Costs Strain Low-Wage Workers

Health insurance premiums that continued climbing left Little Rock residents and employers increasingly frustrated. Many described their financial predicament as unsustainable. Area employers responded by requiring workers to shoulder larger portions of premium costs while simultaneously raising deductibles and copayments. Large employers saw premiums grow approximately 10 to 15 percent in 2002, while small businesses absorbed increases ranging from 10 to 25 percent and sometimes even higher.

Local wages, however, failed to keep pace with these escalating expenses, putting health coverage beyond the financial reach of many working families. Little Rock's lower median household income and above-average poverty rate left employees with fewer resources to absorb the added costs their employers passed along. Arkansas's status as a right-to-work state meant the absence of organized labor further reduced employees' ability to push back against cost shifting.

Some workers, particularly younger and healthier ones, chose to leave their employer's insurance plan entirely. These individuals found cheaper alternatives through the individual market, where Arkansas Blue Cross Blue Shield had developed products specifically designed for this demographic. Other parents enrolled their children in public insurance programs while keeping only single coverage through their employer, or turned to individual market plans for family members.

Weak Health Plan Competition Frustrates Employers

Employers blamed limited competition among health plans for persistent double-digit premium increases. The health plans countered that premium hikes resulted from providers demanding higher payment rates, growing use of services, new medical technologies and rising pharmaceutical costs. Despite employers and workers paying more, health plans in the area generally posted improved profits, including QualChoice QCA Health Plan, which had teetered near insolvency just two years prior.

The Arkansas Department of Insurance reported that more than 60 health insurance carriers had departed the state within the previous five years, though many were smaller companies serving specialized niches like Medigap coverage. Major national insurers had also scaled back their local presence. Aetna and CIGNA had largely withdrawn from the Little Rock market over the preceding three years, maintaining operations only to serve national account customers.

The competitive landscape was shaped largely by long-standing alliances between health plans and hospital systems that effectively divided the local health care market. On one side stood the partnership between Arkansas Blue Cross Blue Shield (ABCBS) and Baptist Health System -- the market's two dominant organizations -- connected through their joint ownership of Health Advantage, the area's largest HMO. Their exclusive relationship extended across virtually all ABCBS products, with limited exceptions for state employee and public school accounts. The opposing alliance paired QualChoice with the University of Arkansas for Medical Sciences (UAMS) and St. Vincent Health System, with United HealthCare also networking through these two hospitals.

ABCBS held more than 40 percent of the local HMO market, while United HealthCare claimed around 30 percent and QualChoice approximately 20 percent. At the statewide level, ABCBS commanded roughly half of the entire health insurance market. Additional factors discouraging competition included Little Rock's relatively small population base and the poor overall health and low socioeconomic status of Arkansas residents, which dampened outside plans' enthusiasm for entering the market.

Hospital Profitability Under Pressure

Hospitals in the Little Rock market faced mounting revenue challenges. Tertiary care services continued migrating to facilities in surrounding communities, while physician practices steadily expanded their capacity to perform ancillary services that had once been hospital-based. These twin forces squeezed hospital volumes and threatened financial performance across the market.

Medicaid Expansion Reaches Children but Not Adults

While Arkansas maintained relatively broad Medicaid eligibility for children, adult eligibility remained tightly restricted despite a modest expansion. This gap left many low-income working adults without public coverage options, contributing to the growing ranks of uninsured residents in the community.

Safety Net Gains Strength

The health care safety net in Little Rock grew stronger during this period as provider finances improved and capacity expanded modestly. These gains offered some relief for uninsured and underinsured residents, though the sustainability of these improvements remained uncertain in the face of ongoing economic pressures and restricted public insurance eligibility for adults.

Sources and Further Reading

This report was originally published as Community Report No. 8 by the Center for Studying Health System Change as part of the Community Tracking Study, funded by the Robert Wood Johnson Foundation.