Photo: Flickr / Danny Guy
While attention is focused on the expected Supreme Court decision on the 2010 health care reform law, the real battle for the future of health care is being fought in the world of business, where tens of thousands of companies have seen their financial health seriously undermined by skyrocketing employee health costs.
Most people don’t realise it, but employee health costs have now become the third largest expenditure for U.S. businesses, comprising 8 per cent of total compensation today. And they are rising sharply — more than doubling in just the last decade to over $15,000 per year for family coverage, 73 per cent of that paid by the employer.
Yet most CEOs remain strangely passive in the face of this worsening problem, failing to employ even the most basic management tools and market incentives to address it. It’s time for employees and employers alike — first and foremost the boss — to be held accountable for reducing the health cost burden that is hemorrhaging so many companies’ bottom lines.
Here are seven things CEOs can do to make a difference:
1] incentivise insurance brokers.
Most employers buy their health insurance from brokers who make more money when the plan costs more. Not exactly a smart way to get market forces working in your favour. Better to pay brokers on a fee-for-service basis. Better still to incentivise them with a bonus tied to the amount by which they can reduce your plan costs (not plan benefits).
2] incentivise your own managers.
Every CEO learned in business school that that if you want to achieve a key business objective — be it launching a new product or reducing company health costs — you need to incentivise your managers to help you succeed. Yet rare is the boss who offers a bonus to HR and benefit managers who reduce claims costs for the company. It’s long past the time for CEOs to get the incentives working in the right direction inside the company as well.
3] incentivise healthier employees.
A major source of rising workplace health costs is the declining health of employees. As a new Gallup poll reports, an astonishing six of every seven full-time employees in the U.S. (or 86 per cent) are overweight or suffer from a chronic health condition today. This is a terrible waste of human capital and an enormous burden on the bottom line, costing employers more than $153 billion a year in absenteeism alone — four times the lost productivity cost in Great Britain.
We already know that wellness programs can reduce employer costs. A study last year by Harvard health economist Katherine Baicker found that medical costs fall by $3.27 for every dollar spent on wellness programs, and absenteeism costs fall by $2.73 for every dollar spent.
But a new breed of “accountability-based” wellness programs can deliver even bigger savings. In an “accountability-based” wellness program, participants willing to be accountable for their health-related lifestyles pay a reduced employee contribution towards their premium — often half that paid by non-participants. Those with identified health risks must work with a coach to make lifestyle changes to keep receiving the lower premium. A recent study we conducted of “accountability-based” programs at four mid-sized employers found that the total paid claims of program participants dropped to $2,269 compared to $6,187 for non-participants.
The point here is that CEOs cannot keep handing out unlimited health benefits with no strings attached. Employees who don’t even try to modify their health risks should pay more.
4] Employ disease management programs to target the costliest health risks.
Most employers assume that smokers have the highest claim costs, which is why Wal-Mart recently added a $2,000-a-year surcharge to the premiums of smoking employees. But their claims are only 15 per cent to 20 per cent higher than those of non-smokers. The claim costs of depressed employees, however, are an astonishing 70 per cent higher than those for non-depressed employees, according to research from the non-profit Health Enhancement Research organisation, which studies the impact of modifiable behaviour on employee health costs. Disease-management interventions are effective, but most focus only on physical health risks. The best way for CEOs to deal with higher-cost risks, such as depression, is to promote wider utilization of employee assistance programs that provide early intervention and counseling.
5] Stop getting ripped off by pharmacy benefit managers (PBMs).
According to David Balto, ex-policy director at the Federal Trade Commission (FTC), “There is no part of the health care industry more egregious, harmful or rife with corruption than PBMs,” whose profits have increased 400 per cent in the last five years. Legal actions brought by multiple state attorneys general have resulted in $370 million in fines for PBMs accused of deceptive trade practices and receiving manufacturer kickbacks that boost the cost of company-paid prescriptions. Use one of the new breed of “transparent” PBMs that provide health plan members and administrators with drug price sheets and claims data to help them manage their prescription costs, or pick an insurer that does.
6] Partner with other companies and with providers to reduce costs.
The Employer Health Care Alliance Cooperative of Wisconsin is an employer-owned cooperative that helps 160 member firms manage their health costs by bringing their collective bargaining power to the table when negotiating with insurers and health care providers.
You can also partner directly with providers. The natural gas company Questar Corp. contracted with the University of Utah Neuropsychiatric Institute and their network of providers 11 years ago for all mental health services for its 1,700 employees. Because the employer’s and the provider’s incentives were aligned, Questar’s costs have stayed the same, even while health costs elsewhere have doubled.
7] Pay for performance, not for services.
Walt Disney Co., American Express Co., Qualcomm, Inc. and other companies are building on site medical clinics and often paying their doctors bonuses for reducing employees’ biometric health risks. This gets results.
As Warren Buffett told CNBC last year, “Insurance is not the problem. The problem is incentives. We pay for procedures, not for results.”
Adds Bay Area health care futurist Joe Flower: “We could have better healthcare at half the cost, without denying care to anyone, just by driving economic incentives back into the system.”
Washington can’t do that, so it’s up to CEOs to make it happen.
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