Forget Washington and the political debate over Obamacare. 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 well-being undermined by skyrocketing employee health costs.
Although few people realize it, employee health costs have now become the third-largest expenditure for U.S. businesses today, constituting a whopping 8 percent of total compensation. And they are rising fast, more than doubling in just the last decade to more than $15,000 a year for family coverage. Of that cost, 73 percent is paid by the employer.
Yet most chief executive officers are curiously passive, failing to employ even the most basic management tools and market incentives to deal with the problem. Employees and employers alike -- but first and foremost the boss -- need to be held accountable for reducing the cost burden that is damaging so many companies’ bottom lines.
No. 1: Give incentives to insurance brokers.
Most employers buy their health insurance through brokers who make more money when the plan costs more. Not exactly a smart way to get market forces working in your favor. Better to pay brokers on a fee-for-service basis. Better still to offer them a bonus tied to the amount by which they can reduce a plan’s costs, not a plan’s benefits.
No. 2: Give incentives to your managers.
Every CEO learned in business school that if you want to achieve a key business objective -- be it launching a new product or reducing company health costs -- you need to provide incentives to managers to help you succeed. Yet rare is the boss who offers bonuses to human-resources and benefits 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 their companies, as well.
No. 3: Give incentives to healthier employees.
A major source of rising workplace-health costs is the declining fitness of employees. As a new Gallup poll reports, an astonishing six of every seven full-time employees in the U.S. (or 86 percent) are overweight or suffer from a chronic health condition. 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 per-capita, lost-productivity cost in the U.K.
We already know that wellness programs can reduce employer expenses. A study in 2010 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.
A new breed of accountability-based wellness programs can deliver even bigger savings. In these types of initiatives, participants willing to be held responsible for their health-related lifestyles pay a reduced contribution toward 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-size employers found that the total paid claims of program participants dropped to $2,269 compared with $6,187 for non-participants.
The point here is that CEOs can’t keep handing out unlimited health benefits without strings attached. Employees who don’t even try to modify their health risks should pay more.
No. 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 Stores Inc. recently added a $2,000-a-year surcharge to the premiums of employees who smoke. But their claims are only 15 percent to 20 percent higher than those of non-smokers. The claim costs of depressed employees, however, are a whopping 70 percent higher than those for non-depressed employees, according to research from the non-profit Health Enhancement Research Organization, which studies the impact of modifiable behavior 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 can provide early intervention and counseling to employees.
No. 5: Stop getting ripped off by pharmacy-benefit managers, or PBMs.
According to David Balto, a former policy director at the Federal Trade Commission, “There is no part of the health-care industry more egregious, harmful or rife with corruption than PBMs,” an industry whose profits have increased 400 percent in the past 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.
No. 6: Join 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 businesses manage health costs by bringing their collective bargaining power to the table when negotiating with insurers and health-care providers.
You can also join directly with providers. The natural-gas company Questar Corp. contracted with the University of Utah’s Neuropsychiatric Institute and its network of providers 11 years ago for all mental-health services for Questar’s 1,700 employees. Because the employer’s and provider’s incentives were aligned, Questar’s costs have stayed the same, even while health costs elsewhere have doubled.
No. 7: Pay for results, not for services.
Walt Disney Co., American Express Co., Qualcomm Inc. and other companies are building onsite medical clinics and often paying their doctors bonuses for reducing employees’ health risks. This gets results.
As Warren Buffett told CNBC in March 2010, “Insurance is not the problem. The problem is incentives.” He added, “We’ve got payment for procedures and not payment for results.”
Author and health-care industry thought leader Joe Flower says, “We could have better health care 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.
(Darrell Moon is CEO of Orriant, a wellness-program provider serving companies nationwide. The opinions expressed are his own.)
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