Faced with health-plan costs that could double by 2010, US employers find themselves in an increasingly uncomfortable position. “Employers really have their backs to the wall,” says Judith Hibbard, a policy expert at the University of Oregon who was recently appointed to the National Advisory Council for Health care Research and Quality. The average employer cost of health coverage increased almost 50 percent from 2001 to 2003, according to a study by the Kaiser Family Foundation and the Health Research and Educational Trust.
With premiums increasing three times as fast as wages, many companies are taking drastic measures to cut costs. About 16 percent of employers in the Kaiser study said they will drop health coverage entirely. Further, nearly 50 percent of employers have reduced health benefits in the early 2000s, says a survey from PricewaterhouseCoopers. For all these firms, increased employee turnover is just one likely negative consequence.
What can employers do to keep health costs from stunting their growth and alienating their workforce? More and more employers have concluded that – absent a federal makeover of the health care system – there is no silver syringe, no single strategy that will control these costs. But there is a handful of approaches that have been proven to save on health costs, or at least show the promise of doing so.
For Employers, Health Care Is Now a Strategic Workforce Issue
Some very large employers are taking the view that their health plan is an investment in the workforce, not just a worrisome cost to be chipped away incrementally. “If a company ends up with a less healthy, less vibrant workforce, how does the balance sheet reflect the increased absentee rates?” Employers should ask themselves that question, says Sherry Hayes Chilton, director of Ernst & Young’s Global Health Sciences Center for Industry Change in Washington, D.C. “Employers can think about having financial incentives aligned to get an employee with a fractured knee the best care and get them back to their desk quickly,” says Chilton.
The good news is that there may be a way to use those financial incentives to boost health care quality while reducing costs. In some states, as many as 75 percent of patients do not receive the national standard of care, according to Bridges to Excellence, a program of the National Committee for Quality Assurance, a non-profit that sets health care standards. And that generates additional, unnecessary expenses. “Diabetes, cardiovascular disease and other major chronic illnesses drive about 80 percent of the cost of health care,” says a report from Bridges to Excellence. When the care of chronically ill patients is well managed, it costs about 10 percent less than average care. In the Bridges to Excellence program, which will be expanded in 2005, employers pay into a fund that gives bonuses to physicians who meet a broad array of quality standards for treatment. “For each dollar invested by employers, $3 is returned in savings,” says Kelli Moler-Pedas, director of membership and government relations at the National Business Coalition on Health in Washington, D.C. “Employers are starting to get that it’s not just about cost-cutting, it’s also about quality.”
Consumers Can Drive Costs Down – Or at Least, That’s the Theory
If health care providers can be motivated to hold down costs while improving quality, then incentives should work for consumers who are better educated to make smart choices. That’s the hypothesis behind consumer-driven health care, a movement that has proceeded in fits and starts. “We’re trying to create an incentive that says, ‘If you can stay reasonably healthy, you’re going to get your health care paid 100 percent,’ ” says David Cowles, executive vice president at Medfield, MA-based Benemax, which designs customized health plans for employers. “We offer a multitiered co pay system that increases the employee’s cost sharing as the individual’s total spending increases.” In such a system, the first $1,000 of health costs might be fully covered, while the second $1,000 requires a 20-percent co pay.
One potential shortfall of the consumer approach: “It’s looking like people with better health and more education and income are more likely to pick a consumer-driven plan,” says Hibbard, the Oregon policy researcher. “We don’t know whether any savings are due to this self-selection or because these consumers are making better choices about their care.” Consumerism can also be applied to prescription drug coverage, which accounts for a substantial piece of health care costs – 20 percent and rising. But executives have been hesitant to give health care consumers big incentives to buy cheaper drugs. The PricewaterhouseCoopers survey reports that 71 percent of employers have raised co pays for brand-name drugs, and nearly as many – 69 percent – have increased co pays on generic drugs as well, bypassing the chance to motivate employees to choose a less-expensive treatment that’s usually just as effective.
State Governments May Step In with a Carrot – Or a Stick
If government is going to find a way to take a bite out of mushrooming health care costs, the first nibbles may come at the state level. In December 2004, the state of Minnesota announced a voluntary reform plan: The centerpiece is a purchasing alliance of 3.5 million health care consumers whose market power, it is hoped, will drive quality up and costs down. Additionally, if private employers don’t act to control costs while maintaining or improving quality, the government may force them to.
In November, California voters narrowly defeated Proposition 72, a ballot initiative that would have forced employers with 50 or more workers to pay 80 percent of the health premiums for all full-time and many part-time workers. With even the most forward-thinking employers nowhere near bringing their health care cost increases in line with other major expenses, like wages, it’s likely that similar proposals will continue to surface on ballots and in state legislatures.
About the Author
About Veritude
John Rossheim is a journalist in Providence, Rhode Island who writes for the Workforce Insights section of www.veritude.com. He writes about workplace issues, employment trends and changing relationships between employers and workers.
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