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The Health Care Burden

Taming Health Care Costs Companies must rethink their policies.

The message is beginning to sink in: To tame rising health care costs, the model of how corporations manage the issue is going to have to change. More companies are going to self-insure and screen the health of new hires. More companies are going to shift the burden to health savings accounts and other instruments, where individuals bear the major responsibility. Some are cutting back on the percentage of benefits they pay from 80 percent to 60 percent. And other companies are going to restructure by, for example, turning fleets of drivers into independent contractors. The notion that a structural shift in health care is at hand dominated a roundtable sponsored by Concentra, a provider of cost containment and care management services. “Private health insurance and disability, which includes workers’ compensation, costs U.S. businesses more than $1 trillion a year,” said Concentra CEO Dan Thomas. He estimated that $800 billion to $900 billion is spent on employee health, $100 billion on workers’ comp, and another $100 billion on disability pay.

After experiencing double-digit rates of increase in the prices of these programs, employers have reduced the cost hikes to the high single digits per year, said Thomas. But that’s still not good enough. “Our cost control efforts thus far are not turning the tide fast enough,” he said.

John Faraci, CEO of International Paper, said his $25 billion a year company is spending between $400 million and $500 million a year on health care costs, including workers’ comp. So his company is moving away from plans that offer first-dollar coverage, in which employees contribute nothing to the cost of treatment, toward plans that are more consumer-driven and serve as safety nets in case of severe injuries or illness. “What we’re doing is trying to design health care plans that people can afford,” said Faraci. “What they end up being is a safety net for catastrophic injuries, or illness, and we have a pretax retiree medical plan that we contribute to.”

It was a “big move” for IP to move toward health savings accounts. “It took a while to get the employees to understand this and buy into it,” recalled Faraci. “We basically said, If you’re making $50,000 a year, and another person makes $100,000 a year, the person who’s making $100,000 is going to pay more for their health care for the same plan.” That actually improved health care plans for lower paid employees, who make up the bulk of the work force. Overall, health care costs are now rising at 8 percent a year, down from a high of 16 percent.

Schneider National, the Wisconsin-based trucking company, also has gone the route of self-insuring, said CEO Christopher Lofgren. He said his company takes a “pretty hard stand” with health care providers that charge too much. “While we don’t preclude people from going there, as opposed to covering 80 percent, we’ll cover 60 percent,” he explained. “That’s really caused our associates to step back and take ownership.”

Schneider also has instituted a plan under which it tells employees, “we’ll pay the first $1,500 a year for a family, and then they’ve got to cover the next $1,500.” That is having an effect. “It’s amazing when all of a sudden people feel like they’re spending their own money,” Lofgren added. Smokers, he added, pay more for their insurance than nonsmokers.

Many CEOs seem to be waking up to the fact that they need to be more directly involved in the issue. “We all tend to put Band-Aids on a very, very major problem,” admonished Farooq Kathwari, chairman and CEO of Ethan Allen Interiors. “I don’t think we are comprehending the impact that this is having on the competitiveness of the United States.” Added Bill Brody, president of Johns Hopkins University, “It’s the one crisis that nobody wants to talk about.”

Part of the problem has been that the different health-related functions within companies have been fragmented, and managed from a relatively low level. Typically, workers’ comp and disability fall under the umbrella of risk management specialists, but employee health and health benefits report to a senior vice president for human resources. That makes it hard to evaluate data and suppliers.

But Concentra is starting to see more companies look at these multiple sectors as part of the same challenge, said Thomas. “And we’re seeing some companies have someone that’s overall responsible, whether it’s a chief health officer or the head of HR,” he added. Companies are trying to identify who are the best providers, what are the best practices, and how do we manage this health issue better?”

Of course, CEOs have to be careful that they don’t go too far in driving down costs.  Everybody is saying, It’s all about costs. It’s all about costs.’ Well, it ain’t all about costs. It’s also about quality,” remarked Johns Hopkins’ Brody.

Brody urged CEOs to support initiatives to automate more health care data. “Most health care is not purchased on any data-driven basis,” he said. “And the kind of data that we have is discharge’ data, which is fragmented and very limited at best.”

More data might set the stage for a more uniform billing system, such as what exists in fulfilling prescriptions from doctors. Pharmacists can access a system telling them who a patient’s insurance carrier is and what the patient’s co-payment is. “But if you go to a hospital or your internist, there are 150 or 200 payers that they’re likely to have to deal with, and each one has different rules,” Brody explained.

“So if CEOs could get together and demand that we have a uniform billing system, that would have two important effects,” he added. “It would drive some costs out of the system, and you would begin to be able to collect standardized data across all payers.”

In the final analysis, just fixing the administrative side of the health care system won’t be enough, warned David Tilford, CEO of Minneapolis-based insurer Medica. He estimated that only 10 cents out of every dollar goes to the administration of insurance and similar tasks. The other 90 cents is on actual delivery of medical services. That’s where he sees the real gain. “We have data-we can see what’s going on,” said Tilford. “In our diabetic population, for example, huge numbers of them do not have their blood sugar regularly checked. A huge number of individuals with cardiovascular conditions don’t have their blood pressure monitored regularly. We’re trying to take a more holistic view of health and trying to find better ways to get optimal outcomes that will lower costs.”

The search for answers obviously continues. But it’s clear that incremental strategies won’t solve the health care problem.


About William J. Holstein

William J. Holstein
William J. Holstein is a journalist, consultant and speaker. He is the author of, "The Next American Economy: Blueprint For A Sustainable Recovery." For more of his work, visit www.williamjholstein.com.