What is being done to control the costs of healthcare?
As every high-level executive is acutely aware, health insurance costs have escalated so quickly that they have for some time been the second most costly employee expense, directly behind payroll. Companies that provide health benefits to their employees must be diligent in controlling both the immediate costs and the emerging trends that can bury a plan quickly. Any HR manager can tell you that regulations and mandates are adding soft costs at an alarming rate.
Master of the obvious, I know.
So what is happening to control these costs? It’s pretty simple, right? The media tells us nightly. Companies are passing along increases in premiums to their employees. Deductibles and copays are going up every year. Wellness programs, which are designed to save future healthcare dollars, are being scrapped altogether. Certain benefits are being eliminated, and most drastically, healthcare plans are being entirely eliminated.
The average cost for health insurance for a family in the United States in 2011 was $15,073, according to the Kaiser Family Foundation, of which the family pays one third. This represents a doubling of costs in just 10 years. The U.S. Census Bureau reports that the median household American income is $49,445; with some quick math, that means American families are spending 10 percent of their income on health insurance—and this doesn’t count the deductibles and copays they incur if they get sick.
Moreover, the average deductible in 2010 was $675, and more than $1,200 per person for companies with less than 200 employees. Anyone who can remember the Reagan Administration can remember $50 and $100 deductibles.
With regard to wellness programs, arguably the most important investment a company can make in the company itself—not to mention the employee—these programs are being defunded and regarded as a cost sink.
A Case Study
I like to share a story with my clients that demonstrates the need for wellness programs. I was implementing a new plan with a fully-insured carrier for a new client (at the time) that had a mandatory gatekeeper primary care physician component. In other words, the employee had to get a referral from his primary care physician in order to visit a specialist.
On the way in to meet with the employees, I exchanged pleasantries with a gentleman who was outside smoking. Simple observation pinned this employee at about 50 years old and at least 280 pounds. Given his physical shape, you could guess with a high degree of certainty that he was suffering from some combination of type II diabetes, uncontrolled blood lipids, coronary artery disease or lung disease.
After the meeting, he approached me and proudly proclaimed that he was as healthy as the day he was born, and hadn’t needed to see a doctor in 15 years. I politely told him that he needed to pick a network physician. The rest of the story, told to me later by the plan administrator, goes like this. The gentleman called a doctor on his list and asked if he/she was accepting new patients. The nurse told him yes, but that he needed to come into the office and meet the doctor in order to establish a relationship. Upon arrival, he was diagnosed with “stroke-level” high blood pressure and taken by ambulance to the emergency room.
Had that plan provided for free wellness and the nurse not insisted he be seen, the company could have been hit with a stroke claim and all the costs associated with rehabilitation—or even worse, a death claim. That one $80 office visit saved the client hundreds of thousands of dollars.
Fortunately, that employee did not have a stroke, and he is back to work today. He is 70 pounds lighter, no longer smokes, and has undergone a radical transformation in attitude with regard to physical fitness and routine medical care.
But the unfortunate trend is that companies are cutting off their nose to spite their face. Those higher premiums, deductibles and cost sharing, along with eliminating (or not embracing) wellness is giving them nothing but dissatisfied and disengaged employees.
Return on Investment
Altruistic reasons aside, the textbooks tell us that the primary reason companies provide benefits is to attract and retain employees. However, I believe it is very important to add the word “productive” into that sentence. There is a major difference in productivity between a happy employee and an unhappy one.
Tying this altogether, if American companies continue to gut their health insurance plans and eliminate benefits and programs, they are jeopardizing the long-term sustainability of their plans, and if we truly consider it, spending tens or hundreds of thousands of dollars for no reason whatsoever.
If a company is going to spend, on average, $5,300 per employee and $11,000 per family in annual premium, shouldn’t it get the biggest bang for its buck? And with regard to wellness, if they have to spend another three to five percent in order to make that initial investment worthwhile, isn’t that the best possible return on investment?
Remember, no matter how much you spend on healthcare, if it doesn’t engage the employee and provide a high degree of satisfaction, the younger and healthier employees will seek and acquire coverage elsewhere and leave the company with more risk and higher claims per capita.
Is that really how to properly sustain a plan? iBi