Rethinking our Approach to Containing Health Care Costs
By Michael Thompson, Principal
PriceWaterhouseCoopers
We have all contributed to a health care system that many now believe is unsustainable. We can and need to build a different system, one that builds on our successes and failures. Leadership is critical: it is not simply a health care or human resource issue, it is a leadership issue.
Top executives must be involved in making the containment of health care costs a core business priority, then seeing to it that plans are created and implemented. If we are successful, the end result will be beneficial to employers and employees alike, as well as the health and well-being of our society.
Health care costs continue to outpace inflation. They significantly impact corporate profitability, including hurting our global competitiveness. In 2007, according to a study by the Kaiser Family Foundation, employer sponsored health coverage costs rose an average of 6.1 percent compared to an overall inflation rate of 2.6 percent—and this is after implementing benefit changes generally designed to mitigate ever-rising costs.
EXAMINING THE PAST—BUILDING TOWARD THE FUTURE
The recent past has seen a number of waves in our efforts to contain health care costs. The first was the introduction of managed care in which health plans attempted to channel patients to preferred
Providers, negotiated favorable costs with providers, and influenced—and in some instances micromanaged—providers in an effort to limit over-utilization and reduce variation in care.
While having an impact for a number of years, we ultimately hit a wall. Efforts to reinvigorate managed care by providing broader access and implementing pay-for performance have been slow to impact trends due to the relatively low impact of any single payer or employer on the system itself.
PASSING ON COSTS TO EMPLOYEES?
The next wave was cost-shifting, passing an increasing portion of costs on to employees by
imposing larger deductibles and setting increased copayments while continuing to ask for employees’ fair share of the premium.
While cost-shifting continues as a simple solution to mitigate the impact of health care costs on business, it does little to address the fundamental problem of inexorably rising costs. Furthermore, we have become increasingly aware of potentially negative trade-offs if employees skip needed preventive care, perceiving it as too costly, and as a result need more expensive care later.
While increased cost sharing impacts utilization of services, employees have a hard time discerning the difference between necessary and unnecessary care, and this can have unintended
consequences (e.g. lack of adherence to drug regimens).
CONTROLLING COSTS WITH CONSUMER-DIRECTED HEALTH CARE
A third wave of cost-containment measures is consumer-directed health care, which attempts to take the employer and health plan out of the middle and puts employees in charge of managing their own health care dollars. The underlying premise is that knowledgeable consumers aware of their choices will make value-based decisions when it comes to procedures, providers, and treatments.
This generally comes in the form of a high-deductible health plan and a health savings account or health reimbursement plan together with information, tools and support to guide those decisions. While some early results have been promising, the uptake has not been as rapid as expected and the promise
of health care transformation around the consumer has, at a minimum, been overstated.
The holy grail of containing health care costs will build on both the successes and failures of the past—the truth is in the middle, and the solutions will be multi-faceted and interconnected. Key principles will apply.
SIMPLIFY THE SYSTEM
Health plans will need to play a role in overseeing and negotiating with the provider networks, while realigning compensation to be better aligned with overall performance. However, the measurement of provider performance will increasingly be a public health issue, representing a synthesis of community-wide data based on metrics that are defined industry-wide.
Investment in infrastructure will be critical in order to enable more electronic gathering and pooling of data and privacy, and data management will increasingly become considered a public good.
Furthermore, many providers are dealing with hundreds of payers with disparate rules and requirements and spending a significant part of their administrative costs trading phone calls with consumers, employers, and health plans to sort it all out. The system will not fix itself; there needs to be industry leadership to simplify it all, gradually removing the expenses due to poor quality.
SHIFT THE FOCUS TO HEALTH AND PREVENTION
The harsh reality is that health care costs are highly concentrated among a small segment of the population, and this segment is likely to grow. Those costs are necessarily borne by a third party since very few of us can afford the cost of treatment for major illnesses. Health and health behaviors are estimated to influence half of our expenditures.
As the U.S. population ages, as our food becomes more processed and our nutrition suffers, as lifestyles become more sedentary and the business environment more stressful, there’s been an exponential growth in chronic diseases such as diabetes, asthma and depression that account for the lion’s share of health care expenses.
Furthermore, studies have shown that the costs of poor health are even greater in lost productivity. As employers are increasingly recognizing the connection between lifestyle and costly ailments, many are attempting to combat the high costs of treating chronic disease by introducing both primary and secondary wellness programs.
GET THE INCENTIVES RIGHT
We need to encourage employees to make value-driven health care choices, and those choices are not likely to occur unless patients have a vested interest in being informed, as well as a financial interest in evaluating tradeoffs.
Cost-sharing is not cost shifting if it is done consciously to reward the behaviors we seek—both negatively and positively. Transparency of information on health plan and provider performance, as well as relative tradeoffs in treatment options, can support a more informed public.
And while infrastructure, tools and support will be required to present that information, incentives will be essential to motivate the public to seek out and act on it. The right incentives are not that straightforward—transparency can be counter-productive if cost disclosures cause employees to under-utilize needed care.
Furthermore, 84 percent of the executives surveyed by the PricewaterhouseCoopers’
Health Research Institute believe that the most promising option for keeping corporate health care costs manageable lies in providing financial incentives for employees to live healthier lifestyles. Successful programs tailor incentives to behavior that can be controlled.
MAKE IT EASIER TO DO THE RIGHT THING
No one would argue that making informed choices, particularly in conjunction with your
physician, isn’t a good thing. But the evidence suggests that most people don’t, and won’t. We need to leverage the lessons we have learned in other spheres to make it easier for people to make the “right” choices. The default choice should be the right choice; the high-value choice, the choice that leads to good health.
It is unrealistic to assume and expect all employees to make informed decisions based solely on developing support programs and providing incentives. Behavioral economists know that certain biases can and have been leveraged to improve outcomes.
Factors such as the order options are presented, the default if one does nothing, the recommended option, or the convenient choice, all impact employee decision-making. We need to make value-based choices and good health the easy choice, whether it is in the design of our programs, benefits or simply
our work environments. (Try eating healthy out of the vending machine—not the easy thing to do!)
LEAD THE CHANGE
In moving forward toward a sustainable health care system, we need to move away from a mindset that relies on short-term thinking and lagging indicators. Employers and payers should be looking beyond the short-term and develop a three-to-five year strategy.
Over time, the work environment must continuously improve in supporting a safe, secure, and healthy workplace. The health of our companies, economy, and society is linked to the health of our people. Achieving this result entails aligning health and health care efforts and the interests of stakeholders across the board, within and outside the company.
THE RESPONSIBILITY OF LEADERSHIP
Leadership is critical to achieve these changes. It is not simply a health care or human resource issue, it is a leadership issue. Top executives must be involved in making the containment of health care costs a core business priority, then seeing to it that plans are created and implemented. We need to
gather the necessary data to evaluate performance and establish metrics to evaluate our progress.
Finally, we need to embrace a culture of health and accountability. We have all contributed to a health care system that many now believe is unsustainable. We can and need to build a different system, one that builds on our successes and failures and is uniquely supported by the U.S. culture and infrastructure.
The principles outlined above are not new, but they are not prevalent in health care cost containment. If we are successful, the end result will be beneficial to employers and employees alike, as well as the health and well-being of our society.
Michael Thompson has more than 25 years of experience in health care and employee benefits, design, financing, pricing, operations, and analysis. He consults with major employers and health plans on integrated health, wellness and consumerism, defined contribution, retiree health, vendor performance management, human capital effectiveness, and health care supply chain management strategies. Contact him at m
