Cutting Employer Healthcare Costs

Over the past 20+ years larger companies have tried many tactics to control the growth of their healthcare spending, including HMOs, consumer-directed healthcare, wellness programs, value-based insurance design, selective contracting for high-cost procedures, personal health assessments, etc.  While some of those efforts temporarily reduced employers’ healthcare spending, they did not change the long-term trends, in part because they only targeted employees and did not focus on high or very high cost individuals – many of whom are not active workers. [A recent Health Affairs article analyzing conditions associated with employee healthcare spending reflects this “searching under the streetlamp” phenomenon.]

Company Health Benefit Costs Do Not Equal Employees’ Healthcare Spending

The cost of providing health benefits for most larger companies includes not only the health benefits for employees, but also costs for retirees, and spouses and dependents of active workers. In addition, these “other” groups represent a disproportionate amount of health benefits costs because they are generally older and/or in poorer health. The importance of this factor is depicted in the chart below that illustrates how healthcare spending is not uniform across a group of people, e.g., all the individuals covered by a company’s health plan, or Medicare beneficiaries. While the actual spending per person changes significantly depending on the specific group, the general shape of the curve remains the same with about 5-10% of the people accounting for 20-40% of all the spending. For companies’ health benefit programs – as mentioned above – retirees, spouses and dependents make up a disproportionate share of individuals in the yellow and red zones.


[Y-Axis = Percentage of spending;  X-Axis = Percentage of people in the group]

In addition, these high cost individuals are also the people who have the most complicated (and usually chronic) healthcare problems, and thus whose healthcare quality and health status can be improved the most.

Challenges in Targeting High Cost Individuals

Companies have typically focused health improvement and wellness initiatives on active workers because they were the individuals the company had the greatest direct interaction with, i.e., they were the people seen in the workplace. This situation reflects the analogy about potential analytical biases where a person will search for dropped keys under the streetlight because that is the only visible area, i.e. information about what is outside the arc of the streetlight is unavailable.*

[Source: “Fixing the US Healthcare System,” 2008 – Unpublished]

While some employers are starting to focus initiatives on high and very high cost individuals, they face several challenges in creating and implementing these programs.  For example, since these individuals are more likely to be spouses, dependents or retirees under the age of 65, it can be more difficult for companies to reach them.  Other challenges that companies’ health benefits programs face in interacting more closely with these people are:

  • HIPAA privacy concerns.
  • For retirees under the age of 65, expecting that they will soon by on Medicare, and thus the company may not see any economic benefits.
  • Lack of potential benefits to the company by improving health and productivity for people who are not active workers. (However, improving the health of high cost dependents and spouses of active workers can reduce the employees’ absenteeism by decreasing the time they spend providing caregiving and care-assisting help to their family members.)

How to Improve Health Delivery and Control Spending for High Cost Individuals

Controlling healthcare spending for high cost people is not easy, nor is it inexpensive. Actions to control spending for these individuals generally involves making care more efficient and reducing errors and complications – which also improves the individual’s health status, i.e. it is a Win-Win situation with improved clinical and economic outcomes.

Specific actions to control spending for high cost individuals includes initiatives such as:

  • Case management e.g., nurse case management and/or tele-medicine
  • Team based care e.g., patient-centered medical homes
  • Integrated care e.g., quality monitoring and fiscal incentives for quality and economic performance

The common theme among these actions is that they are all designed to ensure that nothing falls through the cracks leading to very expensive cascades of poor clinical outcomes and complications. An additional benefit is that these initiatives can also help direct care for people with costly chronic conditions towards the places/locations/providers that are more efficient and higher quality – and often less costly. (Some companies are doing this for elective surgeries, and incentivizing individuals to use specified providers by offering reduced or zero cost sharing, as well as paying their travel costs.)

Does Better Care for High Cost Individuals Pay Dividends?

Financial calculations can quantify the direct value of these efforts. For example if high and very high cost individuals are costing the company more than $10,000 or $25,000 per year, an investment of $1,000, (such as for intensive case management), that reduces spending by 10% provides at least a break-even ROI.  Spending reductions of this magnitude are very achievable for people with complicated diabetes or congestive heart failure. And some healthcare innovations have been shown to reduce spending by 20-30% for people with those conditions. However, not all “case management” or “disease management” programs are the same. As a general rule, “you get what you pay for,” i.e., programs that are less expensive and/or not integrated into the patient’s healthcare team-flow, tend to not benefit individuals with serious chronic illnesses – or deliver a positive ROI. (This was evident in the Medicare Case Management Demo I referenced in a 2009 article on this blog.)

Of course, not all people who fall into the high cost category can have their spending easily controlled through better case management or integrated team-based care. Thus, companies will not see a positive ROI through better healthcare management for all high cost individuals. Some diseases and conditions are just unexpected, inherently expensive, or have long lag times before positive benefits are seen. For example, cancer rates (and spending) can be reduced through exercise, nutrient and smoking cessation – as well as early detection – but the timeframe for those improvements can be long.

Accidents outside the workplace are also frequently cited as high cost medical cases that cannot be prevented. However, alcohol (or abuse of other substances) and/or mental health conditions are often contributing factors for accidents – factors which can be addressed through the healthcare system.  Unfortunately, because of the fuzziness of the ROI calculations, privacy issues, or other concerns, these areas have not generally been a focus for employers.  In addition, in some professions, these medical problems can lead to loss of employment or advancement opportunities, making them especially difficult to address as part of a person’s comprehensive medical care.

Identifying High Cost Cases

Before value-producing interventions can help high cost individuals, these people need to be identified so that they can be engaged to participate in these programs. Fortunately, there are increasingly sophisticated and efficient ways to identify high cost people:

  • Claims analysis conducted by the employer’s insurance company.  (Having the insurance company analyze the claims data creates an important information firewall to address HIPAA privacy concerns. Because of privacy issues, an insurance company – or managed care company – is also in a better position to directly contact and engage individuals for participation in any programs.)
  • EMR database analysis by individual health systems or large provider groups.
  • Asking physicians to identify their medically fragile and high utilizing patients, and then engaging/enrolling them in the appropriate care management programs.  (However, this approach works best for community-wide initiatives rather than individual employer populations since it could be inefficient and unusual for physicians to separately analyze or engage their patients by employer.)

Preventing High Cost Situations

A related set of challenges is identifying people who are not yet high cost individuals, but are sliding toward that end of the scale, (e.g., pre-diabetes, unrecognized diabetes, high blood pressure, smokers, etc.), and preventing them from becoming high cost cases. Some individuals may be easy to identify, (particularly with a high quality EMR system that can do practice-wide analyses), but changing an individual’s potential healthcare trajectory is hard. Changing community norms and expectations for smoking, exercise, and nutrition can be effective foundational actions – and are good initiatives for reaching non-workers such as retirees and spouses.  However, changing personal behaviors on a shorter time frame generally requires one-on-one engagement and encouragement.  This can start with the person’s medical care team, with a non-physician clinician, (such as a diabetic educator, nurse specialist, or health coach), who can provide on-going support as well as referrals to services and resources in the community through organizations such as the YMCA.

Conclusions

Controlling the long term growth of the cost of employers’ health benefits programs, (i.e., bending the “cost curve”), requires focusing on individuals who are costing the most, as well as preventing individuals who are smoldering with early-stage or unrecognized conditions from exploding into expensive complex chronic disease situations.  For self-insured companies, investing in disease and case management programs, tools, and services requires resources, spine, and compassion, but the financial and human-value returns (including company loyalty and appreciation) can be significant. Few smaller companies can marshal the time and resources for these programs, but as technology improves and health insurance markets become more efficient, these services should become more readily available through purchased insurance products – including those offered through the ACA created state-based insurance exchanges.  This should happen with the next 2-5 years since, “it’s where the money is.”

 

* The parable about looking for lost keys on a street at night illustrates the pitfalls of operating with limited information while trying to solve a problem.  The tendency is to look under the streetlights because that is the only place where you can easily see, i.e., this is where there is easy access to the “data” about what is on the ground to see if the keys are there or not. However, it is also possible that the keys are outside of the corona of the streetlights.  But looking outside those circles takes both imagination to realize that the street exists outside the circles of light, having access to data about what lies outside the circle of light, (possibly with “technology” such as a flashlight), and making the effort to seek and understand this “new” data. [Source: “Fixing the US Healthcare System,” 2008 – Unpublished]

One thought on “Cutting Employer Healthcare Costs

  1. this is a great read. Its a good thing you made this article available even though the initial work is unpublished.
    ozz

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