I did have a chance to read his book before coming to the conference and look forward to see what he has to say about health care reform. For Shultz the story of reforming health care and social security begins with the stability and growth of the US economy. In order to respond effectively to the coming cost catastrophe the economic pie has to growth. Any reforms have to be designed to pass Shultz’s “pie test.” Simply put, proposals that weaken the the GDP fail the test. So making use of the competitive market to discipline costs, raising labor force participation, recognizing labor mobility, growing personal savings, forcing government to confront the cost of over-promised entitlements, increasing taxes only as a last resort — these are some of the dynamics that should be examined when looking at the impact of healthcare reform measures.
Thus the “Shultz-Shoven health care initiative” includes, but is not limited to, the following:
Encouraging national rather than state health insurance markets
Making health insurance benefits portable
Enhancing consumer access to healthcare price and quality information
Risk-adjusted vouchers for Medicare and Medicaid
Offer Medicare and Medicaid beneficiaries choice of private health plans
Fund government programs dedicated taxes rather than general fund to promote cost effectiveness
Replace Medicaid’s eligibility “notch” with phased reduction in the value of vouchers as income increases
Shultz’s ideas are not new but they do enjoy an economic logic that cannot be denied or ignored.
He sums up his proposals in the following way:
. . . we seek to modernize and significantly reform Medicare and Medicaid, improve employer-sponsored health plans, and ensure that those who do not have access to such plans will still be able to obtain affordable major health insurance. We advocate that all Americans have access to strengthened Health Savings Accounts and a more competitive health insurance environment.
The question will be whether in today’s healthcare debate these conservative, market-oriented ideas will seem somewhat tepid in the face of corporate conspiracies and single payer fantasies.
Everyone knows this is coming, the question is how fast? From the article, we see that now only 60% of firms offer health coverage (down from 69% in 2000). We also see that the average health premium for a family has doubled in 7 years. As more and more Fortune 500 companies unload and/or outsource their employees’ and retirees’ health care, more and more laypeople will be faced with a myriad of complex insurance decisions. Look for a new wave of companies to serve this segment (Steve Case is already after ‘em with Extend Health). Much of this trend is packaged as “consumer-driven healthcare” - i.e. consumers are given a set amount and are the ultimate decision-makers for how to spend it.
So how fast is this coming?
Interestingly enough, even the universal-coverage-minded Democrats aren’t proposing we get away from an employer-based model just yet. Even with Hillarycare 2.0 (which has received some positive reviews), Hillary was quoted with the following:
While we’re on the topic, here are a few more opinions from previous posts:
- Ron Wyden (D-OR) believes the time is now to end employer-based healthcare.
- Dr. Richard Fogoros, author of Fixing American Healthcare, believes rationing is the solution (read this post from David Williams)
And check out this great article in the Economist that succinctly compares the Democrats’ health care plan proposals.
My guess is that the 80-20 rule applies to this - we’ll need around 80% of the population to be on individual plans before policies start to follow suit. And given the trends, this is still 10-15 years out.
The “buzz” among employers today is increasingly focused on making employee benefit decisions based on value, ideally on the returns employers get on their benefits investments. This is by no means a universal approach, however, since it requires first that employers think of the benefits they offer and pay for as investments rather than costs. Employers that deem such benefits as costs tend to look only for ways to reduce them, and there are plenty of simple ways to do that, without worrying about value.
A growing number of employers have dropped or reduced healthcare benefits, for example, since these are usually the most expensive ones. Shifting more of the costs to employees through share of premiums, high-deductibles, increased co-payments, are all equally simple. But increasing employees’ healthcare burden has its drawbacks in terms of their health, and thereby on their productivity and performance on the job, to say nothing of recruitment and retention.
A recent study by the Integrated Benefits Institute examined the impact of increasing prescription drug co-pays for workers with rheumatoid arthritis (RA). These are particularly expensive for both employers and employees, costing as much as $18,000 per employee with this condition per year. Based on analysis of the compliance of the RA employees, together with their productivity, high co-pays were a common reason for not taking the drugs, and led to $17.2 million in lost productivity, 26% more than what would have been lost if workers had been taking their drugs. [M. Freudenheim “Scant Drug Benefits Called Costly to Employers” New York Times June 27, 2007 (www.nytimes.com)]
This non-compliance result occurred even though co-payments averaged only $26 per month, indicating just how low the out-of-pocket cost to employees can be and still have significant negative impact on compliance. And the negative impact on employers only included disability claims and days lost from work as added costs. Employers that intend to make value-based benefit decisions need to know the total value impact of such decisions, and they rarely do.
For example, the impact of employee “unhealth”, when carefully and fully analyzed, can include a wide range of negative impact on labor costs, as well as “opportunity costs” reflecting lost opportunities to increase revenue. Studies have demonstrated a wide range of value gained from improving or maintaining employee health:
• Reduced health care/insurance expenditures or at least reduced rate of increase in annual costs
• Reduced workers compensation and disability payment/insurance costs
• Reduced absences/lost workdays
• Reduced productivity impairment at work (“presenteeism”)
• Reduced turnover and replacement costs
• Reduced error rates and quality problems
• Improved customer satisfaction and loyalty
• Additions to new business revenue
But despite these wide-ranging positive economic effects, virtually all results reported by employers that have invested in employee health management (EHM) have addressed only one or a few such effects. A recent study involving 242 large employers, for example, found that only 38% had even attempted to measure their ROI from EHM investments, and that minority looked only at reduced healthcare costs. [K. Capps & J. Harkey “Employee Health & Productivity Management Programs: The Use of Incentives” IncentOne.com 2007]
The “wellness industry” is burgeoning, despite the lack of total economic impact evidence, as American businesses are willing to do almost anything to reduce their healthcare expenditures and improve worker productivity. This growth is “…fueled by well-meaning, cost-conscious executives…” who believe that wellness investments pay off, and evidence that shows how much employee unhealth is costing them. Employers reportedly expect to save as much as $30 million in five years in return for their investments. [A. Heher “Businesses Help Workers Get in Shape” WashingtonPost.com June 29, 2007]
But without rigorous and wide-ranging measurement of results, employers’ faith, hope, and confidence in gaining a large positive ROI may be misplaced, and not even be tested against reality. Reports of the high costs of unhealth often greatly exaggerate the total impact thereof by listing the costs linked to a host of individual risk behaviors, conditions, or chronic diseases. But if they estimate their total costs, in whatever cost categories they examine, by totaling the costs of individual conditions, they will almost always be counting the same costs many times, and vastly exaggerating reality.
One report I reviewed included productivity impairment from five risk conditions, five chronic diseases, and four risk behaviors, with total impairment amounting to over 16% on average for every employee in the workforce. Unfortunately, the total prevalence of the fourteen impairment factors amounted to over 250%, meaning that the total impairment was exaggerated by two-and-a-half times the actual level that could possibly be reduced.
This is an unfortunate consequence of measuring the impact of individual factors then totaling all of them to estimate total effects. Since individual employees tend to have multiple factors, roughly 2.5 on average in this example, the total effect of all will be 2.5 times the actual level of impairment. Moreover, the total level of impairment is not the same as the total potential gain – only if impairment factors are prevented in the first place will the impairment effect be avoided entirely. Many factors have residual effects even when controlled, so total gains will be less than total impairment.
On the other hand, total gains may be greater than impairment, thanks to what is called “positive presenteeism”. Instead of merely reducing impairment or lower than “normal” productivity and performance, EHM investments can stimulate workers’ morale and commitment, and result in productivity levels that are above normal. One EHM provider, for example, used a figure of over 6% impairment as the normal level, and counted only impairment above that level as potential gains. But if EHM produces positive impact on employee energy and motivation levels, it can eat into that normal level, and even promote performance that it more than “100%”.
There have been dramatic achievements in improved productivity from non-health-related employer investments, for example. One gained a 44% increase in output be simply switching to a pay-for-performance system instead of hourly wages. Another gained a 36% improvement by empowering employees to work whenever and wherever they wished. Such increases were probably far greater than any “impairment” level that would have been measured.
It is by no means easy, nor inexpensive to measure the effects of EHM investments on all the performance dimensions and determinants that are likely to be affected thereby. But without measurement, management efforts will be severely handicapped. Unless employers measure not only the extent of current costs, impairment, lost opportunities related to the wide range of factors that can have such effects, they cannot possibly make an informed selection of which ones to work on.
Chronic diseases, for example, tend to be the major culprits when employers examine healthcare/insurance costs. But they are rarely the major factors in productivity impairment, and the potential savings in managing chronic conditions are probably not nearly as great as would be possible if they were prevented in the first place. In one of the best and most thorough studies of productivity impact, for example, the unhealth conditions that produced the greatest productivity losses were allergies, emotional problems, chronic pain and arthritis, not the diseases that are usually addressed in disease management.
In another study, impairment factors included lack of sleep, poor nutrition, inadequate fitness, depressed feelings, hypertension and high cholesterol, rather than chronic diseases. Still others have found “hydration” of employees, i.e. drinking enough water or other liquids, was a major impairment factor, and one easily remedied with immediate results. Employers in the U.K. have found reduced turnover and absences, even increased new business and customer loyalty results from EHM investments, where U.S. employers rarely measure such impacts.
While it is heartening that American employers have jumped on the EHM bandwagon, enthusiasm is no substitute for careful evaluation of both the problems and the results that should be addressed and achieved. It may be that employers who have been successful in measuring results are hesitant to describe how they measured them, lest they share a competitive advantage. But given the fact that employees tend to switch jobs fairly frequently, there might be great common good if they shared their measurement techniques, as well as publishing their results, so that the art and science of EHM could be continuously improved for the good of all.
The Wall Street Journal reports (New Tack on Copays: Cutting Them) that employers and insurers are cutting some drug co-pays to a few dollars or even zero. The emphasis is on getting patients with chronic conditions to adhere to drug regimens that promote good health and reduce other medical expenses. The programs typically target asthma, heart failure and diabetes –illnesses where the employer or health plan can realize a return on their investment within the short time a typical employee or member is with them.
The new initiatives are notable for going beyond low co-pays for generics to include low co-pays for branded products that are cost effective.
Behind the about-face is mounting evidence that higher copayments may not make long-term economic sense. While they’ve curbed drug spending in the short run, studies show they’ve also discouraged some people from taking essential medicines. A 2004 Rand Corp. study of more than 80 corporate and commercial health plans, for instance, showed that chronically ill people used to taking regular drugs cut their medications by between 8% and 23% when their copays were doubled.
But why stop at $0 copays? Employers are already shelling out thousands of dollars for employees’ health benefits, so why shouldn’t they pay their employees specifically for adherence? In addition to zero dollar co-pays, why not pay employees cash bonuses –or top up their HRAs or HSAs (assuming they can find a way to do so legally)– for staying on worthwhile drugs over extended periods of time?
And there is an opportunity to align the interests of employers, patients and pharmaceutical companies by allowing the pharmaceutical companies to fund these bonuses and contribute ideas and programs that enable adherence. In the absence of new drugs or pricing power the main growth opportunity for the pharmaceutical industry is increasing adherence.
As long as the programs are directed toward reducing overall medical costs then I’m not concerned about abusive promotional practices. And this is where employers can play a big role. Time and again it’s been demonstrated that pharmaceutical benefit managers and physicians are unduly influenced by financial incentives to push particular drugs. (Look no further than today’s lead story in the New York Times (Doctors Reap Millions for Anemia Drugs) to see what I mean.) Let’s see if employers can do a better job of looking out for their employees’ best interests. I think they might be up to the task.
An intriguing aspect of such a plan would be the chance for branded pharmaceutical companies to compete against generics. If the branded company can do a better job of promoting adherence, an employer might find it better to pay the extra cost of the branded product.
I missed the session with Steven Burd that Matthew Holt blogged on (Steven Burd, CEO Safeway…) but luckily Burd came down and repeated his speech at the Employer CEO/CFO track. Burd’s talk was the highlight of my morning. Burd believes that the health care crisis is a “very solvable problem.” Not only that, he believes that his company, Safeway has largely solved the problem. He presented a slide he drew up last year showing the potential to reduce health care costs by 24%; a year into Safeway’s initiative he now thinks the potential is even greater, maybe 35-40%. He went so far as to imply that we could get the country back to spending 7% of GDP on health care rather than 16% going to 20%.
Burd was very clear and direct on the problems and solutions, identifying root causes and linking the challenges of cost and coverage into what he referred to as simultaneous equations that could be solved. He believes in taking an active role: not just offering programs but providing incentives for their use.
Safeway expected cost savings after two or three years and was thrilled to see substantial cost reductions for the company and employees in the very first year (2006). Per employee costs declined 15% overall; the company’s bill went down 8% and costs by employees dropped 25-34%. Burd said costs would be flat in 2007 for reasons he didn’t completely explain.
I’m excited to hear what Safeway’s accomplished and I am hopeful that Burd’s bullishness will be borne out over the long term. I’m happy to hear about the Coalition for Healthcare Reform, which Burd says is signing up new members every week. This is the kind of employee-led effort could bear fruit.
Although it’s great news that costs dropped in year 1, it’s far too early to declare victory. Costs have a way of popping back up in health care in unexpected places.
I would like Burd to have said more about pharmacy benefit design. I asked him his views on that and he said transparency and incentives would do the trick.
I’d be interested to learn more about Burd’s view on the role of pharmacists in enabling consumerism, especially considering Safeway’s position as a leading pharmacy chain. (His views on mandatory mail order would also be interested.) Finally, I’d like to hear what Burd has to say about in-store clinics.
Matthew Holt interviews Jonathan Cohn, a senior editor with The New Republic whose book - "Sick: The Untold Story of America’s Health Care Crisis — and the People Who Pay the Price” - was recently published.
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