By Andie Burjek | Workforce
From wellness to high-deductible health plans to pharmacy spend, experts help dispel some of the myths surrounding health care costs.
Employers are doing everything they can to curb health care costs.
Sure, and if you believe that you may also believe in unicorns, the Loch Ness monster and Bigfoot roaming the Pacific Northwest.
Cutting health care costs is the elusive white whale for many businesses. Employers indeed may be putting forth a good faith effort to cut their health spend but oftentimes the results just aren’t there. It’s like the arcade game of whack-a-mole — try one new fad and miss, and another pops up followed by the same result.
In the meantime, health care costs have soared. In 1999, the average annual premium (both employer and employee contributions included) was $2,196 for an individual and $5,791 for a family, compared to $6,896 and $19,616, respectively, in 2018, according to the Kaiser Family Foundation 2018 “Employer Health Benefits Survey.”
Among the myriad solutions employers try, there are overriding myths about cutting costs that don’t save money, provide a nonexistent ROI or are just plain ineffective.
We’ve asked several leading health care experts to offer their thoughts on what we’ve determined are four prevailing myths to cutting employer health expenses. There are others, but this is a good start at peeking behind the wizard’s curtain.
MYTH 1: LOWER PRICES! SAVE MONEY!
A big misconception in cutting health care costs is that employer expenditures rely on addressing what costs the most, said Jaja Okigwe, president and CEO of First Choice Health, a Seattle-based national health provider network. In fact, sometimes cost control doesn’t rely on addressing employee benefits at all. There’s a link between health costs and environmental factors like how employees are treated and how they think about their job, he said.
“Those things carry over into the potential for more serious illness. And there aren’t very many companies who have an easy time at getting at that,” Okigwe said.
There are some companies that have acknowledged the direct relationship between environmental factors and health and done something about it. It’s a positive step when employers decide that “we’re going to do things that create an environment that allows our employees to be their healthiest and most productive, and that’s going to spill over into our health care cost,” Okigwe said.
Utilization of Health Care Services
Health Advocate’s Arthur “Abbie” Leibowitz, chief medical officer, founder and president emeritus at the national health advocacy, patient advocacy and assistance company, also believes that companies can’t control costs by controlling price. Rather, health care costs are driven by utilization.
This brings up a different problem for employers: Motivating employees to use the health care system effectively and efficiently.
One thing that employers can do is help employees connect with trusted medical professionals and offer a path for employees to foster a consistent patient-doctor relationship, Leibowitz said.
This does not necessarily mean that employers should encourage employees to see the doctor for a physical every year, he added. In fact, that can be a fallacy because there’s little reason for the average person to see a doctor annually. “The likelihood of discovering a problem you didn’t know about at a visit like that is so low that it makes it almost [impossible],” he said. Instead, employers can promote getting in touch with one’s doctor when the employee actually needs help.
Promoting the idea that it is good for patients to connect with a trusted physician is smart because many plan designs now don’t require a patient to choose a primary care physician, Leibowitz said. When HMOs were more popular, a patient initially needed to select a primary care doctor in order to access the health system, but fewer models require that now.
“So, in that regard, employers can encourage people to select a doctor even though their plan design may not require it,” he said.
“It’s the attitude — people call it a culture of health — that the employer creates within the work environment that is the best trigger to getting people plugged into a physician relationship that will come in to pay dividends if not immediately then down the road,” he added.
Okigwe offered suggestions to establish a culture of health other than promoting the doctor-patient relationship. For one, companies can have regular walking meetings, since research shows 30 to 40 minutes of walking a day changes one’s risk of heart disease over time.
“Yet sometimes employers don’t think that’s really their job,” he said. Rather, their focus is on the bottom line and employee productivity. But small investments in making the workplace healthier to work in can pay off.
Long-Term vs. Short-Term Costs
It’s hard for most employers to think long term with health care costs, Okigwe said. “I do think the vast majority are looking at the annual spend and trying to figure out how to reduce it in one year, and that’s just very difficult.”
But thinking long term is something that could help with heath care costs. Employers and employees alike may have to pay short-term expenses in order not to have the shock of major medical expenses in upcoming years. “In general, we tend to think of any spend as being bad,” Okigwe said, but that’s not an accurate way to view health care costs.
It’s almost as if employers believe employees want to spend money on health care, he said, while in some cases what causes costs to skyrocket is that they don’t want to. There needs to be some sort of balance on spending a little bit on the care and activities that deter crises from happening down the line.
Employee cost concerns aren’t necessarily founded in reality in some cases, according to Leslie Michelson, chairman and CEO of Private Health Management and author of “The Patient’s Playbook,” a book about how to become an effective health care consumer.
“People are always concerned that the best care is the most expensive care, and that’s just not true,” he said. “In the rest of our economy there’s a pretty tight coupling between cost and quality. In health care there isn’t.”
About 80 percent of the U.S. population lives within an hour drive of at least one large city where there is at least one major medical academic center. Virtually all of these centers are in-network for most carriers. Patients could access specialists on complex conditions here, and care at these facilities is likely to cost less than going to an out-of-network provider.
Michelson’s organization works with patients who have medical problems and identifies for these patients the most advanced doctors with promising and cost-effective interventions.
“If you want to address the cost bar, what you need to do is sweep in a supportive way to help people who are going to become expensive cases, identify the top experts for their care, educate them about the treatment options available, and provide a coordinated, integrated support system to channel them to the best doctors and to ensure they’re getting the care they need,” he said.
The key to control health care costs is addressing this small subset of patients with the most expensive cases, he said. Ten percent of patients represent 65 percent of health care costs, and 1 percent represent 25 percent, he said.
“If you aren’t doing something that meaningfully addresses that very small portion of the cases, you’re not going to have a significant impact on the costs,” he said.
Bad Incentives
One health care myth related to costs is that quality and prices aren’t improving because of cheaters in the system, according to Rob Andrews, CEO of the Health Transformation Alliance, a nonprofit group made up of 47 companies whose goal is to fundamentally transform the corporate health care benefits marketplace.
Of course, he said, there are some in the health care system who have committed wrongdoings, but they are rare.
“The problem isn’t that insurance companies are bad, or that drug manufacturers are bad, or that hospital systems are bad or that government regulations are bad. Some of all that is true. But the main problem is that incentives are bad,” Andrews said.
Over the past 60 years or so, he said, a system has been built where incentives aren’t aligned with what’s best for people’s health, giving the example of two hypothetical practices. If there are two radiology practices — one that does 1,000 images a week and produces wrong results 5 percent of the time, and the other that does 500 images a week and only gets incorrect results 1 percent of the time — the first practice would make more money under Medicare. That’s because Medicare rewards are based on the number of procedures done, not how well they’re doing.
Not to say that medical practices or insurers are incompetent, he said. This problem exists because the incentives aren’t aligned correctly in the health care system.
“What we aim to do in the HTA is align the $27 billion a year our members spend on health care with value.” Andrews said. “We want to identify and reward the producers who produce the best value.”
“We chase the shiny object — the price — but we need to be focused on the real issue of value,” he added.
MYTH 2: WELLNESS WORKS
Creating a successful wellness program isn’t as simple as offering one and watching the savings roll in, said Gary Kushner, president and CEO of benefits consultancy Kushner & Co.
Workplace wellness programs have gone through numerous iterations in the past several decades. While there have been health-related work programs dating back to the 1920s, it wasn’t until the 1980s and ’90s that wellness programs took off on a much larger scale. The first iteration of this more recent workplace wellness boom is what Kushner called “An Apple a Day” wellness. If an employee eats right and exercises, health care costs will drop. This was not successful, Kushner said.
The second iteration took the original idea a step further, with organizations subsidizing health club memberships and contracting with nutritionists to show employees how to prepare healthy meals. This also didn’t work to reduce costs because the types of employees taking advantage of these subsidies were the ones who already worked out regularly and had healthy lifestyles, Kushner said. The habits of employees who didn’t go to the gym remained the same.
The third iteration of wellness features employers who target their own workforce based on the health needs of that specific population. An employer with a large population of employees with type 2 diabetes may track things diabetics should be doing — like A1C testing and eye exams — through their health plan and encourage at-risk employees to get appropriate testing done.
This type of program, which is more altruistic in nature, has slightly better results. Still, “Every CFO I’ve talked to with these employers keeps coming back to wanting to see savings in the health plan. And they’re having trouble quantifying those. They’re not seeing the difference,” Kushner said.
Where Art Thou, ROI?
Investing in employee wellness is a good thing, but it’s not a short-term policy, said David Henka, president and CEO of ActiveRadar, a health care analytics and patient education company based in Gold River, California.
Although there’s value in wellness programs, he said, that value is not a financial return on investment. Wellness companies often cite huge ROIs for their programs. But academic research reveals that wellness programs do little to reduce health care costs.
A University of Illinois at Urbana-Champaign study published in June 2018 found that workplace wellness programs don’t change employee behavior much or save money on health care costs. Similarly, a University of Pittsburgh clinical trial whose results were published in JAMA in 2016 found that the use of monitoring devices and wearables — often a hallmark of corporate weight loss programs — may have no advantage over traditional weight loss strategies.
“As an employer, if you go into the wellness space thinking you’re going to get an ROI, then you’re going to be greatly disappointed,” Henka said. “But if you go into it by saying it’s the right thing to do for my employees because I want them to maintain healthier habits or lifestyles, then I think you’re tracking along the right frame of mind.”
The realistic value of wellness is more cultural, he said. Wellness companies claiming big returns are not accurate, but it is the right thing for employers to do. It lets employees know that the company values them, he said.
Many employers are not holding wellness providers accountable for the results of their programs, said Cheryl Larson, president and CEO of Midwest Business Group on Health. There are reliable wellness programs on the market, but unfortunately the average employer only pays attention to what the vendor tells them, Larson said.
Employers need to know the right questions to ask wellness vendors and the best way to research their options. Simply asking fellow employers about their programs is one way to conduct research.
Another way to improve vendor services is only agreeing to terms that suit both parties, Larson said.
“I would say if you ask [the vendor] for things, and they say, ‘We’re not going to do that’ — and you’re being fair, you’re doing industry standards, yet they still won’t do it — maybe that’s not the right vendor for you,” Larson said.
Henka suggested providing flu shots as a clear way to show ROI since the flu accounts for lost productivity and absenteeism in the workplace. As last year’s flu season showed, it can be deadly. According to the Centers for Disease Control and Prevention, 80,000 Americans died of the flu and its complications in the winter of 2017-18.
Wellness Done Right
First Choice Health’s Jaja Okigwe addressed potential issues with health screenings — a common component of wellness programs.
One staple of preventive care is annual health screenings and checkups. But the younger a person is, the less likely they are to need regular screenings, according to Okigwe. It’s not until they get older that they need annual screenings.
“It’s a big production to take off time from work and do your screenings,” he said, especially if a patient also has to do something additional like fast for a certain amount of time before the screening. “From a person’s [point of view], there’s a barrier to do it, and then in the end you get this set of information that you probably already knew.”
Companies such as Chicago-based Visibly and Tel Aviv-based 6over6 Vision allow people to get an eye exam using the camera in their phone. The process only takes about 15 minutes, and with results that are 95 to 98 percent as effective as the results they’d get at the optometrist’s office, it’s beneficial for employees who simply need a new prescription for glasses, Okigwe said. While a virtual test can’t diagnose glaucoma, it has a clear benefit for a specific need. A patient who doesn’t need a glaucoma test won’t need to take an hour out of their day to see an optometrist.
“I’m at the age where I wear two pairs of glasses. And sometimes when I’m in that in-between zone I get headaches. Updating the prescription becomes very important and allows me to be more productive,” Okigwe said.
MYTH 3: THE CONSUMER RUMOR
Employers often turn to the consumer-directed health care plan — commonly referred to as a high-deductible health plan — in part to make their employees smarter health care shoppers.
These organizations have a lofty goal when they seek to turn employees into sophisticated health care consumers. Although the goal itself is admirable, the reality is that the health care delivery system is too complex and patients don’t touch it with enough frequency, said Brian Marcotte, president and CEO of the National Business Group of Health.
An employer might have a comprehensive program that gives employees treatment options and resources when they face a surgical decision. But that may be a decision a person has to make once a year or lifetime. “It ends up being a resource that’s out of sight, out of mind,” Marcotte said.
The idea that giving employees more resources and price transparency information would make them more sophisticated consumers did not pan out like employers thought it would, he added. Employers started rolling out HDHPs in the early 2000s and ramped up the strategy when the Affordable Care Act was passed with the Cadillac tax provision. Since health care is generally not part of most people’s regular spending routine like grocery shopping, organizations need to find a way to fit it into employees’ everyday lives.
The Growth of Virtual Solutions
One way organizations are trying to make health care more a part of employees’ routines is through virtual solutions. While people today can find basically any product or service on demand, what is lacking in health care is the ability to get on-demand service, Marcotte said.
The promise of virtual solutions is that they open up avenues to access, convenience and quicker response times from medical professionals.
Virtual care covers a lot of bases including chronic disease management for conditions like diabetes, lifestyle coaching and virtual second opinion services.
However, virtual care can create complicated issues when a patient has to rely on an outside care team rather than the primary care physician with whom they might already have a strong relationship. “The challenge for all these virtual solutions as well is, ‘How do I integrate them back into care and get it within the delivery system itself?’ ” Marcotte said.
Barriers to Health Care Navigation
One reason for the “rampant confusion on how these plans work” — which unfortunately sometimes leads to employees avoiding care — is that “the industry has never done a good job teaching people how to shop for coverage,” said Kim Buckey, a health compliance expert and vice president of client services with benefits compliance company DirectPath.
A person can’t be a good consumer if they don’t know the prices of services, and there’s no easy-to-read or readily available price list, said Buckey’s colleague, Bridget Lipezker, senior vice president and general manager of advocacy and transparency at DirectPath. She referenced what she called the “myth of transparency.”
“The lack of control the consumer has over what they’re paying for something, or even understanding what they’re paying for and what their level of responsibility is — to me, consumerism becomes a myth because of the that. Because you don’t have choice,” Lipezker said.
Another barrier to employees is time.
Patients can call their doctor and ask for options and prices, Lipezker said, but finding this information is a difficult and time-consuming process, and, as Buckey pointed out, most doctors are only available during business hours, so employees need to find the information they need while at work, adding to their stress and cutting into their productivity.
“Some employers are taking the bull by the horns and are offering advocacy and transparency services to their employees to give them a source of support where they can turn over these issues to someone else to fight on their behalf,” Buckey said.
Socioeconomic Issues With HDHPs
Socioeconomics also is an important factor that employers must consider in health care strategies. One problem that HR has, according to technology-led business process services company Conduent’s Bruce Sherman, is that “we design benefits for people like us,” thus isolating people with different benefits needs and life experiences.
Low-income workers have been especially impacted by employers’ attempt at cost containment through HDHPs. According to the February 2017 Health Affairs article “Health Care Use and Spending Patterns Vary By Wage Level in Employer-Sponsored Plans”— which Sherman co-authored with Teresa B. Gibson, Wendy D. Lynch and Carol Addy — cost shifting in benefits plans has meant a 67 percent increase in deductibles since 2010. That’s six times more than the rise in workers’ wages (10 percent) and inflation (9 percent).
The article explored patterns of health care usage relative to employee wages and found that workers in the lowest wage group ($24,000 or less a year) were the most likely to have (had) an avoidable emergency visit, while the highest earners ($70,001 or more a year) were the least likely.
“It may be helpful to ask employees in different socioeconomic groups what benefits they’d like to have,” said Sherman, a longtime researcher of health issues. “This opens the door for information sharing and doesn’t obligate the employer to provide what employees request.”
While more employers are talking about establishing a “culture of health,” oftentimes they also fail to address social and economic determinants in that culture of health, he said, suggesting that employers review organizational policies and practices and keep that perspective in mind to give themselves a broader understanding of where there’s opportunity to improve workplace health for different groups of people.
Some employers offer hourly employees a half day every year specifically to see their doctor for preventive care services, he said. Other employers offer paid sick leave to all employees, including hourly workers. And other employers have ditched “just-in-time” scheduling practices and opted for fixed work hours for all employees — a perk for hourly employees since variable scheduling limits predictable income for employees living paycheck to paycheck.
Some organizations are utilizing wage-based cost-sharing arrangements to address socioeconomic disparities, according to the National Business Group on Health’s 2019 “Large Employers’ Health Care Strategy and Design Survey.” According to the survey, 34 percent of employers offered a wage-based premium contribution in 2018, with 32 percent of employers planning to do the same in 2019. Similarly, 8 percent of employers offered a wage-based cost-sharing arrangement through deductibles or out of pocket costs in 2018, compared to 7 percent planning to do that in 2019.
MYTH 4: WE’RE DOING ALL WE CAN ALREADY
Many employers are doing a lot to help employees with health care costs. But in actuality they demand more from insurance companies and other providers, said DirectPath’s Bridget Lipezker.
Employers comprise the largest group of payers for health care in the United States. According to 2017 National Health Expenditure data, private health insurance accounted for 34 percent of health spending, beating out Medicare (20 percent), Medicaid (12 percent) and out-of-pocket (10 percent).
Employers have a responsibility to do more and they carry a lot of clout. But there are many barriers hindering that influence, she said. It takes a lot of time, energy and focus, and most organizations don’t have the luxury of hiring a person solely focused on benefits.
A majority of small- and midsized businesses only have one person managing HR, and oftentimes HR isn’t even their primary responsibility, according to HR platform BerniePortal’s 2019 “HR Today and Tomorrow” report.
“I think that employers do try to act in the best interests of their employees, at least in my experience. But they don’t always have the expertise in-house or the dollars to hire consultants to help them figure it out,” Lipezker said.
Disruption Will Cut Costs … Not
Counting on disruption to save on health care spend (think major policy changes like the Affordable Care Act) is a strategy, but it’s a poor one for plan sponsors, said ActiveRadar’s David Henka. Employers need to be proactive.
There’s only so many levers employers can pull to affect cost, Henka said. With trends like the consolidation of health systems and influential health care industries like pharmacy benefit managers clashing with employers, organizations have limited options to influence costs.
The most valuable and accessible lever is at the pharmacy, Henka said. Pharmacy costs and formularies are decided on a national scope, unlike hospital and provider networks, which are often decided on locally or regionally. This adds an additional challenge for an employer with offices or employees in multiple states to trim costs.
The lack of transparency in pharmacy benefits is noteworthy, Henka said, and the reality is that for many drugs, there are alternatives that have the same therapeutic benefit for a fraction of the cost. For example, the brand name drug Lipitor has an average cost $184 while Atorvastatin, the generic version with the same active ingredients, has an average cost of $36, according to Henka.
He suggested reference pricing programs, with which costs go down in the short term and, in the long term, patients became more compliant with drug treatments. Reference-based pricing uses complex algorithms to identify the most expensive drugs used by the employee population, highlights more cost-effective alternatives and then encourages members to switch to the most affordable drug.
While reference pricing is trending in parts of Europe, it’s mostly gaining traction in the U.S. among large employer groups, Henka said. He added that many employers think that by switching to a generic-mandated program, they’re doing enough — but they can do more. They could save money by switching from one generic to a different, more cost-effective one.
The types of U.S. organizations mostly adopting these programs are union trust funds and private employers, he said.
The second largest health care purchaser in the country, CalPERS, is also a proponent of reference pricing, he added. Second only to Medicaid, CalPERS purchases health care benefits for employees in the state of California that work for school districts and other public agencies and covers about 1.2 million lives. They have “already implemented reference pricing for a number of medical procedures and are in serious discussion of implementing it for their pharmacy program as well,” Henka said.
Enter the Chief Medical Officer
A conversation that is gaining traction among employers is working to get more control of health care costs in unique ways, said of First Choice Health’s Jaja Okigwe.
Cable and internet provider Comcast was among the first companies to hire a chief medical officer. In 2005, it hired Tanya Benenson to have an expert solely focused on health care outcomes. Similarly, Google hired David Feinberg, former CEO of Geisinger Health, in November 2018 to lead its health strategy, and banking giant Morgan Stanley hired David Stark as its first chief medical officer in October 2018.
“The novelty of Comcast’s situation was that they were taking charge of crafting the whole benefit program and experience for their employees,” Okigwe said. “This is typically done by carriers and benefit consultants.”
The role of the chief medical officer varies by industry, said DirectPath’s Kim Buckey. In a hospital, that role likely will oversee clinical outcomes, while at an insurance company the position is responsible for decisions on what should be covered, or to help develop health and wellness programs. For organizations like Comcast, a CMO will identify opportunities for savings, oversee the organization’s health vendors to control costs, lead negotiations with providers and analyze claims data.
Large employers can afford to have someone in this position, Buckey said, but most are “a ways away” from the chief medical officer being a common corporate title.