Why are Some Employers Surviving the Health Care Crunch?

May 15, 2003

A major annual survey reveals the depth of employer distress over health benefit costs -- and the reasons why some firms are avoiding the worst of the pain.

Why are Some Employers Surviving the Health Care Crunch?

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Choose article section...Defying conventional wisdomStarting from a different point Looking inwardChoosing toolsSeeing linksCreating a context

By Maureen Cotter

A major annual survey reveals the depth of employer distress over health benefit costs and the reasons why some firms are avoiding the worst of the pain.

Creating a Sustainable Health Care Program, the 8^th annual Washington Business Group on Health/Watson Wyatt survey of employers, covers today's harsh health care realities and provides some beacons of success by outlining the actions that some companies are taking to achieve short-term cost savings.

Let's start with some bottom-line findings:

Fewer than 20 percent of respondents are very confident in their ability to manage the current increases in health care costs.
Although employers are making a big shift toward consumerism, only 3 percent are very confident that consumer-oriented products currently on the market can help control costs.
Only 14 percent feel very confident in their ability to improve employee involvement, a foundation stone of consumerism.
Almost 60 percent are somewhat unsure that they will still be in the business of purchasing and delivering health care benefits 10 years from now. (If this were a consumer confidence rating, it would be at an all-time low.)

There are no silver bullets in health care benefits, but the business issues are very real and very serious. Naturally, most companies are keeping a sharp eye on their vendors, but their actions in the past year centered around cost sharing. Four tactics three of which have a lot to do with dialing back the level of employer contributions and increasing employees' share were used significantly more often than in the prior year. They are:

Increasing employee copays and cost sharing.
Increasing employees' premium contributions.
Targeted clinical interventions for specific conditions.
Reducing or eliminating coverage.

Companies are planning big jumps forward in 2003 not just incremental increases in the movement towards consumerism. They will increasingly emphasize consumerism as a broad framework for delivering health care to employees. They will provide employees with more information on health care quality and the unit price of services. They will also be more likely to offer consumer-driven health plans. In each instance, the percentage of employers planning to implement the tactic in the upcoming year exceeds the percentage who currently have it in place.

There's no doubt that employers are putting HRAs with high deductibles into their menu, but there's very little confidence that this will really save money. How, then, can companies achieve a sustainable and positive performance in their health care programs? Some are already succeeding. About 20 percent of the participants ("high performers") were under budget in 2002 and expect trend increases for 2003 that are at the low end of predictions. Another 20 percent ("low performers") had costs that came in over budget for 2002 and are expected to have the highest cost increases for 2003.

High performing companies are beating trend by a significant margin. They're expecting 10 percent increases vs. 21 percent for low performers. In a competitive business environment, that can make a huge difference in profit margins and operating costs.

Defying conventional wisdom

What are the high and low performers doing differently, and what lessons can we learn from them? Conventional wisdom might say that employees must be unhappy with tough actions that high performers have taken, but we found just the opposite. Quality of care and employee satisfaction stayed the same or improved as a result of changes these companies have made.

Maybe quality of care hasn't suffered and maybe people still have some appreciation, but do employees really understand the health care cost challenges that their companies face and the tough road ahead. Remarkably, 92 percent of the high performers feel that their employees' understanding of this dilemma was the same or improved a full 17 percent more than those in the lower group.

That tells us that high performers have been very open in communicating with their employees about what the deal is, how it's changing and why health care is expensive. They've done a good job explaining what employees can do and what the company is doing. It takes that kind of open communication and honest answers to achieve better cost results while improving employee understanding and appreciation.

Starting from a different point

What else sets the high performers apart? Their philosophy and approach to consumerism is fundamentally different from that of low performers. This is critically important. High performers view consumerism as a change management process not as a product, and they understand that changing human behavior over the long haul is a tough thing to do.

High performers start the process with greater cost sharing at the point of care. They create financial tension that captures the attention of consumers and provides incentives to do something differently. They follow that with other plan design changes that support an over-arching philosophy of shared responsibility and consumerism. And then they follow up with information and decision support tools that will allow people to make good choices. They view all this as a building approach, but the goal of the process is getting consumers to become rational purchasers of health care by sensitizing them to actual health care costs.

In contrast, the low performers did more of their cost sharing through premium contributions. That captures consumer attention at open enrollment, but not on the other 364 days of the year. They also seem to be putting in all the consumerism pieces at once, such as education and consumer-driven health plans. They're counting on the product to do what requires a process that starts with financial tension.

Looking inward

There are also big differences in high performers' approach to planning and strategy. They have a much longer time horizon for implementing consumerism. They don't view this as an annual cycle but as a campaign for sustained change.

They're far more likely to look at their own workforce demographics and situation than at external benchmarks of other companies. They analyze what's going to work in their workforce, with their business environment, with their culture and what's in their span of control. And they're much more likely to exploit that to their advantage.

They also have a clear idea of why they provide health care benefits in the first place. Strengthening recruitment and retention, improving employee health and bolstering productivity are all valid reasons for providing health care, but high performers have more straightforward goals: They want to provide basic coverage, protect the needs of their employees and enhance the overall health and productivity of their workers.

Knowing why they bother with health care benefits and understanding the obligations of both the company and the employee makes high performers more confident of their ability to manage costs and much more confident of their ability to improve quality. Remarkably, they're less confident of their ability to improve employee involvement. That's probably just a realistic assessment that employee involvement demands more than getting their attention at open enrollment. It really is going to take a concerted effort over a long time to fundamentally change employees into real consumers of health care.

Choosing tools

High performers excel in execution and take a different approach to administration and plan design. Low performers tend to stick with HMOs and try to shift risks to other vendors. They're not quite sure what to do, so they're staying with the familiar products.

The high performers offer more PPOs, more indemnity arrangements, more open access, more choice. They're saying to employees: "We'll give you more freedom, but with that comes greater responsibility as a consumer." And, as a result, they emphasize employee self-service.

Seeing links

One final thing to learn from the high performers is that they don't look at health care as a silo. They truly understand that it relates directly to the productivity of their work force, and they have a bigger strategy around health and productivity.

As a result, these companies tend to favor more targeted clinical interventions. They tend to offer disease management separate from their health plans, carving it out to best-in-class vendors who can manage chronic and catastrophic cases most effectively.

High performers also integrate their health programs with disability in a very consumer-centered model. Employees don't think of health care and disability as separate entities. They understand that disease management and prevention programs play an integral role in total health care programs.

Creating a context

What does all this mean for the future? As you look to the changes that you need to make in your organization, you really need to consider the long-term question of how health care will be purchased and delivered in the U.S. Solidifying a corporate point of view provides context for short-term changes and some goals to work towards.

There is no doubt that the goals will include fundamental change. We all know the status quo is untenable but as we start to move toward a new defined-contribution health paradigm, companies should be taking steps right now actions that can provide short-term cost savings and help pave the way to long-term reform.