RSS icon

Top Stories

Stuck in the Waiting Room

October 9, 2006
Related Topics: Health and Wellness, Featured Article, Compensation
Reprints
Sen. Hillary Rodham Clinton got right to the point with General Motors CEO Rick Wagoner regarding rising health care costs and their effect on American business.

    "Why is it that American business doesn’t just rise up and say there’s got to be a better way here?" she asked during a Senate hearing in July.

    GM knows about the cost of health care to a company’s bottom line. The world’s No. 1 automaker is fighting for survival, and health care benefits are in the cross hairs. As the largest private provider of health insurance in America, GM spent $5.3 billion to cover 1.1 million people in 2005, ultimately forcing the automaker to cut health care benefits for many of its workers—including retirees.

    The year before, GM paid $1,525 in health care costs for every car it made in North America, notes management consulting firm A.T. Kearney, while Toyota, having recently supplanted Ford as the world’s second-biggest auto manufacturer, spent just $201 across the continent.

    And so it was that Clinton’s question could just as easily have been asked of every CEO in America. "Why don’t you bring not just your market power to bear but your political power to get some changes in this dysfunctional, overly expensive, unproductive health care system that we all are paying for?" asked Clinton, D-New York.

    Wagoner paused, choosing his words carefully.

    "Senator, I share some of your views and I think your analysis is correct," he told Clinton.

    Like the Clinton-Wagoner dialogue, the national health care debate in the United States has posed many questions but raised few answers. Just as it did 15 years ago during what then was called the managed care revolution, American business is standing up and saying the status quo of high-cost, inefficient health care must change.

    But once again, wary of big government, employers are eschewing public-sector solutions in favor of private-sector ones. Most of the change is expected to come piecemeal through state reforms and regional market changes in how medical providers are paid. Information, not regulation, is the current rallying cry from business.

    Data, and lots of it, is at the heart of efforts to reduce health care costs—in particular, the creation of a national database of electronic health records and the use of data to rate the performance and cost efficiency of doctors and hospitals. But these efforts are in their infancy. Meanwhile, costs continue to grow at dizzying rates, and time for wholesale change may be running out.

    "They’ve been saying ‘We’re not going to take it anymore’ for 25 years," says Gerard Anderson, a professor of health care policy at the Johns Hopkins Bloomberg School of Public Policy. "But they continue to take it."

Antidote needed
    What employers continue to pay for is an American health care system that most agree is in need of resuscitation and costs more per capita than that of any other nation in the world, according to the Organization for Economic Cooperation and Development. Employers pay for the health care of 160 million people, nearly 60 percent of the American population under 65 years old. They also pay 25 percent more for medical services than Medi­care does, Anderson says. This premium, some say, is a subsidy paid for by employers to cover the cost of health care for nearly 46 million Americans without insurance.


"When legislators pick and choose what benefits should be included in a benefits package, there's the floodgates problem, and employers lose the ability to design a benefits package for their own employees."
--Maria Ghazal,
The Business Roundtable

    Since 2000, health care premiums have grown 75 percent, while inflation has climbed 14 percent and wages have risen 15 percent, according to the 2005 annual benefits report published by the Kaiser Family Foundation.

    The causes of high-cost, inefficient health care in the United States are many, according to health care experts. Unnecessary procedures, use of brand-name drugs instead of generics, and poor disease management that leads to expensive hospitalizations are among the litany of reasons why health care costs continue to grow.

    Grumbling from employers was evident in the Society for Human Resource Management’s biennial Workplace Forecast published in June. Large employers stated that rising health care costs were their biggest concern. Forty-five percent said the price of health care has a major impact on the workplace, while 25 percent believe the issue will force a major restructuring among its workers.

    Employer groups are also weighing in on the need for change. The HR Policy Association says it plans to release a report this fall explaining that the large-employer community believes "the status quo in health care must come to an end in the next five years and be replaced with a new system for delivering health care benefits."

    Though HR Policy Association spokes­woman Marisa Milton would not disclose details of the group’s pending report, she said members are "leaning toward major reform" and that there was "a willingness to consider options that were off the table before."

    But so far, no radical approach has been offered. Above all, following health care systems used by other countries is not among the options being considered by either government or employers. The Business Roundtable, representing a who’s who of large American employers, remains steadfastly opposed to universal health insurance or mandated benefits.

    "The employer-based health care system is a voluntary one," says Maria Ghazal, director of public policy for the group’s health and retirement task force. "When legislators pick and choose what benefits should be included in a benefits package, there’s the floodgates problem, and employers lose the ability to design a benefits package for their own employees."

    Part of the stalemate comes from companies that benefit from the status quo. Thousands of companies benefited from the fact that health care totaled 14.6 percent of U.S. gross domestic product in 2002, according to the OECD.

    "Most big manufacturers have a health care operation that is often their most profitable business," Anderson says, referring to companies like General Electric and IBM. "Nobody wants to get their profits cut."


"We recognize Wal-Mart has a responsibility for its associates, but for people working short term or [who have] several jobs, there needs to be a way for them to access coverage on their own regardless of employment."
--Kate Sullivan Hare,
Wal-Mart health care lobbyist

    Where employers’ reticence over government initiatives recedes is on the widely supported goal of creating a nationwide health information network: They believe the federal government is best suited to handle this task.

    But the most notable piece of federal health care reform legislation under review, the Wired for Health Care Quality Act, stalled in the House Subcommittee on Health in January as policymakers wrangled over privacy issues, technology standards and financial concerns from doctors and hospitals regarding its implementation. Lawmakers have earmarked less than $300 million through 2007 and a vaguely worded "such sums as necessary" for 2008 through 2010. That is a small portion of the estimated $156 billion needed for the five years it will take to build a national health information technology network, and the $48 billion required to operate it, according to a recent article by Anderson in the journal Health Affairs.

State reform
    The self-preservation of narrow interests coupled with a more general aversion by private employers against government regulation has virtually handcuffed practical reform on the federal level.

    Kate Sullivan Hare, Wal-Mart’s chief health care lobbyist in Washington, D.C., says the federal government is at a standstill. She predicts that meaningful legislative reform will take shape at the state level, one reason why Wal-Mart CEO Lee Scott addressed a meeting of governors in February. That’s also why the company hired Joe Quinn, who was director of policy for Arkansas Gov. Mike Huckabee, as director of state health care policy, a newly created position.

    "Frankly, all of this is at the state level; that’s where all the action is happening," Hare says. "Congress can barely get basic legislation through. Even health IT is this controversial, complicated thing. If we really want to do things and put money into helping people who are uninsured so that public programs pay appropriately and it’s not all shifted to private payers like General Motors and Wal-Mart, they just aren’t able to do that in Washington."

    Massachusetts health care reform passed in April mandates that individuals purchase health coverage, and it has caught employers’ attention. Large retailers like the possibility that individuals would be able to retain insurance regardless of who their employer is, whether the employer offers insurance, or if a person works at all, Hare says.

    "If you’re changing jobs after 90 days—we have very fast turnover in retail—does it make sense to focus only on employment for coverage? You have to go beyond that; you have to make it seamless for people," Hare says. "We recognize Wal-Mart has a responsibility for its associates, but for people working short term or [who have] several jobs, there needs to be a way for them to access coverage on their own regardless of employment."

    Even with a policy that insures more Americans, cost is still an issue. The Massachusetts reforms do nothing to address the underlying structure that drives costs, says Brian Klepper, an independent health care consultant. The way to lower costs, employers are saying, is not through heavy-handed regulation, but by getting hold of information. This is where data comes in.

    For the past several years, employers have used high deductibles, higher co-insurance and higher co-pays to help reduce their health care costs. Paul Ginsburg, president of the Washington, D.C.-based Center for Studying Health System Change, estimates that this cost shifting trimmed 2 to 3 percentage points from the rate at which health care premiums increased between 2002 and 2004.

    But there is a limit to how much a company can shift costs before eliminating benefits altogether, according to Charles Cutler, Aetna national medical director for quality and clinical integration.

    "I don’t think high-deductible health plans are the cure-all for bringing down health care costs," Cutler said during a Kaiser Family Foundation web­cast on transparency July 25.

    Some employers are beginning to realize this too, says Cheryl Larson of the Chicago-based Midwest Business Group on Health. Employers have begun to focus on their most costly health care consumers—those who are at risk of or suffer from chronic illness—by aggressively managing their health spending data.

    The idea, known as "population health management," is to collect health data from employees who undergo a battery of tests. In exchange, employees receive reduced premiums, free prescription drugs and other incentives.

    The tests can include blood analysis that looks at as many as 35 different measures, Larson says. Companies can then design a health benefit plan that addresses the health and cost drivers for their particular population. Larson, who calls it a "creative benefit plan," says merging wellness with benefit design is "this magic thing that is happening."

Rating care providers
    Cutler and others are also working on a system that would use claims and other data to rate doctors and hospitals based on their performance and cost. Patients with a choice and the responsibility to pay for part of their health care will choose the best provider at the most reasonable price, he says.

    Employer groups and government organizations are working on pooling their data and developing standards so they can rate doctors, hospitals and other medical providers to reward the best ones and punish those that are inefficient.

    A number of employer-led groups are pressuring the Centers for Medicare & Medicaid to release data on their medical providers. Such a windfall would make it easier to rate hospitals and doctors.

    So far, creating price and quality transparency has produced few results. "Transparency will only work if prices go down as a result," says Anderson at Johns Hopkins. That happens one of two ways: Either a hospital or doctor is too expensive and lowers prices to become competitive, or the patient sees that one doctor’s prices are higher than another’s and chooses the less expensive doctor.

    "I don’t see either one happening now," Anderson says.

    Together, these efforts at mining and pooling data and making it readily accessible could significantly improve the efficiency of the health care system. Wal-Mart’s Scott, one of the most vocal CEOs on the health care issue, has said he expects reductions in health care costs to occur within two years, a time frame that coincides with the next presidential election.

    On the Public Broadcasting System’s "Charlie Rose Show" in July, Scott said, "I think you will see government, labor and business move to a solution."

    But if costs continue to escalate, containment approaches will not be enough to make health care affordable for employers or employees. If that happens, a more far-reaching approach involving the federal government may be welcomed. Time is running out, says Ken Sperling, vice president for national accounts at Cigna.

    "Eventually, if the private sector does not get a hand on controlling health care costs," he says, "we will reach a tipping point toward a national health care model."

Workforce Management, September 25, 2006, p. 25-28 -- Subscribe Now!

Recent Articles by Jeremy Smerd

Comments powered by Disqus

Hr Jobs

Loading
View All Job Listings