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Cutting health care costs

Cutting health care costs

Cutting Health Care Costs

If there’s an employer anywhere that’s not struggling to cut health care costs in a creative way, without angering current workers or hurting their chances of recruiting new ones, we haven’t heard about them. Many are cutting their costs by passing more of them on to employees. We’ve searched our archives for other ways.

Here are some of the things we found that have worked to reduce health care costs for employers:

Reduce stress

Back in 1991, Northwestern National Life (now NWNL Companies) reported that their research had found stress to be an unrecognized crisis. The company surveyed 600 U.S. workers and found job-related stress and burnout was significant, particularly in companies that substantially cut employee benefits, changed ownership, required frequent overtime or reduced the workforce. Seven out of 10 workers polled said job stress had caused frequent health problems and made them less productive. NWNL researcher Peggy Lawless said their research showed the single largest cause of burnout to be lack of personal control on the job.

A Mercer HR Consulting study conducted with Marsh, Inc. found 70% of 723 employers saying stress or depression was their highest-cost disability condition during 2001.

What’s working to reduce stress? Our database produced 103 documents when we searched using the keywords “reducing” and “stress,” from flexibility (not rigid) to work-life support. A few others: meditation, backup childcare, work redesign (or reducing workload), training managers to be more supportive, and most important, giving employees some autonomy and control over when, where and how the work gets done.

And a new eldercare model was shown to reduce stress in a three-year experiment by St. Andrews Resources for Seniors, a St. Louis non-profit. That group developed a continuum of services that included personal care assessment and planning, support groups, education and referral. About 4,000 employed family caregivers participated and about 1,000 had in-person assessments. The findings:  among users, 90% said the combination of programs reduced their stress (98% said it increased their caregiving skills.) The great majority of participating companies said the program had potential for reducing employee health care costs.


Decrease obesity

In 2001 we learned that obesity added $395 per person to the health care price tag, more than smoking or problem drinking. The annual Mercer/Foster Higgins National Survey of Employer-sponsored Health Plans found the average per-employee cost went from $4,430 in 2000 to $4,924 in 2001, even though general inflation that year was just over 2%. Compared with obesity’s $395 annual cost that year, smoking is linked with a $230 increase and problem drinking with an increase of $150. “Obesity,” said Rand study author Roland Sturm, “is like aging 20 years.” The obese, said the report, spend a third more than people in the normal weight range on hospital and outpatient care, and their medication costs are 77% higher. Said Sturm, “The very strong effects of obesity are clear.”

A program called LEARN (Lifestyle, Exercise, Attitude, Relationship and Nutrition) was one behavior-modification program that worked for hundreds of organizations and thousands of employees. As the cost of obesity became more obvious, more companies were turning to weight management programs that involved both peer pressure and peer support. First Chicago NBD tried a wellness competition, with team members volunteering to help each other in making healthy lifestyle changes over a six month period. They were scored on weight loss, muscular flexibility (to show if they’ve exercised), decreased blood pressure and cholesterol levels, and smokers who have quit. Gift certificates went to the winners.

Competition also worked for VSM Abrasives. The 135- employee producer of industrial sandpaper in O’Fallon, MO, was able to encourage 100 of the 135 to join a five-member team that had as its goal to lose more weight than any other team. Weigh-ins were held every Monday morning, and the team that shed the most pounds in three months won $100 and a day off with pay for each team member. The winner: the Five Fat Sensitive Men, who lost a total of 113 pounds. The program, says president Brent Barton, “gave everyone an opportunity to make a permanent lifestyle change for the better. As [it] progressed, our employees became noticeably more productive and confident.” Now employees weigh in each quarter and as long as they maintain their previous weight they get $25. Anyone keeping the weight off for a year gets an extra $25 and a paid day off. So far this year, says Barton, he thinks the program has been responsible for reducing insurance claims by 10% to 15%.

Companies can save millions by encouraging their sedentary, obese employees to exercise a little, says 2004 research by the University of Michigan, even if it’s just a couple of times a week and they don’t lose any weight. Researchers studied 25,000 General Motors employees, 30% of whom were average weight, 45% were overweight and 25% were obese. For the obese, health care costs averaged $3,000 a year; for the overweight that number was $2,400, and for the normal weight group, $2,000.

For those workers who did not exercise, health care costs went up by at least $100 a year. But for the group that added two or more days of light exercise to their schedule, costs went down by an average $500 per employee per year. The exercise lasted for 20 minutes and while it was considered “light,” it was hard enough to increase heart rate and breathing. The conclusion: “Physical activity could offset at least some of the adverse effects of excess body fat, and thus help moderate the escalating health care costs.” If the company’s entire workforce had taken part in the exercise the potential savings could have reached $7.1 million annually. Just getting the most sedentary obese workers off their chairs twice a week would have saved GM about $790,000 in a year.

Introduce wellness and prevention

As early as 1992 we were hearing about the benefits of wellness programs. At that time as many as two out of three U.S. businesses with more than 50 employees had some form of health promotion program targeting America’s favorite vices – alcohol, drugs, fat-filled foods and a sedentary lifestyle. Standard Telephone, Cornelia, GA, created their health promotion program because of shockingly high insurance claims for heart disease, diabetes and stress-related illness. A Travelers Insurance Co. survey that year found 65% of Standard’s employees’ families’ overall health had improved over the past year, reduced emergency room visits saved $22,500 and Standard reported a significant drop in premiums.

The City of Glendale, AZ reported their low-budget wellness program had saved the city millions. Risk manager Allen Iampaglia said the city had been rotating tires and changing the oil on police cars but allowing overweight, out of shape, stressed-out police officers to chase citizens at speeds of 90 miles per hour. When he began to promote wellness as a way to cut health costs, some fought for shifting the cost to employees instead. Iampaglia asked what that would accomplish if an employee refused to seek prenatal care because it was too expensive and wound up with a $50,000 hospital bill for a premature birth. His program provided health screenings, education, lab work, literature and a full-time nurse, contracts for use of a nearby fitness center, a monthly health magazine free to employees and on-site mammography – all at a cost of $67.27 per employee. During the years the program was in force, the City had practically no rate hikes and three refunds totaling $1 million from its health insurance provider.

That same year, we wrote about the LA Times, which allowed onsite self-help groups and found participants with chemical addictions, overeating and other physical and emotional issues recovered faster than non-participants with the same issues.

In 1994 we heard again how important fitness, wellness and prevention were in reducing medical costs. A 10-year study that began in the ’80s found workers who took advantage of Steelcase’s wellness programs cut their medical bills in half. The study, then the longest running evaluation of its kind, was conducted by the University of Michigan. Steelcase announced the findings to their 8,000 employees, saying if all workers adopted low-risk behaviors, “the savings could amount to roughly $20 million over three years.” Every three years since 1985 the University evaluated 4,000 Steelcase workers (75% men, average age 44) and the results showed that when high-risk employees changed their health habits their average yearly claims were cut more than half, from $1,155 to $537 in three years; claims for employees who stayed high-risk rose about $500. Employees who started out low-risk and stayed that way had little change in their claims, but those who slipped from low- into high-risk behavior more than doubled theirs, climbing from $655 to $1,513. One lesson learned, says Dr. Edington: keep tabs on those low-risk employees or some are bound to fall back to high-risk – and high cost.

Also in 1994, a Brown University study concluded that if business simply encouraged employees to walk for exercise, the improvements in coronary heart disease costs alone would save the country billions of dollars a year on health care, lost wages and related expenses. The study plugged two statistics into a model of health care costs; one was the higher risk of coronary disease in sedentary people; the other, the fact that 40% of the population at that time was sedentary. They assigned some costs to walking (10% of the cost of an annual physical could be called exercise counseling, the new exerciser would need an $80 pair of walking shoes that would last four years, and some people would hurt themselves and need medical care) and figured out how much people should walk. If every sedentary American walked one hour a day, five days a week, they concluded annual savings at about $20 billion. Of course many would decline, so they went a step further. If each walker was paid $5 per hour to do so, the savings would still be more than $4 billion.

Retirees’ health care costs are a burden for many companies, and it was also in 1994 that we wrote about Coors Wellness Center which targeted those 40 and older − some as old as 80. Retirees and spouses were welcome, and a seniors’ aerobics class with 25 faithful members averaged age 70. Employees and retirees who had heart attacks or strokes went through a cardiac rehab program, said the report, that included a job site analysis to make sure employees returned to an appropriate job. These employees did return; 98% came back before the 12-week program is over, compared to an average nine-month recovery program. Learn more about Bridgeway Senior Healthcare options.

In 2006 we learned of two studies, one by Partnership for Prevention and the other by researchers from the University of Washington, that found employers could “substantially” increase productivity and health care cost-effectiveness by covering more preventive services. Both studies agreed that while companies are offering more preventive health care services, they may not be including the ones that would give them the most financial payoff. Preventive services most often covered are physical exams, immunizations and screenings for cancer and cholesterol. But few covered flu shots, a relatively low-cost service with a high potential financial return. Only 20% of employers offered services to help employees quit smoking or drinking, eat better or get more exercise. That may be because there’s little short-term payoff for those services, says one study; but in the long run they have the most potential for return on investment.

In 2002, Bank One reported that employees who participated in their wellness efforts cost them 18% less in health care expenses than those that didn’t.

Make the culture more supportive

Could happier employees mean lower costs? Both W. L. Gore & Associates and Quad/Graphics attributed their low medical costs, consistently below the national average, to their high levels of employee satisfaction. And North American Tool & Die Inc. and Leaf Inc. agreed. All reported in 1992 that their workers were involved in decisions, felt valued, had freedom, responsibility, control and independence. And all found their health care costs were well below average. The companies’ lowered costs fit with a growing body of research that said people who were stressed and depressed may be sick more often. It’s possible to reduce illness by being more supportive, said this article; employees who said they were under tremendous stress but had the backing of their boss were ill half as often in a year as those who had little management support.

As early as 1995, some experts were saying the real way to reduce health care costs was to train supervisors to be more supportive. Supportive supervisors, said one expert, would mean less stress, burnout and illness and fewer missed workdays, and a stressful work culture and unsupportive supervisors had a negative effect on employee health. To create a healthy work environment, one that has shared vision, a sense of community and a positive working culture, we must recognize the impact of a stressful work culture on employee health and stop trying to apply band-aid programs. A major goal of any employee health program should be reasonable workloads and schedules, and respect from supervisors.

Move health care onsite

In 2004, Capital One, Discovery Communications, Sprint Nextel and Freddie Mac all opened onsite medical clinics. The clinics were proving to be convenient for employees, who could have symptoms addressed without a lengthy wait, and for employers, who didn’t have to lose a day of productivity while an employee checked out their symptoms. In some cases the clinics allowed companies to more tightly control those referred for additional, expensive treatment; they could keep a watchful eye on potentially costly ailments like diabetes or high blood pressure, or a high-risk pregnancy. And they could push less expensive generic meds that could be filled in the onsite pharmacy. Experts estimate the clinics cut costs by as much as 25%.

Onsite services to prevent and treat health problems paid off in several ways for Bristol-Myers Squibb. Because of the convenience, staff morale and productivity went up. Before the onsite service, 12 employees were treated for carpal tunnel syndrome and all required surgery, at a total cost of $360,000. After the service, 22 employees were treated and only three needed surgery. Two or three times a year the company brings in a team to provide mammograms to female employees and dependents, backing up the screening with classes and brochures on breast self-examination and health habits. Said a spokesman, “I’m convinced that we’ve screened hundreds of women who would never have had a screening without these services.”

SRA International had a similar experience. By having their three in-house nurses minister to their 2,500 employees the company figures it has saved nearly $1 million a year, lowered insurance premiums, cut down on lost workdays and improved both health and morale. And it has enabled some who otherwise would have been too ill to work to have successful, productive careers. In addition, Quad/Graphics, Gates Corp., Union-Camp Corp., Southern Cal Edison, Gillette and Coors are also trying to cut health care costs by doing it themselves. Staffed by physicians and nurses who are usually full-time employees, many have X-ray facilities, labs and operating facilities for simple outpatient surgery. A Gillette retiree credits his company’s doctors with early diagnosis of his prostate cancer, and referral to an outside specialist who treated it. Clinics must be well-used to save money; most companies offer services for little or nothing to attract employees away from their HMOs, and go out of their way to assure confidentiality. Startup costs range from $500,000 to well over $1 million, but Gates Corp., a Denver rubber plant, now saves $500 per person annually; their clinic has been open for 50 years. Says one GTE doctor, it’s clearly a long-term investment.

In 2005, Norand reported that having personal nurses, provided by a partnership with United Healthcare, cut their health care costs by 20%. The innovative program offered each family its own nurse, making her almost a member of the family and building a relationship as the nurse managed the family’s care, including prevention. Employees didn’t have to use the system, but got financial incentives to do so — physicals, well baby care, mammograms and pap tests were reimbursed at 90%; non-approved care cost a 30% co-pay. Employees agreed that care and service were better than they had been, and the company figured it saved $76 per month per each of their 1,000 employees — a 20% payoff — in the program’s first year.

Improve safety efforts

Back strain, pulled muscles and repetitive strain injuries to the wrist were daily occurrences at EMCO Distributors, Fremont, CA, until a 1992 aggressive and innovative workplace-safety program brought workers’ comp costs down from 186% above the state average to 1% above the average. Spokesman Stan Huckaby said the program saved the company from going out of business, between insurance costs of $1.5 million and the recession. Educational programs, mandatory weekly safety meetings, optional monthly meetings and incentives increased employee interest in safety and encouraged teamwork in meeting goals. The most popular was “Safety Bingo,” which featured a new bingo number for each injury-free day; employees could win cash prizes of up to $1,000. A Zero Injuries Club rewarded volunteer members with prizes and a company party for living up to club agreements and avoiding injuries. Gifts, cash prizes and parties were affordable, given money saved in premiums, and employees said they were less likely to climb shelves to reach things or leave safety gear behind when doing a hazardous task.

Provide mental health care

Scrimping on mental health care is a “major miscalculation,” said a study by a Madison, WI psychiatrist. Depressed people seek more medical treatment and therefore their health care is more costly for their employer. When patients were correctly treated for their underlying depression, their demand for medical care for ailments such as headaches and backaches, and their need for medical tests, went down; medical costs were cut in half. Katzelnick, who works with the Dean Foundation for Health, Research and Education, said health plans that scrimp on mental health services hoping to save money are making a “major financial miscalculation.”

In 2005, research by the Tufts-New England Medical Center and The National Opinion Research Center told us that presenteeism resulting from depression was responsible for a 6.4% loss of productivity. And Black & Decker found that when they removed dollar limits on treatment for both inpatient and outpatient mental illness, costs fell. That company was one of 27 studied by William Mercer Inc. for the National Alliance for the Mentally Ill and most found similar results. The Alliance hoped the study would help destigmatize mental illness and prove that providing equal mental health care coverage wouldn’t raise costs. The study was able to compare expenditures before and after. Black & Decker’s costs fell from $190 per employee in 1993 to $104 in 1996.

Offer financial and other incentives

Bank of Delaware employees can net $72 a year by not smoking, agreeing to wear seat belts and promising to attend two health promotion workshops. Sitting through a fitness evaluation and following the exercise plan can bring $144 per year, and benefits manager Joanne Ciconte is clear about the motive. We’re paying people, she says, to be more conscious about nutrition and exercise. Employers have tried everything else to cut health care costs, says Michael Carter, senior vice president of the Hay Group, and it hasn’t worked. He calls this the next frontier in health cost control, and predicts dramatic growth for the practice. Skeptics doubt the fairness of paying people who have time to don danskins and attend jazzercize when a single mother can barely grab a McDonald’s on her way home from work. They also argue that lower income people are more likely to smoke and eat high fat diets and will be punished by such incentives; but Delaware’s insurance commissioner, David Levinson, says that’s the idea. Only people who need the money, says Levinson, will be influenced by small financial incentives, so this plan has possibilities for modifying the behavior of that great mass of people who need the extra money each month.

While some employers were moving from the carrot to the stick, Sony Corp. of America was trying incentives in the form of flex benefit credits for employees who took advantage of health screenings. An analysis of the self-insured company’s fast-rising claims found a third seemed preventable, and a new wellness plan was the result. It included full coverage for preventive care, such as annual blood screening, pap smears, mammograms and physical exams for children covered by health insurance. The blood work earned $50 in flex benefit dollars, a pap smear and/or mammogram brought an additional $40 each. A confidential three-part health assessment was also paid for, which identified risk areas and made suggestions. A Jeopardy-like quiz show video called “Sony’s Flex Steps to Good Health in 1992: Lend Us Your Ear” was mailed to each employee’s home, featuring a game show host presenting answers (“A high level of this substance in the diet contributes to elevated blood cholesterol”), and a panel of contestants who provided the question (“What is saturated fat?”). Rounding out Sony’s cost-cutting effort was a network of preferred provider organizations.

In 2003, a powerful coalition of employers, health plans and physicians launched a program to pay bonuses to doctors. Called “Bridges to Excellence,” it tied incentive payments from member companies to good performance and results. Among the companies involved: GE, Ford, UPS, P&G and Verizon. Even though it meant putting out more money now, coalition members said it would lower health care costs by improving productivity. It would feature incentives for patients to become more involved in their own health care. The idea was been shaped with the help of medical institutions like Partners Community Healthcare, Inc., the Lahey Clinic and the Cincinnati Children’s Hospital Medical Center. The belief was that the approach to physician compensation would improve the quality of care that patients receive and would ultimately lower overall costs of care. Doctors could see income gains of up to 10% in the form of bonuses.

In 2006, after giving employees more control of their own health care (and sharing more of the cost with them) companies began an effort to help reveal more about the costs. Medco Health Solutions announced Savings Advisor, an online tool to help patients save money on prescription drugs. And Aetna, Cigna and Humana all added or expanded their own online information tools to help consumers comparison-shop, just as they do for cars or PCs. While doctors’ prices are fairly consistent, Humana’s Web-based pricing tool showed that hospitals were not. Knee replacement surgery, for example, ranged from $16,900 to $34,050. Until recently, doctors and hospitals had little incentive to disclose prices, since insurance would simply pick up the tab. Now, with more health care bills being paid out of pocket, consumers were demanding that information. It was still not simple to get, however. A colonoscopy could be arranged at your clinic, performed at a specialty clinic or even in a hospital, and each will charge a fee. Experts say consumers will not be able to sort it out easily until the complex system is simplified.

Offer prenatal care

Health Management Corp., a Richmond, VA consultant, monitored almost 4,000 pregnancies and concluded that a prenatal risk management program called “Baby Benefits” prevented or delayed premature births, saving more than $335,000 for employee groups insured by Blue Cross/Blue Shield of Virginia. The program is worksite-based and stresses education, assessment and intervention. Baby Benefits participants call a toll-free number to enroll through their employer’s program, and newly pregnant women receive the book From Here to Maternity (a book for new fathers is also available) and are asked to fill out a risk assessment. Nurses at HMC identify those at high risk and work with their physician to monitor, coach and answer questions throughout the pregnancy. The cost of neonatal intensive care for a pre-term baby ranges from $20,000 to $1 million; for every day delivery can be delayed, the result is a healthier baby and an average savings of $2,000. The findings, says spokeswoman Robin Foust, are good news for employers and others looking for ways to cut costs. The numbers are conservative, and don’t include the lifetime savings associated with full-term versus pre-term deliveries, or savings in productivity, time lost and disability expense.

Give employees more choice

As early as 1991, employers began to discover that Point of Service would give employees freedom of choice and a voice in the process as well as giving employers a cost-cutting alternative. Employees can choose their source of health care each time (or point) that they require services, so rather than being locked into an HMO, they can change their minds from day to day. First, however, they must choose a primary care physician from the company’s “network” of general and family practitioners, pediatricians and internists. Using their network physician, and the others to whom they’re referred, will save money; out-of-network care will mean out-of-pocket expenses, so while there’s freedom of choice, there’s also a strong incentive to choose the network. For employers, having a primary care gatekeeper can shave as much as 18% off health care costs. POS can help companies transition to managed care, but the network of physicians must be adequate and convenient, network fees reasonable and administrative costs clearly laid out. And physicians should have a stake in controlling either costs or utilization.

Focus on prescriptions

Both Pitney Bowes and the City of Asheville, NC, reduced the average annual cost of care for its workers by paying for drugs. Ashville reduced the cost for diabetic workers by $2,000 per person after paying the whole cost of diabetes drugs. They then added hypertension and asthma drugs and saw similar positive results, cutting sick time and short-term disability.

Onsite pharmacies help control costs for Eastman Chemical Co. With about 12,000 employees, expenditures on drugs were approaching $20 million. The onsite facility saved about $750,000 the first year (2005) and as much as $1.5 million in savings was anticipated in 2006. And Blue Ridge Paper Products, with about 2,000 employees, has found that by negotiating directly with drug makers for discounts, its onsite pharmacy was able to cut an additional 8% off the price of its drugs.

Create partnerships

In 1995, in Atlanta, a group led by Georgia-Pacific, Southern Co., Blue Cross and Blue Shield of Georgia, BellSouth and Georgia Power formed the Value Purchasing Alliance. It was a consortium that would use its collective bargaining power to reduce drug costs by 10% to 25%. The group planned on saving money for companies and employees by purchasing managed care, dental care, vision and home health care plans. And in 2004, Quantum Health introduced a new model of healthcare that held cost increases to one-third the national average, saving participating employers $13 million. Called Community Coordinated Healthcare, it featured “Care Coordinators” who would stay in contact with patients, doctors and hospitals. The project has determined that 18% to 20% of health care events never needed to occur and can be eliminated or reduced through better coordination. So the care coordinators funnel more care through primary care physicians; employers say use is up nearly 30%, with a corresponding decrease in emergency room and specialist use and fewer prescriptions.

Reduce smoking

A study by DuPont has placed a price tag on seven health risk factors. The most expensive employee is the smoker, by far. The study covered 46,000 employees, and found from 10% to 32% higher rates of absenteeism among those who had the factors in question. Smokers, at $960 per year, were more than twice as costly as overweight people, who cost the company an extra $401. Alcohol abusers cost $389, those with high cholesterol, $370, high blood pressure, $343, inadequate seat belt users, $272, and non-exercisers, $130. The study was conducted by DuPont‘s Health Promotion Program, who found their total cost for high risk employees to be $70.8 million per year.

We know a couple of things that haven’t worked to reduce the cost of health care. Downsizing is one of them. It was blamed for increasing costs, said a study of 31,000 Canadians by Canada’s Public Health Agency. It causes increased workloads, which cause stress and other health problems; any savings that businesses may have seen by reducing their payrolls is possibly being negated by increased health care costs and absenteeism.

And here’s another piece of useful information. Making employees pay more of their drug costs can save employers money in the short term, said Brandeis University research, but it means some will take fewer drugs, and some will stop taking them altogether, and rather than saving money, the result will be higher health care costs. The study found that when employees who were supposed to be taking either cholesterol-lowering statins or ACE inhibitors were shifted to higher co-pays, more than 20% stopped taking them.

In summary, here are thirteen steps that have been shown to reduce health care costs.

  1. Take action to reduce stress
  2. Encourage employees to decrease obesity
  3. Introduce wellness and prevention
  4. Make the culture more supportive
  5. Move health care onsite
  6. Improve safety efforts
  7. Provide mental health care
  8. Offer financial and other incentives
  9. Offer prenatal care
  10. Give employees more choices
  11. Save on prescriptions
  12. Create partnerships with other employers
  13. Reduce employees’ smoking
  14. Read new researches, like In Vivo Pain Studies
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