Burgeoning healthcare costs, rising at a much higher rate than inflation, create one of the most serious financial challenges faced by today’s businesses. What can an employer do to help contain cost increases? InterBusiness Issues asked four of its expert contributors to address what Peoria area businesses can do to help limit healthcare cost increases.
Ron Jones, Mutual Medical Plans, Inc.
One of the factors that causes healthcare costs to escalate is too many medical facilities in a community. Peoria area employers would save an estimated half-billion dollars or more during the next 10 years if Proctor Hospital was converted to a world-class retirement community. Downtown Peoria hospitals already have the necessary equipment and facilities to absorb the patient care provided by Proctor. Methodist and Saint Francis Medical Centers already have sufficient department heads, administrators, and employees. The estimated actual costs in food, medicine, and supplies for the downtown hospitals to handle Proctor patients is $10 million or less annually – while Proctor will consume an estimated $60 million healthcare dollars in 1992.
Proctor’s potential as a retirement community is enormous. A back yard golf course already exists. Adding swimming pools and tennis courts would make this a dream facility for seniors seeking the security and comfort of a good neighborhood. Shopping centers are nearby, and doctors offices are located in an adjacent building. The facility would sell itself to a mushrooming retiree population. Since you can drive anywhere in Peoria within about 10-15 minutes, the central location of Peoria’s downtown hospitals would not be an inconvenience. A 24-hour clinic or physicians office on Peoria’s north side could further minimize potential inconveniences. And since large retirement communities utilize numerous employees, a good portion of the current employment level would be retained.
Employers have the ability to cash in on massive savings from discontinuing support of too many hospitals in a shrunken Peoria population. The vehicle is called preferred provider agreements (PPAs). Caterpillar, and several other major employers, have largely discontinued support of Proctor by penalizing or excluding them from their PPAs. Moreover, it is now possible to get PPA discount contracts from both of the downtown hospitals at the same time.
Unnecessary hospitals and other medical facilities constantly fuel the healthcare cost fire by creating marketing strategies left and right in order to survive. The heavy direct and indirect cost of the hospital marketing creates an added financial burden on healthcare plan resources. Local hospitals spend a substantial portion of their budgets in planning and implementing medical care programs designed to increase patient traffic and market share. The proper number of hospitals in a community would eliminate the need and, therefore, the cost of elaborate hospital marketing efforts. Eliminating unnecessary facilities would have a synergistic effect on reducing healthcare plan costs, as hospital begin competing strictly on quality of care, rather than on Madison Avenue flair.
While the greater Peoria area population has decreased substantially in the past decade, healthcare facilities have drastically increased, resulting in unnecessary duplication of services. With open-heart surgery available at both downtown hospitals, it was for marketing reasons only that a third program was created. This unnecessary duplication of services adds to the combined cost of area healthcare. Hospitals and other healthcare providers must pay for the elaborate services they offer to attract more patients, which in turn means that area employers pick up the tab for services which are unnecessary in a community which already has enough facilities.
Americans must eventually face the need to cut the duplication in unnecessary healthcare facilities. Peoria’s situation provides a perfect opportunity for businesses who wish to get serious about attacking the healthcare cost problem.
Raylana Anderson, McGladrey & Pullen
Employers are all faced with the issue of what to do about employee healthcare benefits. How can individual employers meet both the cost containment and employee relations goals? One answer is to “flex” their benefit program.
Implementing a flexible benefit program requires employers managing their benefit plans and communicating with employees – a perfect combination toward achieving the two-part goal. The responsibility for spending benefit dollars on the plans which are valuable to them helps employees appreciate the value of each program. At the same time, employers are not left funding benefit plans which most employees do not value. Flex’ing benefits is a manageable, step-by-step process:
• Know and understand your benefit plans. Many benefit programs have evolved over several years in response to a variety of forces. Few employers have used a plan to control this growth. Before you flex, know the components of the program. Decide whether plans already in place are appropriate – whether someone should be added, deleted or revised.
• Communicate with your employees. Tell them you’re reviewing the program and ask for their support. Begin a program to encourage wise healthcare buying. Good choices will benefit everyone.
• Scrutinize the group health plan. This is likely the most valuable benefit for your employees, as well as the most expensive for the company. Review the funding of your plan. Should the plan be fully insured, self-funded or something in between? Evaluate the design of your plan. Even if your plan is subject to state Department of Insurance regulation, you can make choices. Partially or fully self-funded plans have even more choices and decisions to make. Be sure the features of your plan are appropriate for your employee group. Use utilization patterns to help you make good decisions. It is important that you manage the plan administration. If COB, U&C, UR and other cost containment features are included in the plan, be sure you get effective plan management information, which should allow you to evaluate overall utilization. Demand effective management information from your providers and use it to evaluate your plan’s performance.
• Provide employees the opportunity to pay their share of premiums before taxes. “Premium conversion” is often the first part of flex’ing benefits – or it can stand alone. Employees and employers both save the payroll (FICA and income) taxes on their share of premium costs. This can be a significant savings!
• Provide flexible spending accounts (FSAs) to employees. Costs which have been unnecessarily insured on a company-wide basis (dental, vision, etc.) can be funded on a tax-favored basis by employees who value those benefits. Employees can also use this tax-favored funding to reimburse their plan deductibles and expenses excluded altogether under the group healthcare plan itself. Dependent care expenses may also be funded in an FSA. Companies save payroll taxes on those funds employees set aside in their FSAs for reimbursement of expenses.
• Allow employees to save money on a tax-favored basis (ie. a 401(k) plan) through their flex plan.
• Sponsor other coverages which employees may want (additional life insurance, cancer policies, etc.) to allow them to pay those premiums on a tax-favored basis as well.
Communicate and implement your flex program. Implementing a flexible benefit program doesn’t require including all of these choices at once. Change may be gradual, in response to your overall business and benefit goals. Flex is truly an effective method for containing healthcare costs and for maintaining positive employee relations. The important this is to start flex’ing now!
Chris Lofgren, Saint Francis Medical Center
The concern over healthcare cost has led to some interesting solutions being offered, many the result of looking to other countries and calculating a way to adapt our system to move more closely resemble theirs. Canada and Germany are frequently held up as examples we could emulate.
However, coming to a consensus on what changes to affect is proving difficult and, in most cases, out of our local control.
This does not mean we in central Illinois are left with nothing to do until Congress decides. In fact, some relatively simple actions can be taken by a business to help lower its expenses by reducing the number of physician or hospital services an employee may need to use.
Through employee education, the users of health services become more knowledgeable consumers, while learning what they can do to improve the health of themselves and their family members.
The education of employees can take many forms including an on-site informational health fair, articles in the company’s newsletter, payroll stuffers or distribution of booklets on specific health topics. Of course, the vehicle is actually secondary to the quality of the information.
But what information could or should be provided? While what follows is not an exhaustive list by any means, it may provide some ideas with which you can begin. Follow-up questions from employees can also help in selecting future topics.
1) It is important to have a primary care physician and to communicate with your physician. Having a family doctor who knows you and your family’s health history means having a physician who can wisely select which tests to order – and which test may be unnecessary. It also means a relationship in which trust, established over a period of time, can also translate into cost savings. How? If you trust your physician and feel he/she knows and understands your health needs, decisions on care can me made together. The choices made will often prove costly. (You may be thinking MRI, but your physician feels a CAT scan will provide the information needed for a diagnosis. A discussion can lead to the less expensive option without sacrificing quality of care.)
2) Costs can be cut by use of generic drugs vs. brand name drugs. When is it appropriate to ask for the generic (and less expensive) option? Explaining this to your employees will not only make them more knowledgeable consumers, but can reduce the costs of prescriptions. Do remember, it is not an “automatic” that generics should be used. This caveat must be part of any discussion on the use of generic drugs.
3) Know when to use an emergency department. Services received in an emergency department are usually more expensive than those received at a physician’s office. But when should one chose the family doctor (another reason to have one) and when is the “ER” a better choice? Knowing the answer to this can again mean savings to both the employee and the employer.
4) Have information available on health and wellness programs. Keeping fit, eating right, avoiding tobacco and excessive alcohol can be important factors in reducing healthcare costs. Informing your employees about local programs or offering free written advice can cost little, but reap much through lowered use of healthcare services.
There are, of course, other topics you can share with your employees. Even these we have mentioned can be subdivided into more narrowly focused topics. But the point is simply this: an informed employee can help reduce health care cost more than the uninformed employee. And you can assist in that process.
Richard D. Allatt, M.D., IPMR
The United States will spend over $640 billion on health services this year, with American employers picking up over $200 billion of the tab. Back pain alone will cost the country in excess of $40 billion. How can this trend be slowed? First, we need to “shape up” as a nation. People today don’t seem to find to maintain good physical health, diet, exercise and rest. Employers can assist with this by promoting employee health through wellness/fitness programs.
What is physical fitness? The American College of Sports Medicine says, “physical fitness is a person’s ability to carry out daily tasks without being overly tired.” Physical fitness has four primary components: 1) Cardiorespiratory (aerobic) fitness – the heart’s ability to transport blood and deliver oxygen throughout the body, 2) Muscular fitness – the strength and endurance of the body’s muscles, 3) Flexibility – the ability to move body joints freely and without pain, and 4) Body composition – the portion of the body weight made up of fat. If any area is neglected, possibly due to illness or injury, the body will become deconditioned and more susceptible to further injury. A person’s body will lose approximately six percent of its conditioned state per week during periods of inactivity. When a person has reached this phase, a specific reconditioning program should be prescribed – a program which will equally utilize aerobic, muscular strength, and flexibility components in order to regain proper fitness. This is one reason why wellness and adult fitness programs have come of age.
Businesses that have implemented wellness and fitness programs have seen definite financial gains. The benefits include lower healthcare premiums, decreased absenteeism, increased productivity and reduced turnover.
There will be over 1.7 million on-the-job injuries this year. Almost 25 percent will be back related injuries, and 31 percent will be attributed to overexertion. The price tag to the employer will average $5000 per single worker’s compensation claim. Programs like IPMR’s Return to Work Center provide a number of services to aid employers. The following are some of the programs that local businesses can implement to help contain healthcare costs and increase employee productivity:
• Job safety analysis – This analysis is a technique that can be employed to reduce potential hazards in the workplace. It involves a programmed method of defining jobs and tasks, identifying the hazards associated with those jobs and tasks, and creating safe working procedures that either eliminate or minimize these hazards.
• Injury prevention training – The employer identifies areas of high incidence or recurring injury, and institutes an aggressive employee-centered training program to educate and help eliminate or reduce the number of injuries. This approach is generally ongoing as new employees are hired and trained, in addition to refresher courses for current personnel. Courses such as back care, body mechanics, stress management, general safety, and materials handling are included.
• Ergonomic consultation – Ergonomics is the science of matching the job to the worker and the product to the user. A professional consultant (ergonomist) will conduct an analysis of the workplace to determine potential health hazards that may result from an improper fit between employee capabilities and job requirements. Several techniques can be used in this analysis including an audit of previous injuries, work station evaluation, bio-mechanical assessment, review of job procedures and work flow, and a video analysis of repetitive motions and manual materials handling. Recommendations are given to the employer that will help to reduce worker compensation costs, increase productivity, and eliminate or minimize safety hazards. IBI