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Rising Healthcare Costs: Can We Stop the Insanity?

 "An ounce of prevention is worth a pound of cure."
Benjamin Franklin

Was Ben Franklin America’s first healthcare expert? 

Looking back, Franklin understood how to stop the rising costs of care and what to do with the savings. As a common sense strategy to stop rising healthcare costs, an ounce of prevention is worth more than a pound of cure. Franklin also knew that a penny saved was a penny earned. By applying his wisdom today, business owners can provide quality healthcare and stop the insanity of rising healthcare costs. 

Are your healthcare costs rising year to year? 

Business owners know their healthcare costs are rising. What they would like to know is how to control those costs. Healthcare premiums over the last 10 years have increased over 114% and the worker contribution has increased 147%.¹ 

According to the national Kaiser Family Foundation annual survey as published in Financial Week, premiums now average over $12,100 a year for family coverage — with employers picking up an average of around 72% of the total cost.² 

Other surveys of employers place rising healthcare costs near the top of their concerns. Business owners face confusion over what is the right plan for them and how they will be affected by healthcare legislation. They also want clarity on the role of private enterprise and the federal government in healthcare.   

Why are your healthcare costs going up?

The primary reason behind rising healthcare costs is that we are managing effects rather than causes. Some workers' lifestyle choices contribute to chronic or acute illnesses like type 2 diabetes, stroke, heart issues, and certain types of cancer. These workers are at higher risk of significant health problems and cost their employers more than those without similar risk factors. In fact, nearly 90% of healthcare claims are due to an individual’s ongoing personal health choices.³

In a Harvard Business Review article dated December 21, 2010, “What’s the Hard Return on Employee Wellness Programs?” it states: “Although some health risk factors, such as heredity, cannot be modified, focused education and personal discipline can change others such as smoking, physical inactivity, weight gain, and alcohol use—and, by extension, hypertension, high cholesterol and even depression.” 

One example of a claim cost analysis proves why there are rising cost trends. According to a study by the Centers for Disease Control and Prevention, “During the past 20 years, there has been a dramatic increase in obesity in the United States.”  Further we note that The American Obesity Association reports that on average, a medical claim involving a worker with a normal Body Mass Index (BMI) will cost $7,500, while a claim associated with an obese worker averages more than $51,000. The difference between the two claims outlines why the cost trends are rising — approximately $43,000 on average.⁴ 

In part, this upward cost trend is protected because of HIPAA regulations. HIPAA prevents employers from knowing an employee’s BMI and other health conditions, an important privacy protection. One way to respect the confidentiality of health information and reduce costs is for employers to use the aggregated data from all their employees to predict the claims like the one described earlier. With what is known as predictive modeling, employers have proven ways to slow down the rate of rising claims by using the aggregated data. 

Is there any way to control health costs? 

The three secrets to cost control: prevention, analytics, and advocacy. While it sounds counterintuitive, spending more money wisely on prevention can actually lower healthcare costs.  Experts in the healthcare industry have shown consistent returns on their investments using prevention strategies. Specifically, they find they can lower healthcare claims costs. On average nationally, $1.00 spent on prevention has reduced claims an average of $2.45.⁵ 

As for analytics, one way to lower healthcare claims is for employers to use data analytics to measure employee progress on their lifestyle choices.  We note some research bearing this out, “Most employers who have introduced programs, such as smoking-cessation and weight-loss programs, along with data analytics to measure progress and compliance, can lower health care claims.”

Along with personal incentive plans, comprehensive healthcare management programs like those at Citibank realized $4.56 for every dollar invested in prevention. Other brand-name companies like Motorola experienced a $3.93 gain for every dollar spent on prevention, and Union Pacific reported a $4.07 gain for every dollar spent.⁶

Advocacy is not well known yet for most employers because they are trapped in the day-to-day operations of processing claims or negotiating yearly reductions in benefits or different premium plans. What we mean by advocacy is actually employee health management and coordination of care. Better advocacy or health management will include, “goals to prevent small issues from developing into full-blown health crises.” Health management will generally include an advocate assisting the employee by monitoring all the data being collected in the data analytic phase.  “Some companies that take this approach have a reported a 20 percent reduction in healthcare costs per member enrolled in the program” according to Kokulak.

Needless to say, prevention, analytics, and advocacy work. Taken together, an average healthcare management program will take 18 months to really take hold and affect your costs.⁷ 

Are there any common sense ways to stop the insanity?

There are two common sense ways to lower costs and improve lifestyles — engagement and family members. 

What is common sense, but not yet common practice, is that sustainable behavioral changes associated with prevention require engagement. Like the lessons learned from the low rates of CRM (customer relationship management) technology adoption, employees find change difficult. They often fail to take advantage of proven ways to work more intelligently or live better. 

What does engagement mean? In healthcare prevention, engagement means ongoing accountability and incentives for employees. To achieve the potential of a significant change in claim costs, prevention requires healthcare to be employee centered and employer supported over years. Both parties must be engaged fully in the ongoing process to improve lifestyle choices that drive lower costs. There are no quick fixes.⁸ 

The last common sense idea is that employee prevention plans should include the spouse. As individuals and family members, they will both have claims that would benefit from prevention, analytics, advocacy, engagement, and mutual support from the family.⁹ 

Ben Franklin might have been America’s first healthcare expert on care and costs. By applying his wisdom today, you can provide quality healthcare for your employees and stop the insanity of rising healthcare costs.

ACTAcare^® is a possible resource that provides an employee-centered model that can replace conventional health plan models that do not generally benefit either the employer or the employee. For more information contact Steve Mulder at 630-281-2575.

This article was contributed to Blackman Kallick’s Healthcare Edge by Steve Mulder and Alan W. Boal. For more information contact Paul D. Smith, Jr., Director of Blackman Kallick’s national Healthcare Services practice at psmith@BlackmanKallick.com or 312-980-2901, or your Blackman Kallick representative.

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¹ Kaiser/HRET, Employer Health Benefits 2010 Annual Survey, 2010.
² Mark Bruno, “Want to Save on Health Care? Spend on Health Care,” Financial Week, January 9, 2008, http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080109/REG/229313275/1036.
³ American Institute for Preventive Medicine, The Health & Economic Implications of Worksite Wellness Programs, 2011, http://www.healthylife.com/healtheconomic.asp. 
⁴ Steve Kokulak, “Reduce Workers’ Comp Costs & Improve Health ROI with Proactive Wellness Programs,” The Self-Insurer, February 2011, 17.
⁵ Bruno, “Want to Save on Health Care? ” 
⁶ Kokulak, “Reduce Workers’ Comp Costs,” 18.
⁷ Ibid., 19.
⁸ Leonard L. Berry, Ann M. Mirabito, and William B. Baun, “What’s the Hard Return on Employee Wellness Programs?,” Harvard Business Review, December 2010. 
⁹ Ibid. 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.