Human Capital & Careers

Health Benefits: Protect the Spillover Effect

Why health care innovation cures communities -- and why it must be protected.
CFO StaffNovember 1, 1998

At this time of year, many employers reassess their current employee health benefits, and actively explore alternatives that promise greater affordability, flexibility, and quality. That annual enrollment process is of enormous importance to how health care in the United States is purchased and delivered, since more than 160 million Americans obtain their health insurance through the workplace.

Today, many employers don’t just purchase health insurance coverage, they are actively involved in improving the quality of coverage and care that their employees receive. But all that could change if proposed changes to the 1974 Employee Retirement Income Security Act become law.

These changes would greatly expand employer liability for health coverage claims. Companies actively engaged in improving quality would expose themselves to the threat of personal injury and wrongful death lawsuits, as well as limitless punitive damages. Instead of promoting accountability for their behavior as proponents claim, such proposals would prompt many employers to abandon their quality initiatives or drop their sponsorship altogether.

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The victims of that outcome aren’t limited to the employees of a particular corporation. That’s because, thanks to a recently discovered phenomenon called the Spillover Effect, these hands-on employer initiatives are improving health quality for entire communities across the country.

The Spillover Effect occurs when health initiatives undertaken by a large employer for its own workforce–such as requiring specific performance standards from the plans it deals with–actually “spill over” into and benefit the broader communities in which the employer is located, or the industry sectors in which it participates.

As documented in a recent study by The Business Roundtable, the Spillover Effect occurs in various ways. Consider, for example, when an individual employer requires health plan improvements, which the plan then applies to other customers. In North Carolina, for instance, Burlington Industries’s healthy- babies program was so successful at providing prenatal care to at-risk mothers that the number of low-birth-weight babies born to employee families at just one plant dropped from 10 to 0. As other textile companies sought to duplicate Burlington’s success, its insurance carrier made the program part of its standard benefits package.

The Spillover Effect is also evident when an employer requires improvements of one health plan, causing competing plans to make similar improvements. One large employer may use dozens of health plans, so its purchasing power can have a positive national impact far beyond its own workforce. GE’s Six Sigma program, for example, is credited with pushing its health plans to make systemic changes to achieve quality improvements in access, customer service, and care. And other employers require their health plans to meet regularly to share best practices, as a means of achieving the highest common denominator of care.

A third illustration of the Spillover Effect has large employers helping to form business coalitions with smaller companies, which set improvement goals for the entire community. In Cleveland, hospital mortality rates for a number of common procedures declined after the Cleveland Health Quality Choice Coalition distributed comparative data on local hospitals. And some coalitions have shown they can actually save money by improving quality– for example, when the Central Florida Health Care Coalition helped establish clinical best practices in 17 Orlando hospitals, generating $300 million in savings while enhancing outcomes in such critical areas as heart- bypass surgery.

As these examples show, everyone ultimately benefits from the Spillover Effect. Threatening employers with liability and forcing them to take a hands-off approach would be a tragedy–for Americans whose employers are committed to improving their coverage and care, and for the millions more who are poised to reap the spillover benefits of that commitment.