Human Capital

To Better Manage Health Care Costs, Ditch the Silos

Addressing medical, pharmacy, disability, and workers' compensation programs separately interferes with companies' efforts to control health care c...
David McCannDecember 13, 2019
To Better Manage Health Care Costs, Ditch the Silos

With health care spending growing faster than the economy and likely to reach 20% of GDP by 2027, U.S. employers are forced to make health care cost control a top priority, sometimes to the detriment of their employees and business performance.

But the fragmented approach most employers have taken by addressing medical, pharmacy, disability, and workers’ compensation programs separately has only served to shift these costs around these different benefit silos.

Moreover, the introduction of high-deductible health plans — designed to encourage employees to take more responsibility for their health and be more cost-conscious — has reduced not only unnecessary care, but also necessary care.

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In fact, our recent study found that on average, employees who experienced a cost-related obstacle to care had 70% more sick days than peers who had no cost hindrances to accessing care.

These unintended consequences demonstrate the need to abandon the “vertical,” silo-based approach to health management and instead adopt a “horizontal” strategy. As long as employers organize and incentivize benefits programs to be managed independently — health care in one silo, pharmacy in another, absence and disability in a third, and workers’ compensation in a fourth — program managers will have every incentive to shift cost and risk across these boundaries and to employees.

An analysis undertaken by our researchers demonstrates why a horizontal approach to program management is more effective. The assessment shows that lost productivity associated with poor health — both from work absence and reduced performance at work — topped $530 billion in the United States in 2017.

Consider the implications:

  • Lost productivity rises to the equivalent of nearly two-thirds of what employers spend on health care. Put another way, lost productivity’s economic consequences exceed the total combined revenues of Apple, Amazon, Microsoft, Netflix, eBay, and Adobe.
  • Lost worktime associated with poor health equals 1.4 billion days — the equivalent of every registered nurse in the U.S. missing an entire year of work.

Employee benefits directors may say, “But controlling health care costs is all that my chief financial officer cares about.” However, we see a broader perspective from CFOs.

In our post-Affordable Care Act survey of 345 CFOs, fewer than half said controlling health care costs was the most important goal of their company’s health programs. Managing costs was identified as an important goal to be sure, but CFOs also identified, as equally important goals, attraction and retention of employees, responding to government regulations, helping employees be healthier, and improving productivity and business performance.

The impact of human capital on business performance has never been more crucial for employers, and employee health is an important part of that equation.

There was a time in U.S. history when labor was considered “fungible” — employers simply could replace ill or injured employees with someone else, so considering other consequences of health wasn’t seen as business-critical.

Those days are gone. Not only do government laws and regulations prohibit such a response, but low unemployment and declining health status make it literally an ill-advised strategy as well.

Everything about health is connected at the employee level in a very holistic way. Employees are not “sliced up” into separate dimensions of health care, pharmacy, disability, performance, and the like, yet employers have tended to develop vertical, siloed benefits strategies — and separate and independent databases — as if they are.

To get a real handle on health care costs, not we have to do more than vastly increase our focus on health and well-being. We must connect and integrate person-specific data so that we’re able to measure and analyze the outcomes of health plan designs and interventions that drive the performance of our people and our businesses.

Only then will we be able to align the interests of employees and employers around health and health investment, and leave the cost- and risk-shifting, zero-sum game strategies in the past.

Thomas Parry, PhD, is president of the Integrated Benefits Institute.