Human Capital

Execs Could Boost Profits by Owning Health Care

Judging by their apathy over fixing the health care cost problem, C-suiters apparently are comfortable the way things are, a health care executive ...
David McCannNovember 11, 2019
Execs Could Boost Profits by Owning Health Care

Earlier this year, Dr. Eric Bricker, chief medical officer at AHealthcareZ, posted a video proposing that the hundreds of billions of dollars U.S. businesses spend on health care is emblematic of a curious fact: that they have enough cash not to fix the cost problem.

The argument: If all S&P 500 companies could magically reduce health care spending by 10%, it would add up to only 3% of the record $800 billion in stock buybacks these companies transacted in 2018.

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Which means: At least for large U.S. companies, an argument for fixing health care because it’s a cost issue probably can’t be made to the C-suite.

Having spent much of my career in health management positions for large energy companies, the video reminded me of a rare interaction with a CEO.

I’d recommended that by working collaboratively among internal health management silos, the organization could save $50 million in one year. While the CEO supported the effort, he said he couldn’t get involved because he only dealt with decisions where billions of dollars, not millions, were at stake.

One could only imagine the waste if this attitude were to be replicated down the chain of command.

Employers primarily provide health care to help with employee recruitment and retention. Or as one benefits director recently stated, “We do not manage health — we just pay the bills.” In other words, if you can keep up with the Joneses, it doesn’t matter if you are purchasing for value.

The “mere” $240 billion S&P 500 companies spent on health care in 2018 is apparently a tolerable amount — one that must make perfect sense to C-Suite executives, considering their lack of outrage or personal engagement in fixing our broken health care system. After all, it’s not their core area of business, nor is it something that can be easily understood by those not in the trenches daily.

Increasingly, the quest for top-notch talent in today’s marketplace is highly competitive. Health care could be used as a differentiator today in ways it could not in the past. There is ample evidence that increases in health care premiums (and consequent cost shifting to employees) have significantly eaten into what employers could have otherwise provided in salary increases.

Indeed, much of America’s workforce has not had a substantial pay hike in 15 years, in no small part because of ever-rising health care costs. Paying for care is one of the major stressors in today’s workforce, especially among millennials.

There are many ways a company could save 25% on its health care costs while at the same time improving the quality of care received, especially given the direct relationship between quality and cost.

Unfortunately, most health care purchased by employers is devoid of quality considerations. To change that, employers must have more skin in the game and rely less on external intermediaries that may not have as much invested in outcomes as the employers do.

Employers need their health plans and benefits consultants, but the argument must be made the health investment portfolio should primarily be owned by a C-suite position, based on the financial impact  of recruitment and retention alone.

Most employers have not wavered beyond the 8% to 11% of compensation devoted to health care, hence the rise in cost shifting. Imagine the advantage a large employer could have over its competitors if it could recruit with the message that it offers lower health premiums and better-quality care, a commitment that results in better pay raises than other employers.

Looked at that way, it could actually be worth billions.

Such a focus on total well-being would be well received by today’s workforce.

Chris Skisak, PhD, is executive director of the Houston Business Coalition on Health.