Even as increases in the cost of health care have moderated significantly in recent years, for finance departments the issue remains a festering wound.
After many years of shifting costs to employees and promoting programs designed to keep them healthier, employers — large ones, that is — are still experiencing average annual cost hikes of about 4%.
Smaller firms are faring even worse. And more complications loom, thanks to the 40% excise tax imposed on high-cost health plans by the Affordable Care Act. In December Congress delayed the tax’s effective date from 2018 to 2020, but nevertheless the reprieve is only temporary.
Many studies have shown that, because scheduled increases in the tax are tied to the Consumer Price Index rather than the perpetually higher rate of medical cost inflation, virtually all companies will likely be subject to the tax within a few years of 2020. In a recent study by Willis Towers Watson, 70% of the 467 responding employers said the delay will have a small or negligible impact on their health-care strategies for 2017.
Indeed, the discussion about companies having to get their health costs down specifically in order to avoid the excise tax is an “odd” one, observes Randy Abbott, senior health and benefits strategist for Willis Towers Watson.
“The survey result is not surprising, because employers have been managing health-care costs aggressively for many years,” Abbott says. “The mindset that the excise tax [is driving that effort] kind of presumes that employers hadn’t been doing anything in the meantime.”
There’s always a cutting edge in health-care cost management, and over time the companies that are most progressive in that arena tend to have a 2.5 percentage point advantage over the field, according to Brian Marcotte, CEO of the National Business Group on Health (NBGH), which represents the perspectives of its 425 employer members on health policy issues.
That is, if the trend in health cost increases is 4.5%, the progressive employers will be around 2% — and will remain immune to the excise tax for much longer.
To Marcotte, the cutting edge is about addressing employees’ health needs from a holistic standpoint.
With traditional corporate wellness programs, he notes, someone who’s at risk for high blood pressure or cholesterol, say, merely gets incentives to see a doctor, work with a health coach, or follow a treatment regime
“Now some companies are beginning to evolve those strategies,” Marcotte says. “They’re looking at social determinants of health, including individuals’ emotional well-being, financial well-being, community well-being, and social connectedness. For example, someone at risk for high blood pressure who happens to be heavily in debt is probably thinking more about putting food on the table than about blood pressure.”
To address such situations, a company that has historically offered programs to help employees prepare for retirement may now implement financial well-being programs tailored to various stages of life, Marcotte suggests. The point is that employees need more help staying healthy than they’ve typically been able to obtain from wellness programs.
Another major effort by companies to cut health care spending — requiring or encouraging employees to select a high-deductible health plan in a bid to transform them into sophisticated consumers of health care — has not yielded optimal results either.
“Employees are never really going to be sophisticated consumers of health care,” he says. “The system is too complicated, and they don’t touch it enough. That’s why you’re seeing concierge services emerge that support employees end to end, whether for benefits questions, health-care issues, health improvement coaching, or navigating the health-care system.”
Marcotte is referring to a group of companies led by Accolade, Quantum Health, and more recently, Compass Professional Health Services. Each offers a single entry point to all things health care and easy access to health clinicians.
The greatest cost savings from the use of such providers are realized when employees (or their dependents) that need high levels of care form a relationship with a knowledgeable person who understands their health profile as well as their employer’s health benefits.
Temple University Health System launched a relationship with Accolade at the beginning of its 2016 fiscal year, on July 1, 2015. The arrangement does not address the organization’s role as a health-care services provider, but rather provides services to the 6,400 employees (and more than twice that many dependents of those employees) participating in the system’s health benefits programs.
Among other goals of the program, the opportunity to save money by increasing employees’ engagement in their own health is crucial, says Robert Lux, CFO of the four-hospital system. In its last fiscal year, Temple racked up more than $80 million in internal health care costs, which amounted to about 4% of the $2 billion in revenue the company generated, Lux says. Temple is experiencing health cost inflation of 3% to 5% per year.
“I had run the gamut on being able to get savings from changing benefit plan design, switching to self-insurance, and better managing drug costs,” he says. “We needed to do something different—something that was going to engage employees and their families in a more active world of wellness.”
While Accolade’s usual revenue model currently is a per-member, per-month fee, Lux spent an entire year negotiating a deal under which the parties set a budget for Temple’s internal medical and pharmaceutical spending for fiscal 2016. To the extent actual spending comes in below that threshold, Accolade will share in the savings.
And if spending goes over the budget, “we will both feel the pain,” he says. “So this is not a relationship where I just pay a bunch of fees to a vendor who’s fulfilling its ‘service’ as long as they answer the phone.”
Through the first six months of the fiscal year, spending was “a couple of million dollars” below the budget for that period, Lux says. He declines to say what spending level the budget calls for but claims that it represents a smaller increase from prior-year spending than the national average for employers. “It’s not like it was an easy bar to meet,” he says.
While Lux acknowledges that health costs are volatile and that he doesn’t yet know the full year’s results, he’s confident that the spending will be under budget.
If you have better management of a person’s health before it reaches a crisis state, “you’ll end up with fewer emergency room visits and fewer in-patient admissions,” Lux says. “It’s about engagement, the development of a relationship between the health coaches and people who are dealing with medical issues. They develop a trust that allows them to make the right decisions about what to do and when to do it.”
Engaging the Audience
Services like Accolade and Quantum Health have been in business for a number of years, but they haven’t “taken off in a huge way,” says Jordan Silvergleid, a vice president at The Advisory Board Company, a health care research firm. That’s because the services they provide, with clinicians getting very involved in patient care — for example, calling up the hospital to coordinate episodes of multiple-provider care — are expensive, Silvergleid says.
Now, with leading-edge companies focusing on engagement as a tool to rein in health-care costs, the engagement services providers may be primed for that takeoff. “They’re great services that deliver results,” Silvergleid says. “The savings often can make up for the per-member, per-month cost. They are best-suited for companies with older or sicker populations that have more complex cases.”
Compass Professional Health Services has a slightly different model that depends somewhat less on clinicians’ expertise and somewhat more on technology services to help employees solve medical issues. Another, newer provider in that category is Zest Health.
“People are starting to recognize the value these services provide, and more companies should learn about that value proposition,” says Silvergleid.
Consulting firm Aon Hewitt partnered with an unnamed provider of health engagement services on an extensive, seven-year study of how health-care engagement services affected a large national employer. The study, which focused on heart disease and diabetes patients, showed the following:
- A decline in the hospital admission rate from 70.5 per 1,000 plan members in 2006 to 52.3 in 2013.
- Hospital days per 1,000 members fell from 309 to 240.
- Average in-patient admissions costs for acute care increased by just 1.8% during the seven years, compared with a national benchmark of 6.9%.
Under the arrangement between the employer and the engagement services firm, the latter offered to act as adjunct members of physicians’ staffs, keeping the doctors’ costs down while providing cost-saving services to employers, says David Fortosis, senior vice president of health strategy for Aon Hewitt.
“Neither primary care doctors nor specialists have the time to follow up directly with patients to make sure, for example, that they’re adhering to their care plan,” Fortosis says. “In this situation the doctor gets paid something for that telephonic consultation. There aren’t a lot of insurance carriers that will do that. So it’s a win-win for the employer, the patient, and the doctor.”
Only the most forward-thinking employers will consider such arrangements at present, he adds. “We’re talking with clients about it a lot. Many of them still believe their carrier is doing a good job. Also, the employer has to front some money to pay for the third party in order to bring the benefits on the back end.”
Perhaps most significantly, employers may be skeptical that the interventions will actually change people’s behavior, notes Jason Mahler, Aon Hewitt’s senior vice president of health and benefits.
A key to making the seven-year program pay off was the identification up front of about 3% of employees with cardiac issues and diabetes as primary drivers of claims costs. Organizations like Accolade and Quantum Health typically don’t carve out chronic and complex cases, Fortosis notes, instead providing a blanket advisory approach to the full spectrum of health plan members.
Some hardened finance types might consider “engagement” to be a soft concept with no bottom-life benefit, but it’s a powerful one when it comes to health care, says Marcotte.
NBGH hosts two summits per year for its employer members. At the most recent one, attendees were asked to text a word one two-word phrase representing what “keeps them up at night” regarding the provision of health care benefits. The more often a particular word was typed, the larger that word appeared on a screen in the conference room. The word “engagement” dwarfed everything else on the screen.
“Engagement came up in every session we had during the say,” Marcotte says. “Companies are struggling with how to engage people in the use of resources they are making available.”
For instance, if a company offers a new program for people contemplating knee or hip surgery, it may put out a communication that sweeps in people considering surgery at that time. But someone who begins to have a knee or hip problem six months later probably has forgotten that the service is available.
In response to that issue, NBGH has formed a health innovations forum in which member companies like Boeing, Lowes, and WalMart vet startup health technology vendors, especially those that combine data with technology and push communications to employees at the time they have a need.
The vendor that has generated the most buzz is Livongo, which provides a glucose-monitoring unit to diabetes patients and communicates with the unit just after patients take a finger-prick test. “If you’re hypoglycemic, you get a communication right then about the things you can do correct that,” Marcotte says. “What makes the difference is that you receive that communication at a moment when you’re not feeling well.”
Lowes conducted a pilot test with 742 diabetic health plan members starting in December 2015 and considered it successful enough to make it available to all 120,000 employees, about 5% of whom are diabetic, according to Bob Ihrie, senior vice president of compensation and benefits.
The company took action after its health care “navigators” — employees of Accolade and Quantum Health, both of which it has contracts with — informed Ihrie that many diabetic employees weren’t controlling their glucose levels because they couldn’t afford the tests.
That prompted Lowes to hire Livongo and also to provide the employees with free test strips, saving them $60 a week.
“We don’t offer a lot of broad-based incentives to our employees, but it makes sense to offer one like this to people that we know are likely to end up with claims,” Ihrie says.
Ihrie also recently expanded nationwide with an application from Omada Health that’s aimed at controlling the weight of pre-diabetics.
Marcotte of NBGH also cites Hello Heart, an application for controlling blood pressure, as a promising tool. And Silvergleid points to Zipongo, a new nutrition app, Sleepio, which helps with sleep management, and Healthiest You, an easy-to-use alternative to telemedicine providers like Teladoc and American Well, as evidence of the proliferation and specialization of digital health vendors.
“There are just a huge number of these apps, because Silicon Valley folks are getting tons of money to fund health-care startups,” says Silvergleid. “In fact, there’s a big question for employers now: How do we figure out which of these things makes sense for our population?”
So, do companies that employ such highly personalized engagement strategies have a chance to fend off the impending Affordable Care Act excise tax? Yes, says Marcotte—with a big caveat. “The cutting edge is not doing just one of these things,” he says. “It’s doing everything you can to look at the health of your work force as part of your overall business strategy.”
David McCann is a deputy editor at CFO.
Health care costs for large employers are once again moderate this year, estimated to rise an average of only 4% from the 2015 level, according to Willis Towers Watson.
This year’s annual Emerging Trends in Health Care survey — which counted 467 respondents, all from companies with at least 500 full-time employees — was the fourth consecutive one showing an increase of less than 5%. Those four annual increases were also the four smallest of this century.
But the recent, relatively modest upward cost ticks may not warrant much celebration, as a more salient statistic is the difference between health-cost inflation and general inflation. We wouldn’t be hearing so much about the former if it weren’t far outpacing the latter.
The CPI-U — which tracks inflation experienced by urban consumers — inched up by only 0.1% in 2015, the second-lowest since 1962. The CPI-U climbed at rates lower than historical norms the previous two years as well, at 1.5% and 1.6%, respectively.
Health cost inflation can grow at a greater rate than seen last year but still represent a rosier outcome. For example, in 2008, the CPI-U was up by 3.8%, or more than two-thirds of the 5.3% health care cost hike.
By comparison, last year’s 0.1% consumer inflation was just one-fortieth of health cost inflation.