Rising health care costs and business response strategies

¶ … Higher Health Care Costs on Businesses

Without doubt, America faces some heavy challenges in the forthcoming years. First, still reeling from the terrorist attacks of September 11, 2001, the United States struggles to find the medium ground between protecting its border and sacrificing its people's civil liberties and stepping on other countries' sovereignty and freedom. Most recently, we've faced a large budget crisis, with huge line items such as Social Security and the social welfare net being threatened like never before.

Of course, we face our usual income disparity issues, with the rich getting wealthier, and the poor being evicted from the job market altogether, and with a sense of finality. Then there are the scores of environmental issues, crime issues and the large divide between the "blue" states and the "red" states.

But none of these problems may be as galvanizing and as critical to solve as the nation's health crisis. As is often reported, the United States is the largest civilized and industrialized nation with such a high percentage of its people sans health care, or the access to health care.

The cost of health care in America is astronomical, with the basic system working as follows: Employees purchase health care plans from their employers, which often subsidize the plans' cost for their employees. Employees then only pay small co-pays for each doctor visit and each prescription medication; of course, they are often limited in doctor-choice by their individual health plans.

Many factors are increasing health care costs, including malpractice suits against doctors, rising pharmaceutical costs via FDA-approval and patent litigation, higher administrative costs associated with doctor coding and billing and many others. There will be many implications of the rising costs in health care on business, but three of the biggest ones are the appearance of employee wellness programs, the changes in medical licensing for doctors and the quick shift to HSA plans in the forthcoming years.

Employee wellness programs are cost-effective

Employee wellness programs are the newest wave in our all-important war against spiraling health care costs. Every facet of health care has become more expensive over the last several years: This year's presidential election debates showed how health care has reached the forefront: Both candidates argued that something must be done about the phenomenon, with Republicans railing against malpractice insurance costs, and Democrats pointing fingers at the barring of cheaper drugs from Canada.

Flexible spending accounts are being evaluated as a step-up from health savings accounts as a way to incentivize employees to minimize their heath care cost waste, but the move might not be enough, especially considering the fact that many employees will choose not to use it, and companies may be forced to offer both FSAs and more traditional plans.

One type of system that is bound to work, however, is the employee wellness program. Pfizer has the quintessential model, from which we may springboard our analysis.

Pfizer, the multibillion dollar pharmaceutical, is in the health care business, and feels a strong benefit in offering cutting edge health benefits to its employees. That is why it trumpets its employee wellness program. The goals of the program are stated as follows:

Assist Pfizer to attract and retain the best people.

Develop employees into the most productive and engaged workforce possible.

Enhance employee and dependent health by primary, secondary, and tertiary prevention.

Maximize the value of the benefits offered by effectively managing health care resources.

Assist employees and dependents to be informed and efficient consumers of health care.

These goals apply to both employees and their families. Pfizer makes very public its employee wellness initiatives, both to popularize them, and to improve employee retention.

As a result, in some Pfizer offices such as in New York City, employee participation is at nearly 85%. In fact, here are participation numbers straight from Pfizer: "Interest and participation in the Premier Employer Program is very high. In Pfizer's New York location, 85% of employees participated in one or more of the programs described above, and 80% of employees used on-site health services in 1998. Over 46% (1,300 members) of the total population participates in the fitness center, and there is a waitlist of 200 for enrollment since 1,300 is the highest number of members this center can accommodate. The fitness center in Groton, CT had 672 members and at the time of this analysis was at full capacity (this center has since expanded). Participation rates at other locations are similar for on-site initiatives. Participation rates vary by program component." (www.pfizer.com)

Pfizer pursues a number of different facets for its employee wellness program. Here is a list of some of these sub-programs:

Health risk assessment/identification initiatives

Wellness and health education initiatives

Disease management initiatives

Medical clinics

Fitness centers

On-site Physical therapy

Ergonomics program

Managed disability

Welfare benefits/health care delivery evaluation/enhancement initiatives

One Step Forward, Two Steps Back

Our basic system of economy is that of the free market. The supply and demand for certain goods and services set price and availability and, of course, quality. For instance, there is now a huge demand for digital cameras, so the quality is rapidly increasing on every model, as each brand of camera lowers its prices several notches to compete with the other brands.

The result is better products and lower prices: the essence of perfect competition, or at least what passes for it in our modified free market economy. Of course, there are checks and balances worked into our economy that interfere with the free market process, but for public policy reasons. Most of these checks and balances are built in with the understanding that life is finite, and ends at some point.

For instance, there is a social welfare net to provide for those who are unable to take care of themselves. In a pure free market system, that welfare net would not exist because it would be inefficient, but we have one because we cannot in good conscience let those who are less fortunate than us in certain ways suffer for their entire lives. We trade economic efficiency in for insurance, in a matter of speaking.

The same situation holds true, and to an unparalleled degree, in our health care system. We require much more regulation and licensing of anyone and any entity involved in proving health care in our country than we do in any other industry. In general, proponents of licensing argue that we cannot simply let the free market take the reigns of our health care system since lives are at stake. Instead, we must impose strict guidelines on doctors, nurses, physicians' assistants to ensure that they have the qualifications and have passed the necessary loops to be entrusted with treating patients.

However, a close examination of the licensing guidelines, restrictions and procedures reveals that licensing in the medical fields only contributes to rising health care costs and not to patient quality of care in the long run at all.

A clear indication of the ineffectiveness of licensing stems from a report issued jointly by the Federal Trade Commission and the Department of Justice advocating sweeping changes in our health care practices in order to drive down costs and fraud. In the report, issued in July of 2004, the two departments wrote, "Consider broadening the membership of state licensing boards, as boards with broader membership could be less likely to limit competition." (www.ftc.gov)

Here, the two governmental arms agree that changes must be made to licensing procedures, at the state level. A broader membership base would allow more service providers into the health care economy, driving down price and increasing quality of care via competition. The Federal Trade Commission and the Department of Justice decry the limited entry system we have in health care today as an artificial limitation on the possibilities of health care, both from a costs perspective and of course from a quality-of-care perspective.

By allowing more providers into the health care economy, the DOJ and FTC also state that different types of medical healing would be given the opportunity to help people. The report continues, "Consider implementing uniform licensing standards to reduce barriers to telemedicine and competition from out-of-state providers" of health care services.

In that call-to-arms, the DOJ and FTC directly ask for lower licensing standards to allow patients to receive more care, of a disparate variety, that will drive costs down and quality of care up. If a patient can call a doctor over the phone to receive treatment, he is much more likely to do so. The doctor profits, the patient heals, and all is done at a lower costs through two angles: First, it is more efficient from an economic perspective for a patient with, for instance, a simple cold to talk to a doctor over the phone than to visit a doctor in his office. That is the first cost reduction principle. Second, more doctors will be able to provide more services over the phone in smaller amounts of time, increasing the availability of services, thereby reducing costs.

The Future of Freedom Foundation agrees with this principle of lowering licensing requirements too: "A few licensing laws existing at the time of the Revolution were soon repealed. The three principles outlined above elevated America in the 19th century to the healthiest nation on earth, although the American people were mainly poor immigrants. Innovation produced many new systems of healing. However, if you wanted to visit a witch doctor, it was your right. Herbalists, nature-cure therapists, hydrotherapists, nutritionists, osteopaths, allopaths, homeopaths, and eclectic practitioners offered services. There were a variety of healing schools and clinics. No healing modality or group of healers had a legal advantage over the others. Whoever helped people the most prospered." (www.ffc.org)

In other words, the Future of Freedom Foundation decries the lack of access for alternative providers of medicine. What of the osteopaths, allopaths, homeopaths and other specialists who do not have state medical licensing but have the ability to truly heal people? They were allowed to practice in the 1900s, but are not allowed to practice today, at least with the same recognition as medical doctors who are licensed.

The Future of Freedom Foundation has one simple test: If you can help heal people, then you are "licensed." Eliminate external and extrinsic tests that are not directly related to patient care and health, but are more related to jumping through red-tape hoops.

The Future of Freedom Foundation report continues, "Getting rid of the medical-licensing laws, HMO laws, and government subsidies to medical schools and drug research would terrify the monopolists but it would return the health system to health and sanity. Competition would increase, prices would drop, insurance might not even be necessary, and access to care would increase." (www.ffc.org) Is not that the goal of both the Democrats and the Republicans? To increase the quality of care while decreasing the cost of care?

By removing licensing standards, we would cut down on the monopolistic power of the American Medical Association and widen the field for research and practice: Of course, we want to maintain some guidelines and control over who can practice, but that can be done by looser federal licensing guidelines, not state-specific red-tape as we have now. That is also what the DOJ and FTC advocate.

A recent report by the National Conference of State Legislatures also deals heavily with licensing guidelines, restrictions and procedures. (www.ncsl.org) Licensing regulations interfere with our pure free market system in a manner that is far too restrictive.

Even Milton Friedman, the Nobel Prize winning economist, agrees: "I am persuaded that licensure has reduced both the quantity and quality of medical practice.... It has reduced the opportunities for people to become physicians, it has forced the public to pay more for less satisfactory service, and it has retarded technological development.... I conclude that licensure should be eliminated as a requirement for the practice of medicine."

Rather than restrict the medical field further, we need to open up the field for more to participate and accelerate research, development and technological advances in patient care. Right now, there is no true incentive for doctors and other health care providers, researchers and developers to push the envelope on cost and patient care, since they enjoy a veritable oligopoly.

As Friedman suggests, if we were able to remove, or at least relax, licensing guidelines, the sudden influx of competition would rejuvenate health care and force providers to improve patient care while holding down costs.

Of course, the risk is that doctors and health care providers would make less money, making the health care industry less attractive financially to our nation's best candidates to practice medicine. But, that is only true to a certain extent. It is entirely possible to keep wealth in the medical profession by nationalizing licensing standards to a lower level, and removing state licensing standards entirely.

Health care licensing is the perfect example of regulation on the free market economy gone bad. Now we have rising health care costs, rising malpractice costs, rising insurance costs, with one of the lowest standards of care in any civilized first-world health care system. This is simply unviable. We must reduce licensing standards to allow more practitioners in the field to push the envelope on patient care and lower the costs of effective health care.

Switching to HSAs an options?

The most cutting-edge wave of companies, dealing with these increases in health care costs, will make a huge move in 2005 or 2006: They will switch to HSAs. Instead of choosing a regular health plan for these years and the years to come, several companies will choose plans with much lower premiums, but higher co-pays. They will instead be providing the saved money directly to their employees' HSA accounts. These funds can be used by employees to pay their (higher) co-pays or for prescription medications.

The reason for this switch is to reduce health care costs across the board: With employees more invested financially in their health care decisions, they are more likely to visit doctors only when they truly have to, and take medications and have tests done only when they truly have to.

In other words, employees are incentivized to reduce health care costs not only for themselves, but for the entire system. The result is an amazing efficiency, according to proponents of HSAs and other lower-costs, higher deductible health plans. Again, it is the free market at work, reducing costs and creating efficiencies where once inefficiencies existed.

The opponents of HSAs and higher deductible health plans argue that the health care costs will actually skyrocket because patients and employees will not get the preemptive tests they need because of cost: and relatively minor health issues will turn into grander issues instead.

Whatever the case, we are soon to find out, as companies nationwide will begin switching to HSAs this year.