Causes and Implications of Rising Health Care Costs on Businesses

¶ … 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

Employee Assistance Program (EAP)

Let us examine each of these in turn to determine the value of such a program to employee wellness initiatives in general. First, health risk assessment / identification initiatives. These programs are truly health care risk management at its best. Here, doctors evaluate which employees are at risk for, for instance, heart disease, lung disease, back trouble, diabetes, etc.

The value of early assessment is manifold. First, it adds to employee retention. Employees will look at a program like this and realize that the company has the employee's best interests at heart. Second, costs are saved in missed time at work. If a disease such as heart disease can be detected early, and perhaps prevented or ameliorated, the employee misses less time at work, health care for the individual's provider decreases, keepings premiums low. So, all around, it is a cost saver.

Then, we move to wellness and health education initiatives. Here, employee wellness plans truly flex their cost-savings muscles. Employees are educated on how to keep well, so they practice the best type of medicine of all: preventive medicine.

Employees are encouraged to keep good health, and taught specifically how to do so, again adding to the concept that the company truly cares about the employees, which in turn reduces turnover rates and the associated costs thereof.

Then onto disease management initiatives. Despite the best intentions, employees will develop diseases, and that is where employee wellness plans help as well. Once the employee has, for instance, diabetes, a company with an employee wellness plan helps that employee deal with the disease and thrive as an individual and an employee under those circumstances.

This again reduces the costs a company will face since a patient/employee will have to take less time off from work to deal with a disease, and will indeed be more productive during working hours if the disease is managed. It will also reduce the chance that the employee will have to quit because of the disease's symptoms, and force the company to hire someone else and face the costs of training and ramping up that individual.

By offering medical clinics at the office, employees need to take less time off from work to consult their outside physicians. This will keep the health care management of the employee on-site. Of course, the challenge here is to convince employees that their medical records will remain private and out of the hands of their bosses and subordinates. Also, it may be hard to convince employees that on-site doctors will give them unbiased opinions.

Fitness centers, of course, speak for themselves. They represent an added cost, of course, but are well worth it. Employees stay on board more often if there is on-site fitness center. And the on-site center is far superior to the reiumbursement for an off-site center simply because the employee is much more likely to go; and if the employee uses the center, he or she is more likely to stay healthy and not miss time at work.

With on-site physical therapy, employees will actually pursue the cures for physical ailments that they might not otherwise do. With the prevalence of back problems and carpel tunnel syndrome at offices, on-site physical therapy is even more important, as it is much more unlikely that employees will heal themselves if they must go off-site. With on-site help, employees will undoubtedly be more comfortable and productive on the job.

And in general, employee wellness initiatives have been proven in every study to reduce costs. However, companies are struggling to justify the costs because of the more intangible nature of the returns. There is growing concern over burned-out, stressed-out workforces but widespread adoption of corporate wellness programs in Canada has been discouraged by an inability to make a solid business case and justify the costs, according to Buffett Taylor & Associates. They argue that most Canadian companies do not view wellness as a strategic business imperative because they cannot link it to the bottom line.

Buffett Taylor & Associates have launched a new and comprehensive cost/benefit tool which, they claim, 'enables organizations to rigorously evaluate the impact of their wellness investment on their employees' well-being, on their organization's well-being - and, ultimately, on the bottom line'.

Buffett Taylor & Associates say that the software tracks, analyses and generates reports quantitatively and qualitatively. It also reveals return on investment as well as organizational trends in areas such as absenteeism, productivity, disability/benefit costs, company morale, employee attitudes, program participation. Other features of the Buffett Taylor Employee Wellness Cost Benefit Software are:

The flexibity to accommodate a multitude of user requirements - e.g, multiple sites, multiple users, a variety of program initiatives with different measurement requirements, or other customized needs. The company cites, as an example, the ability to measure the effectiveness of an organization's its cardiovascular wellness program by tracking health progress, absenteeism, medication usage, knowledge level and participant satisfaction - and provide reports in an aggregate manner. Additionally, it will calculate the return on investment of the program, showing the financial impact of outcomes such as reduced absenteeism, increased productivity, reduced medical claims, and so on.

With help from groups such as Buffett Taylor & Associates, more and more companies will begin to adopt employee wellness initiatives.

Companies are becoming friendlier workplaces in the 21st century, and one of the key ways to accomplish the change is through employee wellness initiatives. As we have established, not only do they decrease costs, they improve employee moral and productivity.

Of course, more direct research must be done to actually develop the amount of savings companies will enjoy; but for now, they must trust their instincts instead of their bottom lines.

In areas such as ergonomic help, preventive medicine is the issue that will cut costs long-term. And with managed disability, employees who are out of work for a while are cared for and kept on board, thereby decreasing the chances and costs of having to replace them and train a new employee and ramp that person up.

Basic wellness initiatives such as these will go a long way in reducing costs long-term, but it will be much harder to convince CFOs short-term, especially in smaller corporations where every line item on a P& L. is so critical to the quarterly reports.

So it is up to the larger companies such as Pfizer to lead the way and show that money will indeed be saved before the smaller companies take on the mantle of employee wellness programs.

Buffett Taylor and Associates has done an admirable job of leading the way on the research, but many more health care consulting firms must follow suit before smaller and mid-cap corporations are convinced.

Medical Licensing Laws:

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?