Yes, I’m still on the rising healthcare costs topic. The issue is so important that I felt it’s worth another blog since we have even more evidence that costs continue to go in only one direction–up.

This time the source is the Milliman Medical Index, produced by the independent actuarial and healthcare consulting company of the same name.

Milliman reports that healthcare costs for a family of four have doubled in the past 10 years. They rose 7.3% in just the past year. The only good news I see in the report? The annual rate of increase appears to be slowing somewhat, and actually dropped 0.5% between 2010 and 2011, the lowest rate since Milliman began the index.

I don’t know about you, but as an employer, I still find the overall data frightening and it affects the morale of my employees.

The largest increase came in hospital spending. As the report notes, while hospital spending is just 48% of total healthcare spending, it accounts for 60% of the increased costs. I find this interesting given the increased emphasis over the past decade on reducing lengths of stay and shifting more procedures to an outpatient basis. The reason? I think that the patients who are hospitalized are simply sicker; sicker patients require a higher level of care, which, of course, costs more.

The Centers for Medicare and Medicaid (CMS) have several initiatives designed to slow inpatient costs. One targets hospital-acquired infections, which occur in about 5% of all hospitalization, significantly higher in intensive care units.(1)(2,3) Infections also increase lengths of stay, deaths, and healthcare costs, with an estimated 1.7 million hospital-acquired infections resulting in 99,000 deaths in 2002, with costs ranging from $28-45 billion.(4, 5)

Now, however, if patients develop a hospital-acquired infection hospitals have to absorb the cost; CMS will no longer pay for the related hospitalization. In addition, CMS as well as many states now post infection rates on the Web for all to see. Hospitals have taken notice and are getting serious about reducing infection rates. They are implementing stricter infection control efforts and, at least in some instances, seeing infection rates fall. (6,7)

The Centers for Medicare and Medicaid have also stopped paying for readmissions that occur within 30 days of discharge. Again, hospitals are instituting efforts to reduce such readmissions, which can be as high as 25% for some medical conditions.(8)

It will take some time (and greater participation of the nation’s hospitals) to know if these efforts translate into significant cost reductions, but I’m betting (and hoping) they will.

Bob Fabbio
CEO, WhiteGlove Health

Have you heard? It’s really no secret, healthcare costs continue to rise! (see the figure below). While there’s no shortage of commentary on how much healthcare costs are going up for individuals, families, and employers, the debate rages over what to do about it. Is healthcare reform the answer? No, but let’s save that topic for another time.

Did you know that 60% of all insured Americans get their health insurance through employers? That’s according to last years’ Kaiser Family Foundation survey. So, it stands to reason that if we can figure out how to help employers lower healthcare costs it would have a major impact on the problem.

Lots of ideas floating around on what to do, let’s take a look at the merits of the most common:

Wellness initiatives – the whole idea is to reduce the consumption of healthcare by making the population healthier. Makes sense on the surface but has some issues. One of the big problems is getting people to participate. Successful programs tie financial rewards (aka carrots) or penalties (aka sticks) to participation. If the carrots and sticks are big enough they can certainly help. The big question is why are employees so disengaged when it comes to paying attention to their health and the benefits they have available to them? A recent ADP survey shows that 40% of employees don’t understand their benefits. Fix that problem and you’ll really be onto something special.

Shifting more costs onto employees – most employers do this through implementing high deductible health plans. These plans require the employee to pay more out of their pocket before their benefits kick in. These plans eliminate the co-pay for services, requiring the employee to pay 100% of the service until they reach their deductible (unless it’s a qualifying preventive service that the employee would not have to pay anything for, such as an annual physical). This can be scary for employees and their dependents and often results in a hesitancy to seek care, and that can’t be good for anyone. This also causes morale issues as the employee feels like something has been taken away from them, and in this case it’s their co-pay. This explains why employers that introduce a high deductible health plan option typically get very little participation. Employers that eliminate co-pay plans and move EVERYONE to a high deductible plan while managing the education process are the most successful at saving money and limiting the morale hit. However, not many organizations are willing to make this kind of change.

Bottom Line: the healthcare cost trend for employers is unsustainable and it is going to take some really innovative solutions to fix it. These solutions will need to include changing employee behavior.

Bob Fabbio
CEO-WhiteGlove Health

In today’s business climate, most employers are focused on lowering their healthcare costs. Historically, the cost trend for healthcare has continued to rise with no reprieve in sight. This means that employers are searching for ways to lower their costs while not upsetting their most valuable asset – their people. And trying to modify health plans in the midst of ensuring they are in compliance with the new rules established by the healthcare reform laws is a challenge.

The two most common strategies used by employers to lower their healthcare costs are shifting more of the cost to their employees/dependents and minimizing the use of their health plan through wellness initiatives. And while putting programs in place to incentivize employees to be healthier (consequently lowering healthcare costs and increasing productivity) and giving them tools to seek the lowest cost provider are noble things to do, they only have limited utility in truly lowering cost. In the end, these are all just attempts to use an expensive healthcare delivery system less or spot the least expensive provider in the system. But in these approaches, employees and their dependents are still using the same expensive, fee-for-service based healthcare delivery system. The same system that includes the cost for 5 support/administrative personnel for every doctor in America; the same system that requires the patient to endure all kinds of costs, hassles, and inconveniences.

So, what history has shown is that in spite of all the efforts that benefits consultants and employers go through to lower their healthcare spending and break the trend, it isn’t working. Kaiser reports that over the last five years, both employers and employees have endured double digit increases.

The reason is simple. Employers and benefits consultants cannot change the inherent cost and inefficiencies found in the healthcare delivery system made available to them by their insurance companies.

It is time to Think Differently About Healthcare. If employers combine proven wellness initiatives with access to a lower-cost, higher-quality healthcare delivery system, they now have a winning combination. That’s what we’re already doing with hundreds of employers at WhiteGlove Health. Employers that are working with WhiteGlove give their employees and dependents access to acute care, chronic care, and wellness 365 days a year. The experience is extraordinary, the clinical outcomes are better, and it’s a fraction of the cost. High-quality healthcare that comes to people, not the other way around.

Bob Fabbio
CEO – WhiteGlove Health