Getting the Most From Healthcare Dollars

by Colleen Klehr
RSM McGladrey

Annual negotiations with your employee healthcare vendors can make you feel like a mountain climber surveying a steep, uncharted peak. While you know where you want to go, and you can see it from here, you may not be exactly sure of the straightest trail to the summit.

But as any good climber (or business executive) knows, the best way to the top usually isn’t a straight line—it often takes several different, interlinking paths to reach success. That’s why savvy companies are taking a multifaceted approach to their employee healthcare expenses. They are using innovative techniques in vendor management, consumerism and plan design to get the most for their benefits dollars.

Manage vendors, set expectations
Experts advise employers to get serious about healthcare vendor management, just as they would when they negotiate any other critical business expense. Supplier management for healthcare benefits is cyclical. It begins with the contract and continues through monitoring performance, enforcing guarantees and resolving problems. Midsized companies may want to adopt an at-risk compensation strategy, where a percentage of the fees paid to a healthcare vendor is dependent on the vendor meeting predetermined measures.

Recent research conducted by the National Business Group on Health and Watson Wyatt confirms that vendor management directly contributes to lower-than-average premium costs. Of the employers surveyed, those in the upper third expected to spend $10,022 per employee in 2006, compared with $6,866 per employee for those in the lower third.

The companies with lower costs “seem to be looking at all aspects of their vendor relationships for quality of care, efficiency and cost-saving opportunities,” the researchers said. “For example, these companies are more likely than their high-cost counterparts to have consolidated vendors or implemented enhanced vendor performance standards [and] service levels. They are also much more likely to have implemented processes to monitor the results of their care management initiatives.”

Companies with low costs haven’t hesitated to end relationships with poorly performing vendors and also frequently use self-insured arrangements. According to the researchers, the gains achieved through aggressive program management allow these employers to minimize any cost shift to employees, as shown in the contrast between the rate of cost increases for employees at high-cost versus low-cost companies.

Creating informed healthcare consumers
Consumerism is a major trend in healthcare benefit management, where employees are empowered—through better access to health-management tools, information and wellness programming—to take charge of their health. According to a 2005 survey sponsored by the Integrated Benefits Institute (IBI), a growing number of companies believe that making employees accountable for their healthcare decisions and promoting healthy behaviors are just as important as cost shifting.

“The results show that employers understand that short-term cost fixes are not the answer over the long term,” says IBI President Thomas Parry. “The majority of employers understand they must manage health issues among their employees and want to promote more worker responsibility in making healthcare decisions.”

Midsized companies can create a more consumer-driven culture around healthcare by helping employees make wise, active choices about their benefits and well-being. Some of the most effective methods of connecting employees to their healthcare include:

  • Providing personalized education and clinical support (such as online health resources and 24-hour nurse lines) to help employees better understand their conditions and their implications, and identify the most appropriate treatment.
  • Working with vendors to give employees access to objective data about healthcare quality, efficiency and cost, so employees can make informed choices and select the providers who best meet their needs.
  • Offering wellness and lifestyle programs that promote healthy behaviors, such as quitting smoking or losing weight.
  • Encouraging employees to participate in health risk assessments and regular preventative care. This proactive approach can identify potential health issues early and treat conditions before they become more serious—and more expensive—for both the employee and company.

Innovative plan design
New models in employee healthcare plans are also making significant inroads in managing overall costs. Health savings and reimbursement accounts help employees understand the actual costs of healthcare, enhance the flexibility of their healthcare plans, and empower employees to play a direct role in choosing their healthcare services and providers. These consumer-driven plans give individuals greater control over how and where they spend their healthcare dollars, reducing bottom-line costs for the company and creating a more informed, cost-savvy attitude in the workplace.

Another proven tactic is implementing disease management programs that offer personalized support for people with chronic conditions, such as high blood pressure and diabetes, while helping them better control their health and their costs. These programs typically match employees with a case manager, usually a nurse or social worker, who assists them in managing their condition and coordinating their care. Case managers offer individualized support and education to encourage better compliance with an employee’s treatment plan. Through behavior modification that slows or reverses the progression of their conditions, employees can improve their well-being, become more productive, and avoid acute episodes and complications.

New drug coverage options present another way for companies to meet employee needs while still reducing expense. The cost of prescription medications has grown dramatically over the past several years and will continue to rise. Total U.S. drug expenditures were $205 billion in 2005 and are expected to reach $446 billion in 2012, accounting for 12 percent of total healthcare costs. But, by promoting generic drugs over name brands, implementing mail-order programs, and contracting with pharmacy benefits managers that can leverage volume discounts and rebates, employers can lessen the impact of escalating drug costs.

While no one solution will answer all the diverse healthcare challenges facing midsized companies, the good news is that more choices are available to manage your employee plan, vendor relationships and expenses. It’s a tough hill to climb, with trade-offs along the way. But companies that are open to new methods and models will see their way to the top. iBi

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