By Dick Resch – Has America tamed the health-cost monster? The data seem to indicate as much. Health spending has grown by about 4 percent annually over the past four years — the lowest rate in half a century.
But our apparent victory may be short-lived. Researchers at the Kaiser Family Foundation estimate that the recession was responsible for three-quarters of the slowdown in health spending. They expect costs to increase 7 percent annually by the end of the decade, once the economy picks up again.
American businesses can’t afford to shoulder that burden. Fortunately, they don’t have to.
By offering consumer-directed health plans rather than the conventional plans they’ve offered for years, firms of all sizes can empower their employees to take control of their health — and save billions of dollars in the process.
The status quo is crushing employers. The cost of an average policy for a family of four reached $15,745 in 2012. That’s a 4-percent increase over the 2011 figure — and 30 percent higher than just six years ago.
Conventional health plans are costly because they cover almost every expense, no matter how small or routine. So patients have an incentive to consume care that they might not pay for on their own. Unlimited demand for care combined with a limited supply of it yields higher prices.
Consumer-directed coverage, on the other hand, provides patients with clear financial incentives to make smarter, more cost-effective healthcare choices. Such plans typically pair high-deductible insurance policies with health savings accounts (HSAs), where patients can sock away money tax-free to pay for things like annual checkups and prescription drugs.
The proceeds of an HSA roll over from year to year, so an account holder can build up a substantial healthcare nest egg if he spends his money wisely — or stays healthy.
Meanwhile, if a beneficiary faces significant medical expenses because of an emergency or the onset of serious illness, he’s protected by his high-deductible policy.
The evidence shows that consumer-directed plans effectively control health costs. In 2012, the average premium for a high-deductible plan was 10 percent lower than the average across all types of health plans.
And the savings compound every year that employees are enrolled. The American Academy of Actuaries has determined that consumer-directed plans deliver savings of 3 to 5 percent after the first year, compared to a traditional PPO.
Those savings flow to workers and their families. A study published in the American Journal of Managed Care found that families with consumer-directed plans spent 14 percent less than those with conventional coverage.
The 2,100-plus employees at my company, KI Furniture, have seen firsthand how consumer-directed plans can reduce costs and improve outcomes.
For over 20 years, a yearly health risk assessment including biometric screening has been at the core of our plan. This assessment provides each employee with a sense of the health challenges he or she faces — and how to address them. Each employee receives an HSA contribution of up to $2,500 just for taking the assessment.
Employees have an incentive to score well on their screenings. The better they fare, the lower their premium — up to a $1,500 savings.
The result? Our employees save about $2 million every year on health premiums, compared to their peers. The company spends 10 percent less annually than similar firms. And our workforce suffers significantly lower rates of conditions like asthma, breast cancer, cervical cancer, and heart disease.
We’re not alone in recognizing the value of consumer-directed health plans. Caterpillar offers its employees $75 off their monthly health premiums if they take a health risk assessment. Fully 90 percent of its workforce participates. And like KI, JetBlue offers up to $400 in discounts for health-enhancing activities, ranging from regular teeth cleaning to completing an Ironman triathlon.
Johnson & Johnson knocks $500 off its employees’ premiums when they submit health profile data. The company has reported that every dollar it spends on employee wellness generates $4 in savings.
Aetna HealthFund has found that employers with consumer-directed plans save their employees $350 per year. And because they’re 30 percent more likely to participate in disease-management programs, workers are often healthier, too.
Consumer-directed health plans comprise about 13 percent of all employer-sponsored insurance coverage. If they were to attain half the market, the American healthcare system could realize savings of $57 billion a year.
Those tens of billions of dollars are there for the taking. American businesses would be smart to seize them.
Dick Resch is CEO of Green Bay, Wisconsin-based KI Furniture.
It is unclear how, as a practical matter, the changes proposed today… can be put into effect,” said the head of an insurance commissioner’s group, according to a Wall Street Journal health reporter.
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