Find out what can be done to combat the high cost of coverage and why is it increasingly at odds with profitability and your margins.

Healthcare Is Hurting Your Margins : Fight Back

admin | August 15, 2018

Healthcare is Hurting Employers’ Margins

 

In 2016, U.S. federal and state governments spent $3.3 trillion on healthcare. Those costs are projected to reach approximately 20 percent of total national spending by 2025.[1] And while all sectors of the economy have been feeling the impact of rising costs, employers who provide benefits packages to their workers face unique challenges–and thinner profit margins.

For the past five years, employers have wrestled with rising health plan premiums — the most recent increase averaging 5 percent in 2018, surpassing $14,000 a year per employee.[2] That makes healthcare the largest expense for many businesses. Healthcare commentator and author David Chase drove this frustrating fact home last year when he told CFOs, “You run a healthcare business whether you like it or not.”[3] Chase goes on to describe the type of employer pushing against that stigma and subsequently lowering its healthcare costs. Chase believes it starts with a change in mindset, as well as company culture.

Perhaps the most impressive and certainly high-profile attempt to create a shift in thinking was made at the beginning of this year, when Jeff Bezos, Warren Buffett and Jamie Dimon announced their intention to form their own healthcare company to support the group’s roughly 1.1 million combined workforce. By circumventing existing providers and models, the business moguls aim to avoid many of the pitfalls of an increasingly complex and inefficient healthcare system – or as Chase couched it, “tackle the greatest immediate threat to America — our status quo healthcare system.”[4]

For those businesses that aren’t equipped to take on drug makers, insurers, regulators and the healthcare system as a whole, the question remains: What can be done to combat the high cost of coverage — and why is it increasingly at odds with profitability?

 

Healthcare, We Have a (Financial) Problem

The tension between financial viability and employee health is compounded by endemic faults within the healthcare system itself, in which many independent entities operate inefficiently and at cross purposes with other key contributors. “Various industry players are acting perfectly rationally when they do things that are counter-productive,”[1] Chase writes. A conflicting and costly constellation of incentives motivates individual healthcare providers and payers to pursue their own best interests, thereby generating inefficiencies and driving up costs (and hurting your profit margins).

These cost drivers include unnecessary clerical responsibilities and poorly coordinated medical record keeping. Practitioners spend inordinate amounts of time tending to paperwork and data entry tasks beneath their clinical potential, only to have records discarded later due to the absence of a centralized repository or universal protocol. No single system unites the many disparate parts of the healthcare industry, so time is wasted repeatedly entering patient histories into new provider databases.

The still popular fee-for-service model has also skewed priorities in favor of transactional interactions that too often disregard the effectiveness of medical care and incentivize repeat visitations rather than curative treatments. Under such models, hospitals and independent providers pursue high volumes of patients and, unless scrutinized and rewarded for delivering efficient treatments, may have little regard for medical or financial outcomes potentially harming employee health outcomes and your margins.

Artificial and arbitrary pricing also plagues the system. The result is much higher costs than what an open and transparent market would sustain, as well as dramatically different costs for the same procedure across hospital systems.

 

One Size Fits None : Flexibility Is Key

Employers seeking to maintain their profit margins while upholding their obligations to employee health must break with established models and embrace innovative strategies that increase efficiency and promote provider accountability. Chase writes often about employers who have successfully taken action to combat costs while ensuring employees access to quality care. One example Chase references is an employer who saved $240 million on healthcare costs, lowering their per capita spending to half the average of other employers.[1] How? Unfortunately, there’s no one lever to pull and it’s a different combination for every employer based on the needs of their workforce. However, there are two methods gaining in popularity as they provide valuable ROI:

1. Care Coordination

Reducing healthcare costs starts with reducing unnecessary spend as it relates to diagnosing and managing the progression of chronic disease and high-risk populations. The most innovative models use care coordination to synchronize the delivery of a patient’s healthcare from multiple providers. The goals of coordinated care are to improve health outcomes by ensuring that care from disparate providers is not delivered in silos, and to help reduce healthcare costs by eliminating redundant tests and procedures.

2. High-performance Networks

Plans that reward and incentivize efficient, exceptional healthcare providers are beginning to gain ground with claims of providing both cost savings and access to high-quality care. By limiting the number of in-network providers to a carefully curated, high-performing group, plan administrators can ensure their members receive better care and improved outcomes. Getting patients healthier through more efficient methods lowers costs and benefits employers over the long term. With many high-performance networks able to sit side by side with larger, more expensive networks, benefits managers are able to let employees make the choice to save or pay a premium. Learn more about your business’ options here.

Embracing Creative Solutions

Employers should consider new approaches to protect long-term profitability and employee wellness. Fortunately, benefits managers can now choose from a wide range of solutions and products that give employees more effective healthcare options and lessen corporate expenditures.

 

 

Follow our Senior Vice President, Chris Wilson on LinkedIn for more insights.

 

 

REFERENCES

[1] https://www.forbes.com/sites/davechase/2015/06/22/8-steps-that-could-save-employers-500-billion-and-delight-their-workforce/#19b242fb7599

[1] https://www.forbes.com/sites/davechase/2016/09/26/health-3-0-a-vision-to-unbreak-healthcare/#19b127c93191

[1] http://money.cnn.com/2018/01/30/news/economy/health-care-costs-eating-the-economy/index.html

[2] http://money.cnn.com/2017/08/12/news/economy/health-care-workers/index.html

[3] http://ww2.cfo.com/health-benefits/2017/11/run-health-care-business-whether-like-not/

[4] https://www.linkedin.com/pulse/open-letter-jeff-bezos-warren-buffett-jamie-dimon-dave-chase/