A Wake-Up Call for Corporate America

Background A 2002 Hewitt Associates (Hewitt) survey of 700 large and medium employers pointed out that “Nearly all employers (99%) report being ‘significantly or critically’ concerned about health care costs, while 75% are concerned that employee dissatisfaction with health care benefits is impacting attraction, retention and engagement.”1 The Washington Business Group on Health–Watson Wyatt employer survey reports that only 18% of employers are “very confident” of their ability to manage current increases in health care costs. 2 Put another way, 82% don’t know what to do. Little more needs to be said about the corporate concern caused by increases in health care costs and the uncertainty generated by the chaotic nature of today’s workplace. To explore these and similar issues, the Health Enhancement Research Organization (HERO) 3 facilitated an invitation only, 2-day meeting of corporate management personnel, large health management provider organizations, and selected health/education institutions known to have particular interest in employee–executive health evaluation. Medical Directors and other corporate managers who participated represented Motorola, Prudential, Dow Chemical, British Petroleum, Merck & Company, Rohm & Haas, Deere and Company, Union Pacific Railroad, General Mills, Abbott Laboratories, Marathon Ashland Petroleum, Caterpillar, Delta Airlines, and DaimlerChrysler. Joining this group were six large health management provider organizations. In addition, there were benefits and health executives/managers from The Mayo Clinic, New York Presbyterian Hospital, Intermountain Health Care, APS Health Care, the University of Alabama at Birmingham, and the University of Tennessee. A total of 45 organizations were represented. There was general agreement among this expert group that the kinds of opinions expressed in the above surveys are valid. More specifically, the group expressed concerns about underestimates of annual increases in health care costs and how to get control of the situation. There was also apprehension about how the 3-year economic downturn has affected corporate operations. Based on these and similar factors, the group concluded that a need exists for a “position paper” that objectively identifies workplace health-related problems; attempts to more accurately define near-term, mid-term, and long-term health care cost increases; and provides suggestions for solving some of the problems by presenting the case for optimizing employee health as a method to reduce health care utilization and moderate cost increases. This is an attempt to address this request. Health Care Costs According to a Mercer Human Resources Consulting (Mercer) survey of 2900 employers, the cost of health care increased 14.7% in 2002 and now accounts for over 14% of the gross domestic product. 4 In 2001, the delivery of health care was a $1.45 trillion business, which breaks down to $3.6 billion every day, or $1.5 million per hour. 5 This converts to about $5200 per capita, based on the US Census Bureau’s 2001 population estimate of 279 million. It is estimated that approximately 237 million of these Americans are enrolled in a health care plan. Employers provide coverage for 68% of this insured group. Medicare and Medicaid cover an additional 23%, and 9% are self-pay or self-insured. 6 The purchase of health care is a convoluted process. The employer (government or private) usually purchases a product they do not use directly and often know little about. In some cases, they have little control over quality standards and a limited ability to monitor delivery. Employees (the patient), who pay only a small, but increasing portion of the purchase price, are often intimidated by the system and always want the gold standard treatment if they or the family are ill. Most incredible, the health care plan establishes a fee structure that provides little opportunity for the payers (employer and employee) to directly negotiate prices. Over the years, this unorthodox system has created an environment in which the providers and health care plans have assumed the position of driving the system instead of the payers, which is usually the case in our market economy. This lack of control and knowledge by the purchasers may be unprecedented in the US economy. The Chaotic and Challenging Workplace Although it is becoming increasingly important, the spiraling cost of health care is not the only problem facing employers and employees. For many corporations, the workplace is anything but tranquil. The market value of the average publicly traded company is 50% less than it was just a few short years ago. 7 Several years ago, who would have thought that major airlines would be in, or near bankruptcy? The evaporation of the high-tech phenomenon shattered the dreams of many. Hundreds of thousands have been laid off while those who remain are expected to assume extra workloads. Stock prices have plummeted with little encouragement that the end is in sight. This has caused incalculable numbers of retirement plans to nearly vanish or drop well below the reserves necessary for the planned post-work years. Dozens of top-level executives are under investigation for potential criminal activity. These and similar factors have caused some to suggest that the workplace may be the most chaotic and challenging in recent history. In some cases, corporate uncertainty is high. Many employers recognize this problem and are proactive in helping employees cope with the fall-out of uncertainty. Despite this, problems occur. Some of these are as follows: 1) stress-related mental and physical diseases increase; 2) decision-making becomes less precise; 3) time management becomes flawed; and 4) work performance declines. These factors can have a major negative impact on corporate profitability and success. The situation becomes even more acute when the problems associated with runaway health care costs are added to the mix. When considering today’s workplace, it must also be recognized that some employees thrive on elevated levels of uncertainty and stress. There is little hope that 2004 or the next several years will be better when it comes to rising health care costs. This is causing many employers to evaluate their situation on the topic of employee health care and to consider what the future holds. One way to approach this task is to reflect on the significant attempts at containment of health care costs over the past several decades. Attempts at Cost Containment Over the past two decades, numerous efforts have been made to control health care use and stem rising costs. Managed care, demand management, disease management, medical savings accounts and, most recently, consumer-driven health care have been, or are being tried. From 1990 to 2000, health care costs doubled from $700 billion to $1.4 trillion. The increase for 2002 was over 14%. 1,4 This causes many to conclude that these efforts at cost containment have failed, or at best, met with limited success. Disease management is experiencing a resurgence, 8 and it is too soon to judge the results of consumer driven approaches. A cost-containment tool being used increasingly by employers is raising employee contributions. A headline in the Wall Street Journal stated, “Companies Pass the Buck on Benefits.”9 The story started with this statement, “‘Pass it on’ has become the new mantra when it comes to controlling health care costs.” The story describes in detail what corporations such as DuPont, Ford, General Electric, General Motors, Goodyear, and Wal-Mart are doing to modify their health care and retirement plans in ways that pass on greater costs or cut back on benefits for employees and retirees. According to a Kaiser Family Foundation (Kaiser) survey of 3262 randomly selected public and private corporations, employees with single coverage are now paying 27% more on average than last year and those with family coverage are paying about 16% more. 10 Some unions are complaining that cost of living and merit pay increases are routinely being off-set by the increases in health care costs being passed on by employers. 11 In early 2003, General Electric employees went on a short-term strike because of health care cost increases that were passed on by the company. 12 Passing it on goes beyond increases in employee contribution. 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