As the media discuss the 2012 presidential election, the economy looms as one of the campaign’s signature issues. Another, of course, is Obamacare.

FAST FOCUS

--The healthcare system as it exists today is broken, and all stakeholders are at fault.

--Lessons learned by a Wisconsin graphics company that drastically reduced employee healthcare costs could help all kinds of businesses.

--Research has shown that consumer-driven healthcare plans can provide savings of 20% to 40% because workers have significant skin in the game. 

Tired of hearing all the talk about the federal expansion of healthcare laws? That’s missing the point. The healthcare system as it exists today is outdated, flawed, broken (insert your own negative adjective here). All stakeholders are at fault: politicians, hospitals, doctors, insurers, brokers, employers and consumers.

Employers and employees themselves can solve the out-of-control cost issue by focusing on population health management and using a consumer-centric model, in which employees are held accountable for their health. After four years of examining this phenomenon, most people are trying to control their own destiny with the private sector and not rely on the government to solve the problem. People who understand the system know Obamacare does not solve the problem.

But there are success stories out there. Take Serigraph, a global printing, molding and custom graphics company based in West Bend, Wis. Serigraph took matters into its own hands to solve out-of-control healthcare costs, and the results have been astonishing. But this is not rocket science. Serigraph’s experience provides practical steps that almost all companies, regardless of size, can take to bend the trend.

Serigraph’s Chairman, John Torinus Jr., wrote a book called The Company That Solved Health Care (BenBella Books, 2010). He describes the steps the company took to reduce the cost of employee healthcare and make employees healthier. Whether you’re an employer, carrier, p-c agency or employee benefits firm, you should read this book.

An Economics Issue
A common theme Torinus explores is that healthcare cost is a matter of economics, not healthcare. And the economics is drastically affecting many businesses’ ability to survive. When survival is at stake, it is not surprising that a firm will make a decision to drop coverage. The problem is ineffective cost management on many fronts and a lack of action from the private sector. The result has been government intervention in the form of Obamacare, which throws billions of dollars at the symptoms but does not fix the root causes of the problem.

Serigraph’s story is really no different from that of many companies whose leaders realized healthcare costs could take the company down. Healthcare was Serigraph’s third-highest expense in 2003, costing $5.5 million. That was a 12% increase from 2002 and a 23% jump from 2001. Furthermore, Serigraph was looking at another 14% increase in 2004. At this rate, healthcare costs were soon to be its second-highest expense item.

To address this, Torinus realized private sector reforms were needed. He knew such reforms would require his employees and their families to make intelligent decisions regarding their healthcare purchases. The situation called for a grassroots effort, not a top-down government approach.

Torinus identified reform ideas that fit into three categories:

  • Consumer Responsibility—Research has shown that consumer-driven health plans can provide savings of 20% to 40% because workers have significant skin in the game. In particular, behaviors change quickly when companies give their people personal accounts that are tied to high deductibles and co-insurance. They become more responsible.
  • Centers of Value—Serigraph identified centers of value, meaning the best combination of service, quality and price that can hold down costs. Most people have no idea if a doctor or hospital is good or bad. They also have no idea about cost. The same procedure can cost two to three times more at another hospital. It’s critical to make information available so consumers can compare and shop for service, quality and price.
  • Prime Role of Primary Care—Somewhere along the line, the entry point to healthcare has broken down. Redefining the role of primary care and the entry point to healthcare can dramatically reduce costs.

What were some of the grassroots innovations that Torinus and Serigraph instituted? The biggest decision that Serigraph made was to introduce a consumer-driven health plan in 2004. The upfront investment was about $2,300 per family, amounting to $2 million overall. The bet was that the engagement and empowerment of the consumer would save at least an equal amount. To win this bet, the investments would have to be offset by not only higher deductibles and co-insurance, but also changes in employee behavior. Behavior change would result in improvements in utilization, purchasing, lifestyles and improved decision making for dealing with chronic diseases. The bet proved to be a home run. During 2004, healthcare costs did not increase the predicted 14%. In fact, they dropped compared to the prior year.

Whether you’re an employer, carrier, p-c agency or employee benefits firm, you should read this book.

Serigraph learned quickly that changing employee behavior is a key element and really the only variable that is manageable (compared to social economics and genetics). Specifically, Serigraph focused changing employee behavior around five key points:

  1. How employees use medical services
  2. How they buy healthcare
  3. How they live their lives in terms of personal health
  4. How they follow regimens if they have a chronic disease
  5. How they relate to their doctors.

These types of changes are not contemplated by our new regulatory mandates. Obamacare and other laws are not about cost reduction but, rather, cost shifting. The only comprehensive, long-term, effective reform will require employers and employees to work together to reduce costs, and behavior change is the common link to a win-win for employers and employees.

When discussing healthcare costs, utilization is the key driver. When employees have paid their deductibles and there is no economic impact to their further use of the healthcare system, utilization goes through the roof. Costs skyrocket. A fundamental principle behind Serigraph’s success is employee responsibility.

  • Key takeaways related to responsibility and utilization include:
  • Utilization drops sharply with the adoption of an employee-empowered plan
  • Savings flow to employees in multiple ways
  • Individual responsibility has to be built into any plan to contain costs
  • Employees in consumer-driven healthcare plans come to think of them as their plans
  • The consumer-driven plan’s incentives and disincentives are the catalyst for making all the elements of a healthcare strategy work together effectively.

Managing employees’ health and lifestyle is just as important as employees taking responsibility for their health. All companies and their leaders should make managing health and lifestyle a strategic objective. Torinus promotes the following key steps to help with this process:

  • Annual health risk assessments should be mandatory. They are inexpensive and highly effective.
  • Metrics are critical to health management, for each individual and for the group as a whole.
  • Chronic diseases, the driver of 80% of healthcare costs, must be managed.
  • Providing employees with incentives to stay healthy will help.

One of the biggest mysteries of healthcare costs is the pricing of health services. Today we have a chaotic pricing structure that is an indictment of the economics side of healthcare costs. There is no structure, no standardized guidelines and, more importantly, no market forces to drive pricing as is the case in any other industry. Normally, a patient does not even care about pricing because, once the deductible is paid, the insurance coverage kicks in. Also, pricing and quality have no relationship. If this doesn’t sum up our screwed up healthcare system, nothing will.

See-Through Costs
To tackle this problem, Serigraph worked with providers and insurers to create an open marketplace that provided transparent pricing for high-volume procedures. Other key components of Serigraph’s price transparency include:

  • Making sure transparent pricing gets in the hands of employees
  • Encouraging and educating employees on using transparency-related websites
  • Guiding employees through the pricing maze to the best deals (“Centers of Value”)
  • Pushing providers to offer bundled prices
  • Rewarding employees for finding billing errors.

Over the past few decades, healthcare companies have taken control of the entry point into the health system by buying clinics, hospitals and doctors. While the stated reason for this strategy is to accomplish integrated care, the true business reason is that vertical integration allows the companies to control the entrance point to their health systems. The role of the independent primary care doctor or clinic has been greatly diminished, and the ability to control or at least manage the entry point is critical to fixing the system.

This is a complicated issue, but it is strategically important that the private sector look at alternatives to the entry point. Solutions gaining steam are direct care, retainer care, concierge care or preventive care. These mechanisms allow doctors to deliver personal primary care to patients for an annual fee ranging from $500 to $2,000. Once Serigraph emphasized the role of primary care at the entry point, results showed that healthcare costs dropped significantly.

A final component is communication. At Serigraph, a key strategy to convince employees to accept responsibility was, in their words, to “hyper-communicate.” Whether through newsletters, Intranet messaging, company meetings or other forms of communication, it takes continual education and good information for health improvement and cost containment to succeed. Communication must be a centerpiece of your healthcare cost strategy.

In the end, not everything Serigraph tried produced positive results. But in seven years, the company has seen only three small premium increases. The average annual increase has been 2.8%, well below the corresponding 8% to 10% national average.

It’s critical to make information available so consumers can compare and shop for service, quality and price.

Not all the actions taken by Serigraph may be realistic for all companies, but there are many steps that can help companies take control of their own future. Even small, fully insured companies can take some of these steps to regain control of skyrocketing costs.

In the future, group captives, consortiums and private exchanges will become common strategies for small employers who are looking to proactively manage their costs. Those who ignore the lessons learned by Serigraph should just throw up their arms, embrace Obamacare and pay the $2,000 fine, or point their employees to state and national government exchanges and say, “Good luck. It’s not my problem anymore.”

If that is your strategy, you might want to start looking for your next career because in this industry you will be taking the first steps down the road to irrelevance.

Pricing and quality have no relationship. If this doesn’t sum up our screwed up healthcare system, nothing will.