The Employer's Role in Reforming the U.S. Health Care System

In 2005 large U.S. employers spent an average of almost $7,400 per head on health care benefits, a 73% increase in the last five years. If the current trend continues, American companies may find it difficult to compete in a global marketplace where international competitors provide labor with heath care at a fraction of U.S. costs. This article argues that effective reform of the U.S. health care system will require major efforts from all major “stakeholders,” starting with the federal government and state and local governments and including insurance companies and the “consumers” of health care services. By far the important role, however, is reserved for private‐sector employers, which have been the incubator for recent innovations in American health care and are in the best position to coordinate and drive health care reform. But incremental steps in cost‐sharing, small‐scale pilot projects of consumer‐based designs, and employee awareness campaigns will not be enough. Employers need to take radical steps to break through the inertia that has built up among all stakeholders over the past 50 years. Chief among the author's proposals for employers are the following:

• ? In choosing a health care plan for employees, use value‐based purchasing criteria that consider more than just the price and access to services.
• ? Help consumers by demanding information from providers and insurers about the cost and efficacy of health care services, and of alternative treatments, before the choices are made.
• ? Encourage “consumerism” by setting up benefit plans that have a Health Reimbursement Arrangement (HRA) or a Health Savings Account (HSA) component.

As the author states in closing, “Let these reforms begin with employers as the organizing force to drive needed change across the system. That may very well be the only way to save our employment‐based model.”     

Health and the welfare of U.S. business

Business leaders continue to blame the skyrocketing cost of health care for jeopardizing the global competitiveness of U.S. industries, and they continue to turn to Washington for the solution. Yet after a study of 16 countries, Wharton researchers David Brailer and R. Lawrence Van Horn have discovered that health care costs do not directly hinder U.S. competitiveness. Their conclusion: there is indeed a health care crisis in the United States as well as a competitiveness crisis. But the two are unrelated, and confusing them makes it difficult to solve either one. The real problem, according to the authors, is the hands-off approach that employers typically adopt when it comes to health care. No matter how Washington responds to the health care crisis, employers must explore their own role in ensuring the health of their work force. And they must realize that their role can be a strategic one. Instead of containing costs by fine-tuning benefits packages, companies can control costs and improve health care delivery by treating health care like any other crucial component of production. Brailer and Van Horn propose three strategies for managing health care delivery: First, companies must intervene in the supply side of the health care market. This may mean creating a clinic alone or with other companies, or joining with other companies to procure health care. Second, companies need to translate corporate health benefits into the most cost-effective set of services at the local level. Finally, companies must encourage and educate employees to participate in decisions regarding health care delivery.(ABSTRACT TRUNCATED AT 250 WORDS)     

Here it comes: defined contribution health care

The Patient Protection and Affordable Care Act includes provisions to make the individual health insurance marketplace one where all Americans, including those with preexisting health conditions, can obtain affordable coverage. At the same time, the act has failed to address, in any significant way, many of the underlying flaws in the current U.S. health care system that have caused costs to spiral out of control. The combination of persistent U.S. health care cost increases and a viable individual health insurance marketplace will cause a sea change in employer-sponsored health care offerings that is similar to that seen among employer-sponsored retirement benefit plans: movement away from defined benefit approaches and toward defined contribution designs. Although the authors show parallels between the evolution of employers' health care and retirement offerings, they explain why certain key developments will need to occur before defined contribution approaches become as prevalent in employer-sponsored health care plans as they are in today's employer-sponsored retirement plans.     

Empowering the managed care consumer: not as easy as it sounds

Managed care remains one of the most highly publicized issues in employee benefits, with its accompanying controversy causing concern to the consumer and the employer. The authors of this article discuss the very basic things consumers of health benefits should know about their plans in order to be prepared, as well as what they should reasonably expect from employers that sponsor the plans.     

How to solve the cost crisis in health care

U.S. health care costs currently exceed 17% of GDP and continue to rise. One fundamental reason that providers are unable to reverse the trend is that they don't understand what it costs to deliver patient care or how those costs compare with outcomes. To put it bluntly, few health care providers measure the actual costs for treating a given patient with a given medical condition over a full cycle of care, or compare the costs they incur with the outcomes they achieve. What isn't measured cannot be managed or improved, and this is all too true in health care, where poor costing systems mean that effective and efficient providers go unrewarded, and inefficient ones have little incentive to improve. But all this can be remedied by exploring the concept of value in health care and carefully measuring costs. This article describes a new way to analyze costs that uses patients and their conditions--not organizational units or narrow diagnostic treatment groups--as the fundamental unit of analysis for measuring costs and outcomes. The new approach, called time-driven activity-cased costing, is currently being implemented in pilots at the Head and Neck Center at MD Anderson, the Cleft Lip and Palate Program at Children's Hospital in Boston, and units performing knee replacements at Sch?n Klinik in Germany and Brigham & Women's Hospital in Boston. As providers and payors better understand costs, they will be positioned to achieve a true "bending of the cost curve" from within the system, not in response to top-down mandates. Accurate costing also unlocks a whole cascade of opportunities, such as process improvement, better organization of care, and new reimbursement approaches that will accelerate the pace of innovation and value creation.     

Potential “Savings” of Medicare: The Analysis of Medicare Advantage and Accountable Care Organizations

Medicare faces significant financial challenges because of rising health care costs. In response, Medicare reform efforts have been testing various payment and service delivery models, including accountable care organizations (ACOs), aiming to reduce expenditures while preserving or enhancing the coordination of quality care. The idea behind ACOs is to form an organizational network to coordinate all care for Medicare beneficiaries and in so doing, at least theoretically, improve quality of care and hopefully reduce medical costs. The purpose of this research is to apply Data Envelopment Analysis (DEA) to assess the potential savings of Medicare obtainable through optimally efficient implementation of ACOs and Medicare Advantage plans. DEA comparisons across plans achieve this purpose by identifying which Medicare plans operate relatively more efficiently and which are inefficient, and additionally, for inefficient plans, the DEA analysis generates target levels of “inputs” and “outputs” required to bring the plan into efficient operation. Knowing sources of inefficiency can also provide insights into Medicare reform, such as Medicare privatization and innovation models. Our results show that Medicare Advantage plans are more efficient in reducing health expenditures but incur higher administrative costs. Health expenditure savings can also be achievable by promoting government-sponsored managed Medicare such as ACOs. Finally, compared to the profit efficiency of Medicaid managed care plans, Medicare Advantage should have the potential for more Medicare market penetration from the supply (insurer) side.     

Developing time-driven activity-based costing at the national level to support policy recommendations for radiation oncology in Belgium

We use time-driven activity-based costing (TDABC) to estimate the cost of radiation treatments at the national level. Although TDABC has mostly been applied at the hospital level, we demonstrate its potential to estimate costs at the national level, which can provide health policy recommendations. Contrary to work on reimbursement or charges representing the health care system perspective, we focus on resource costs from the perspective of health care service providers. Using the example of Belgian inputs and results, we discuss development of a TDABC model. We also present insights into the challenges that arose during model design and implementation. Finally, we discuss recent examples of policy implications in Belgium as well as some caveats that should be considered when developing resource allocation models at the national level.     

Let's put consumers in charge of health care

Businesses spend billions on health insurance. And what do they get for their money? A lot of unhappy employees. Workers fret about the quality of the care they receive, the burden of their out-of-pocket expenses, and the gaps in their coverage. For businesses, health care has become a lose-lose proposition: They pay way too much, and they get way too little. The problem is that the health care industry has been shielded from consumer pressure--by employers, insurers, and the government. As a result, costs have exploded even as choices have narrowed. But if companies embrace a new model of health coverage--one that places control over both costs and care directly into the hands of employees--the competitive forces that spur productivity and innovation in consumer markets can be loosed upon the inefficient, tradition-bound health care system. Moving to consumer-driven health care requires that companies revamp their health benefits in six ways: Give employees incentives to shop intelligently; offer a real choice of insurance plans; charge employees prices that accurately reflect the company's costs; let providers set their own prices; adjust payments for each enrollee based on need; and provide relevant information. Putting consumers in charge of health care may seem like a radical approach. But individuals are highly motivated to educate themselves about their health, their insurance, and their care, and they want to seek the most value for their money. Promoting that economic dynamic--the same that fuels consumer markets everywhere--is the best way to enhance the health care industry's productivity and quality.     

How companies tackle health care costs: Part I.

From the experience of a cross-section of Fortune "500" companies and top nonindustrials, these authors develop a profile of the newer types of health plans and benefits designed to cut health care costs. After examining the various plans, their funding, and their results, however, the authors conclude that another form of health insurance, more like other kinds of insurance policies that cover only catastrophic events, is the most promising from all points of view. In a second article, Regina Herzlinger will examine corporate efforts to reshape the system of supplying health care.     

Can patients drive the future of health care?

As the traditional system of health care in the United States gives way to a regime run increasingly by the private sector, a powerful force is emerging: the patient. According to Harvard Business School professor Regina Herzlinger, health care is much like other service industries. Providers that hope to survive must cater to increasingly demanding and well-educated consumers. In a review of Herzlinger's book Market-Driven Health Care: Who Wins, Who Loses in the Transformation of America's Largest Service Industry, Alexandra Wyke, managing editor at the Economist Intelligence Unit, argues that the path to consumerism in medicine will be longer and bumpier than Herzlinger suggests. Consumers of medicine don't simply want health care to be more convenient; they want cures for all ills. How can providers gratify this appetite for ever better medicine? Furthermore, patients are not always capable of making sound decisions about their medical care. And health care professionals, who emphasize the complex nature of decision making in medicine, are doing their best to keep patients from holding the health care steering wheel. Herzlinger has written a bullish book on the virtues of market-driven health care, but, Wyke contends, she has overlooked the far-reaching effects that emerging technology could have in shaping medicine--especially in reducing the need for specialists. She also has given short shrift to the young managed-care industry, which has succeeded in controlling costs and is now under competitive pressure to meet patients' needs better.     

Can managed care reduce employers' retiree medical liability?

The Financial Accounting Standards Board (FASB) has forced U.S. companies to look squarely at their current retiree health obligations and their future commitments. Accounting Statement No. 106 (FAS 106) requires employers to accrue liabilities for retiree health benefits during employees' active service, rather than record the costs as benefits are paid. Employers are scrambling to find ways to reduce the statement's effect on corporate balance sheets. While managed health care has been increasingly employed to control benefit costs in active employee health plans, it has not been as popular in retiree plans. This article reviews important demographic and health trends in the retiree population and summarizes employers' early responses to FAS 106. It explores why managed health care has thus far played a limited role in reducing employers' postretirement medical liability, and offers insight into how that role could be increased in the future.     

Prospects for account-based health plans under the Patient Protection and Affordable Care Act

Account-based health plans (ABHPs), which combine high-deductible plans with either health reimbursement arrangements (HRAs) or health savings accounts (HSAs), have gained popularity in recent years. Because there is growing evidence these plans are indeed engaging consumers and moderating cost increases, employers will need ABHP design options as they strive to bring costs under control in coming years. Some observers, however, are now concerned that benefits standards introduced by federal health care reform will undermine these plans, and many in the business community anticipate new health benefits mandates will drive up employers' total health care costs. The authors show that although the Patient Protection and Affordable Care Act (PPACA) of 2010 includes numerous provisions that will likely increase costs for employers, the law also accommodates, and may even foster, HSAs and HRAs.     

Business in Richmond attacks health care costs

Like a fever that will not break, health care premiums continue to climb relentlessly, yet remedies have been hard to come by. Employers, for the most part, have accepted ever-rising expenditures as the price of good employee relations. And federal regulations designed to control medical costs have proven weak. The road to recovery begins, this author tells us, when a health maintenance organization, or HMO, enters a community, because its prepayment approach upsets the medical profession's conventional fee-for-service rules. Thus it quickly evokes competitive responses from other health care providers, who must become equally cost-conscious or lose their market share. HMOs need advocates, however, to spread as rapidly as their potential warrants. Drawing on recent events in Richmond, Virginia, the author shows how a city's business leadership can become the catalyst for changing the health care system.     

Realizing the promise of personalized medicine

Scientific advances have begun to give doctors the power to customize therapy for individuals. However, adoption of this approach has progressed slowly and unevenly because the trial-and-error treatment model still governs how the health care system develops, regulates, pays for, and delivers therapies. Aspinall, the president of Genzyme Genetics, and Hamermesh, chair of a Harvard Business School initiative to improve leadership in health care organizations, discuss the barriers to personalized medicine and suggest ways to overcome them. The blockbuster model for developing drugs, the authors point out, is still what most major pharmaceutical companies follow, even though its days are numbered. What the industry must embrace in its place is a business model based on a larger portfolio of targeted--and therefore more effective and profitable--treatments, not a limited palette of one-size-fits-all drugs. The current regulatory environment overemphasizes large-scale clinical trials of broad-based therapies. Instead, the focus should be on enrolling subpopulations, based on diagnostic testing, in trials of targeted drug treatments and on monitoring and assessing effectiveness after drugs are approved. A dysfunctional payment system complicates matters by rewarding providers for performance of procedures rather than for accurate diagnosis and effective prevention. Aspinall and Hamermesh call for coordinating regulation and reimbursement so that incentives are provided for the right outcomes. Finally, the authors urge changing physicians' habits through education about genomics, diagnostic testing, and targeted therapies. They say that medical schools and physician organizations must become committed advocates of personalized medicine so that patients and the medical industry can get all the benefits it offers.     

An Employer Analysis of Managed Care Costs and Satisfaction: Process, Effects, and Policy

ABSTRACT: Do managed care health plans truly control costs more effectively than nonmanaged care plans? Recent evidence suggests that employees are getting used to the managed care idea and that managed care is responsible for the sharp slowdown in health-care costs. This article examines recent changes in the delivery, financing, and consumption of health care from the perspective of a large multiple-site American corporation to see whether its health-care costs are controlled and whether this control occurs at the expense of employee satisfaction. A unique aspect of this study is that managed care was implemented more slowly and in phases at one of the six sites analyzed. The results suggest the following. First, the Study Corporation's health-care costs have not significantly increased four years following the change from an indemnity to a managed care plan. The authors interpret this result to mean that managed care has controlled costs because before the change, plan costs were increasing 15 percent per year. Second, the site with the underdeveloped network did not have higher costs than the other sites based on the analysis. Third, the authors show that employee satisfaction increased after implementation of the managed care plan. Moreover, satisfaction was higher at sites with more employees, higher usage, and higher health-care costs. Last, the results suggest that plan participant satisfaction increases as the managed care network becomes more developed. Policy and benefit manager recommendations are made on the basis of these reported findings.     

论人人享有基本卫生保健之改革

本文通过分析"看病贵、看病难"原因而导致的阻碍人人享有初级卫生保健的主要因素,提出必须深化卫生体制改革,发展基层社区卫生服务、建立覆盖全民的基本医疗保障制度以及实行均等化的公共卫生服务和基本药物制度,以实现人人享有初级卫生保健的目标。     

How companies tackle health care costs: Part II.

In this continuing examination of responses to the growing costs of health care, based on a survey of more than 200 large companies, the author discusses the results of employers' efforts to trim these expenses. Most companies have chosen to meet the cost-cutting challenge by changing demand--that is, by redesigning their health insurance policies--and by changing the suppliers of health care services. After a critical analysis of these mechanisms, the author concludes that most of these strategies do little more than shift the costs from one payer to the next. To affect the total cost of the system, she maintains the business sector must use its power to bring about changes in the reimbursement of providers and in the underlying structure of the health care system.     

Managed Care and Health Care Utilization: Specification of Bivariate Models Using Copulas

This article studies the effect of managed care on health care utilization compared to traditional fee-for-service plans in private health insurance market. To construct our hypothesis, we build a game-theoretic model to study health care utilization under a two-sided moral hazard: of patients and providers. In econometric modeling, we employ a copula regression to jointly examine individuals’ health plan choice and their utilization of medical care services, because of the endogeneity of insurance choice. The dependence parameter in the copula reflects the relation between the two outcomes, based on which the average treatment effects are further derived. We apply the methodology to a survey data set of the U.S. population and consider three types of curative care and three types of preventive care for the measurement of medical care utilization. We find that managed care is in general associated with higher care utilization. Evidence is also found on the underlying incentives of both patients and medical providers.     

Information access: will make or break consumer-driven health plans

Consumer-driven health plans offer employers potentially significant cost savings. Yet such potential cannot be realized without greater consumer access to price, quality and treatment information. This article describes why consumer-based strategies have taken hold and how consumer-driven plan design and financial incentives are of only limited value in controlling costs. After reviewing the importance and availability of existing health care information, the authors suggest actions employers can take to ensure consumer-driven plans reach their potential.     

The savings potential of 24-hour coverage

In summary, there are costs to maintaining separate systems to cover both work- and non-work-related injuries and illnesses; there are also significant costs associated with achieving coordination--if not integration--of the two plans. Overall, the financial data do not indicate that the overlap between workers' compensation and health benefits is of such magnitude as to justify integration regardless of cost; however, the data do suggest that judicious exploitation of opportunities to coordinate the two programs, especially in regard to managing health care providers, may generate significant savings.