Fletcher Lance

A perennial goal for most businesses is finding a way to lower operating costs without compromising quality. Considering the ever-increasing percentage of dollars allocated to employee healthcare coverage, this portion of the benefit package certainly deserves careful scrutiny.

Whether running a small practice, mid-size life sciences venture or large healthcare system, chances are you have seen premiums skyrocket over the past decade. As a result, many employers across all industry sectors have felt forced to either raise their employees’ share of premium costs or to drop insurance coverage as a benefit. Fletcher Lance, vice president and healthcare lead for North Highland Worldwide, said there is a third option to address the coverage crisis, however, and that is finding a way to effectively lower costs.

A consulting firm headquartered in Atlanta with 49 offices worldwide, North Highland works with clients across the globe to find actionable solutions to streamline processes, implement technology and increase value. Lance, who is based in Nashville, heads up the healthcare team.

To recognize opportunities going forward, he said it was important to first have an understanding of the macro environment in which companies operate today. Lance noted America has an aging population with 10,000 baby boomers turning 65 daily. It’s also a nation that is battling chronic disease in record numbers. “One in three Americans have a lifetime risk of diabetes,” he said, “which, in turn, is a six times higher cost for employers.” 

He added that a smoker costs his employer approximately $3,400 extra a year for medical claims, and the lack of physical activity in this country is estimated to cost an additional $24 billion in healthcare expenditures nationwide. These figures, Lance continued, don’t even take into consideration the hidden costs of absenteeism and presenteeism (where an employee is technically at work but not operating at full capacity).

“From 1999 to 2010, overall inflation has gone up 31 percent. Wages have gone up 42 percent. The employee’s portion of (healthcare) premiums has gone up 138 percent, and health insurance premiums have gone up 159 percent,” Lance quoted. Currently, he continued, approximately 23 percent of payroll cost is allocated to healthcare. “I think it sets the stage … Houston, we have a problem.”

With the deck stacked against them, it probably shouldn’t be surprising so many companies have cut benefits and increased an employee’s share of the financial load. However, Lance said employers do have other options to try to mitigate rising costs.

“One of the ways that we see employers addressing it is looking at the employee population in total — the well, the sick and the pre-sick … really looking at chronically ill and at-risk populations,” he said. From there, Lance continued, employers should ask, “What do I need to do proactively with my employees to help their wellness and well being, and hopefully lower my costs?”

Instituting employee programs in areas such as weight management, physical activity and smoking cessation is one option. However, Fletcher readily admits, “Change is hard. That’s been dicey to show real savings because of engagement, adoption and other issues, but it’s the right thing to do.” Even with research still out on long-term effectiveness, many carriers are supportive of an organization’s efforts to use coaching, programming and technology to try to change bad habits and instill good ones.

Additional savings could be realized by actually tailoring benefits to the specific profile of your employee population. Are you paying for a smoking cessation benefit in your plan even though there are no smokers being covered?

The second area to explore, he continued, is to “look at where your employees are getting their care.” Lance said there is a wide variance, even within a specific geographic region, in the cost of healthcare services and products. It’s an area, he said, where employers recognize the challenge but don’t really understand how to control or impact the costs.

However, Lance noted, today tools do exist to compare data on cost and quality so that employers have increased ability to look at their networks to find the biggest bang for their buck.

“From the macro view, this is part of what the healthcare reform law was shooting for … to have employers look at networks to see where the value really is.” However, Lance stressed, it’s critically important that quality and outcomes be factored into the decision.

“The value equation is cost plus quality plus outcomes … if those all match up then go with the lower cost,” Lance stated, adding that employers really begin to realize savings when they get to the point where they offer their employees the right care at the right cost with the best outcomes.

When you find that balance, he said, then it makes sense to narrow your networks or promote those offering the best pricing. “If you find the right value equation, you give employees a deep discount for going to those providers,” he noted of one way to drive traffic to the most cost effective options.

Lance said employers must also rethink their benefit design. “You’ve got to look at it holistically,” he said. Lance added that doesn’t automatically mean cost shifting. He noted, “‘Consumer driven plan’ is really code word for ‘you pay more.’” However, he continued, the level of employee contribution might need to be altered or deductibles tweaked. It takes a bit of digging and requires an investment of time, but he has found significant cost savings are possible.

“Once you have all the information, you can make an informed decision about benefits rather than just doing what the broker says.”

The bottom line, Lance concluded, is to not simply accept the status quo. “If you get all of this right, you lower your cost, and you have happier, more productive people. That’s what every business wants.”

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