Politicians argue about it, unions strike
over it, and CEOs pick up most of the
tab for it. The rising cost of providing health care coverage to employees poses
challenges for CEOs, but many feel powerless when it comes to changing or influencing such a complex system.
Understanding how the health care system works will help CEOs initiate cost-saving measures within their own company,
says George “Jody” Root, partner and head
of the health care practice group at
Procopio, Cory, Hargreaves & Savitch LLP.
Root also says that CEOs can influence
cost-control efforts outside of their own
companies by supporting firms that offer
health care coverage to the county’s uninsured population. Support from CEOs is
vital because the cost of health care for the
uninsured is one of the external factors
that exacerbates the rise in health care premiums for companies.
“Think of our health care system as a
table with four legs,” says Root. “Every
time something happens to one of the legs,
the others have to adjust. The opportunity
for CEOs to achieve cost management lies
in their understanding of how the four
parts of the system impact one another.”
Smart Business spoke with Root about
how CEOs can manage internal and external health care cost drivers.
What are the factors that influence the cost of
health care?
Our health care system has four separate
parts:
- Two provider groups, which are the
hospitals and the physicians - The payors, which are usually insurance companies and the businesses that
pay for the insurance - The patients
These are the table legs, and they all must
be level in order for the system to work
properly. Frequently, something happens
to one leg and the others strain under the
excess weight.
In addition, there are two other factors
that impact the cost of health care: One is
the pervasive employee belief that health
care is an entitlement, and the second factor is the cost of coverage for the uninsured population. A huge population
group, almost 24 percent in certain geographic areas, has no coverage at all. When
they seek treatment in an emergency
room, the providers pass along those unreimbursed costs to the insurance payors in
the form of higher fees, and subsequently,
the insurance companies raise their premiums. This shifts more weight onto the company payors who have to pay those higher
premiums for employee health coverage.
How can CEOs reduce their company’s cost of
providing health care to employees?
First of all, you need to understand what
coverage is available outside of your company’s health plan to make certain that
every payor is doing their part. For example, in San Diego County, 25 to 26 percent
of the population is Medicare-eligible. In
California, there is no age ceiling for retirement, so it’s important that employers
coordinate their company’s medical benefits with Medicare.
Also, some employees may qualify for Medicaid coverage for their children.
Identify those employees and let them
know that coverage is available for their
children.
Last, encourage employees to use clinics
instead of emergency rooms for nonemergency situations. Using lower cost clinics
will reduce the company’s costs, and it also
keeps the table level by not throwing too
much weight onto the provider leg.
How is insurance coverage impacted by the
four parts of the system?
Companies can provide coverage to
workers three different ways:
- Indemnity plans: These plans, such as
PPOs, provide more traditional coverage.
Employees like PPOs because they control
when and how they use the benefits;
providers also favor PPOs, but employers
don’t like the cost. - HMOs: Employers like HMOs because
they’re less expensive, but the other legs of
the table don’t favor HMOs. New payment
plans are coming that will compensate
providers based upon the quality of the
care they provide. This will motivate CEOs
to purchase coverage based upon the quality of the plan’s providers if they want to
realize the cost savings afforded under this
new payment philosophy. - HSAs: These high-deductible plans are
not always popular with employees because the plans don’t measure up to their
health care entitlement beliefs, but payors
like them because they are less costly.
What actions can CEOs take to influence the
other factors that drive health care costs?
Employee education is one of the best
ways to help combat employee entitlement
mindsets. Also, there’s a new plan coming
to San Diego called Healthy Kids, designed
to provide coverage for the kids of working
families who don’t have coverage elsewhere. This will help reduce the indirect
financial burden that gets placed on employers from treating uninsured children.
Also, CEOs should consider supporting
two nonprofit groups in San Diego that
were organized by employers to provide
coverage for the uninsured population. San
Diegans for Healthcare Coverage and the
San Diego Business Healthcare Connection collect donations and grant money
and use the funds to pay medical costs for
the uninsured.
These are longer-term solutions designed
to keep the weight of the table from shifting onto the business payors.
GEORGE “JODY” ROOT is a partner and head of the health
care practice group at Procopio, Cory, Hargreaves & Savitch LLP.
Root represents health care providers across the U.S. Reach him
at (619) 238-1900 or [email protected].
