By Brian Schilling

It may not be immediately obvious in the aftermath of the health reform battle, but the fight is now over. Health care reform is here to stay. Notable changes begin in earnest this year and continue through 2018. These changes affect nearly every aspect of the insurance and delivery systems, including how employers buy care, what they get, how much it costs, and how it's taxed.

But which parts of the complicated bill are relevant for employers? A brief synopsis of the major changes that lie ahead, by year:

2010

• Coverage from Mom and Dad. Beginning in September, dependent adults up to 26 years old, even if they are married, may stay on their parents' health plans, giving them added measures of security and mobility. This will have special implications for interns, temporary workers, and any employer that hires younger workers in significant number.
• No more canceled policies. Also in September, insurance companies will be barred from canceling coverage for any reason other than fraud or non-payment of premiums, thus eliminating small employers' concerns that they might lose coverage should a worker get catastrophically sick.
• Tax credits for small businesses. Retroactive to the beginning of the year, billions of dollars in tax credits for the nation's smallest employers are now available to help offset the cost of coverage. These credits are on a sliding scale, with the full 35 percent credit available to firms with fewer than 10 employees and average wages under $25,000. Lesser credits are available for firms with up to 25 employees and average wages under $50,000. Some good news: the credits increase to 50 percent by 2014.
• The end of preexisting condition exclusions. Perhaps the biggest change for 2010 initially applies only to children. Insurance companies will no longer be allowed to deny coverage to children based on preexisting conditions. The same protections will be extended to adults beginning in 2014.
• Lifetime benefit caps banned. Lifetime coverage limits will be banned as of September. Annual coverage limits will also be banned, but not completely until 2014.
• Unreasonable increases will require an explanation. Effective immediately, insurers are now required to explain to the Secretary of Health and Human Services (HHS) any "unreasonable" rate increases prior to implementation. The Secretary does not have the authority to bar such increases, but can require insurers to post those explanations on their Web sites. Information on rate increases will factor into whether insurers are allowed to participate in health exchanges (see 2014).
• Reinsurance for retirees' benefits. Reinsurance will be available to employers providing retiree health benefits as early as late June.
• More information on what works. A new institute will conduct comparative effectiveness studies to help inform all players in the health care system about the effectiveness of various treatment options.

2011

• Did somebody say refund? Beginning in 2011, health plans serving large employers must spend at least 85 percent of their premiums on medical care or they will be required to offer rebates to enrollees. For plans serving the small-group and individual markets, the requirement is 80 percent. While not expected to generate significant refunds, this provision does offer a measure of assurance that the majority of health care dollars will actually be spent on medical care.
• A change to your W-2. Employers will be required to note on W-2 forms the value of each employee's health benefits. That dollar figure becomes especially relevant for certain individuals in 2018, when "Cadillac taxes" go into effect.
• A boost for value-based purchasing. The Center for Medicare and Medicaid Innovation will begin testing new provider payment models and fast-track implementation of successful efforts in Medicare, Medicaid, and the Children's Health Insurance Programs. The emphasis will be on improving quality and reducing costs.
• And another boost. Physicians participating in the Medicare program will be invited to participate in a program to evaluate the care they provide and generate comparative reports that will highlight high-use (i.e., inefficient) providers. Providers who do not participate by 2014 will be penalized.
• Web site for comparing Medicare doctors. HHS will establish a Web site that will allow Medicare beneficiaries to compare participating doctors on various measures of quality and patient satisfaction.

2012

• Value-based purchasing at the hospital level. HHS will establish a value-based purchasing program for acute care hospitals that will reward them for good outcomes. The department is also directed to come up with a plan to introduce value-based purchasing to the home health and nursing home sectors.
• Diabetes report card. HHS and the Centers for Disease Control and Prevention will issue a national diabetes report card, including assessments of preventive care practices, quality of care, risk factors, and outcomes.

2013

• Elimination of the deduction for employers' Medicare Part D drug subsidies. The government currently offers employers a subsidy that helps cover about 28 percent of the cost of retirees' prescription drug coverage. That subsidy will be taxed beginning in 2013. Companies affected by the new tax are required to note its impact on financial statements beginning this year.
• Limits on flexible spending arrangements. Health flexible spending arrangements in cafeteria plans will be limited to $2,500 in 2013, and indexed to the consumer price index after 2013.

2014

• No one gets turned away. New rules will require insurers to accept every individual or employer who applies and prohibit setting premiums based on health status. Older individuals (and possibly employers with an older workforce) will still pay more, as will smokers, but the bottom line is that any individual or firm that wants coverage and can pay for it will be able to get it.
• "Big employer clout" for everyone. The new law calls for the establishment of state-run health exchanges, which will essentially act like purchasing cooperatives for individuals and small businesses with up to 50 employees. Some states may opt to open their exchanges to employers with up to 100 employees, although it's not mandatory. These exchanges will help drive open competition, eliminate rate discrepancies between large and small employers, and give participants leverage on par with big employers. Exchanges will also let workers change jobs without fear of losing their health coverage.
• A national coverage requirement. An individual mandate goes into effect in 2014, but anyone caught without health insurance faces only a $95 penalty. The penalty gets bigger every year, until it tops out at the greater of $695 or 2.5 percent of a person's taxable income in 2019.
• Fines for large employers that opt out. Employers with 50 or more workers that opt not to provide coverage face a $2,000 fine per employee if any employee receives subsidized coverage.
• Small-business tax credit. As noted earlier, the 35 percent tax credit for small employers jumps to 50 percent in 2014.
• Quality reporting. Ambulatory surgical centers, long-term care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, cancer hospitals, and hospice providers will be required to adopt quality measurement and reporting programs and to test value-based purchasing in subsequent years.
• Independent Payment Advisory Board. This new 15-member board will advise Congress on reducing cost growth and improving quality of care for Medicare beneficiaries. The board is also expected to issue non-binding recommendations for private payers.

2018

• "Cadillac plan" taxes. A 40 percent excise tax will be placed on premiums for individual plans that cost more than $10,200, and family plans that cost more than $27,500. Although the tax will be imposed on insurers, the effects will surely be felt by consumers and employers, either in the form of passed-along costs or modified benefits.

Date Unspecified

• Deductions for wellness programs. Though no date has been set, employers may soon be able to deduct 30 percent of the amount spent on wellness programs. Employers can currently deduct only 20 percent.
• Grants for wellness programs. In addition, small and mid-sized employers will be able to apply for five-year grants to implement and strengthen qualified wellness programs.

For more information on health reform, see The Commonwealth Fund's implementation timelines: 

• Health Insurance Provisions
• Delivery System Provisions
• Revenue Provisions

By Brian Schilling

In the heart of Upper Manhattan, a small, nonprofit tutoring center—Operation Exodus Inner City—is bucking national trends by offering its four employees health benefits. This is not just a single take-it-or-leave-it plan, but a choice of 30 plans from five different organizations. The organization doesn't have a human resources staff, there is no state mandate that requires Exodus to offer benefits of any kind, and no, the company didn't just hit the lottery. How is the rich menu of benefit options possible?

The answer is HealthPass, a health exchange offered in and around New York City since 1999. "Before HealthPass, we offered a single plan," said center director Matthew Mahoney. "It basically eliminated the hassle factor involved with offering health benefits and it's flexible enough so that we can contribute whatever amount we can afford and the employee pays the rest:"

Choice Without Hassle
HealthPass is what is known as a health exchange, essentially a way for individuals and small employers to purchase health insurance with a wide range of plan options, unlimited flexibility in terms of employer contribution, and virtually zero administrative hassle. That last factor is significant. In New York, HealthPass handles all the administrative issues normally involved in working with a plan—eligibility, enrollment, education, member advocacy, billing—and makes offering a choice of plans exceedingly simple.

Health exchanges are a hot topic, and are at the center of the new health care reform law. While key provisions establishing state-run exchanges may not take effect until 2014, it now seems certain that exchanges will factor into the nation's health care future as a way of expanding access and choice to millions of Americans.

Though no more than a dozen exchanges are thought to exist nationwide, their appeal on both sides of the political aisle is not hard to understand. Notable successes among the handful of existing exchanges include:

• helping companies and employees select plans that are right for them;
• reducing administrative costs by streamlining marketing;
• establishing mandatory minimum benefit levels;
• negotiating with insurers for the best possible rates; and
• helping facilitate the implementation of Massachusetts' individual insurance coverage mandate.

HealthPass
HealthPass was formed in 1999 with a little over 1 million dollars of seed money from the city of New York, with the hope that the investment might help more New Yorkers get coverage. Currently, more than 35,000 people are enrolled; 17,000 have joined since 2008. As plan offerings expand, word spreads, and comfort levels grow, further growth is expected, says Laurel Pickering, executive director of the New York Business Group on Health, which helped establish HealthPass.

The exchange is marketed and sold exclusively through brokers, many of whom consider it the go-to option for small employers who want to offer more than a single plan.

"It's not uncommon for groups to have one person who needs plan X because her doctor isn't in any other network and another person who insists on plan Y because it allows a particular drug in the formulary," said Juan Franco, a broker with the Fiduciary Intermediary, an insurance agency. "I tell them about HealthPass and the response is frequently, 'That seems too good to be true.' They're not used to having options."

Brokers' commissions for enrolling employers in the exchange are about 6 percent of the premiums (including the broker's and general agent's commissions), which is the same commission that would be paid for selling an employer any single plan. Enrollees tend to be happier, says Franco, and the exchange gives him the opportunity to promote other benefits offered through the exchange, such as dental, life, and accidental death and disability—products most small employers would never consider.

Among the members of HealthPass are the five employees of the New York Business Group on Health. "We have five employees and each of us has a different plan that best suits our needs and our budget," notes Pickering. "That would be impossible without the exchange. But because we work with HealthPass, the administrative end of things is essentially limited to writing a single premium check. HealthPass does everything else. Without HealthPass, I expect we would offer a single plan."

Each of the 30 plan options offers different choices in terms of deductibles, copays, networks, and formularies. Cost, of course, plays a key role too. Each employee picks the plan that works best for his or her budget.

Most participating employers don't have a dedicated human resources staffer. "And because of HealthPass, they really don't need one," said HealthPass Executive Director Vince Ashton.

HealthPass recently added an advocacy program to its menu of benefits. The advocacy program helps members deal with claims issues that arise when members mistakenly go outside of networks or fail to get proper preauthorization. The exchange also just hired its first director of public policy, a position Ashton hopes will give HealthPass a greater voice in state and federal discussions about the future of health care.

How Much Does It Cost?
Participating employers have complete discretion about setting contribution levels they can afford. That flexibility is important. "We have some employers that contribute $400 a month toward benefits and some that contribute $100," says Ashton. "The employee decides which plan to spend that money on: the $783 a month plan or the high-deductible plan for $215 a month. It's whatever works for the employer and the employee."

HealthPass operates as a taxable not-for-profit and supports itself on the 3.5 percent of participants' premium dollars that go to the exchange. Ashton is quick to note that the 3.5 percent is essentially invisible to members. The money is built into the community-rated premium for handling administrative processes that either goes to a health plan (when a person joins it directly) or to HealthPass (when they join through the exchange). That revenue is enough to cover the cost of 20 employees and expenses. HealthPass says it is not defined by revenues or profits. "Our mission is to extend high-quality health coverage to New York's small-employer market," says Ashton. "But the bottom line matters to us, too. We're proud to have been revenue-positive since 2004."

Community Rating
"One of the things that makes HealthPass work in New York is that community rating is mandatory for the small-employer market," said Pickering. In New York, community-rating laws mean that health plans must offer the same rates to all employers with fewer than 50 employees. New York is currently the only state in the country that has a pure community-rating requirement (meaning rates can't vary based on any factor), but 11 others require some form of community rating and two of those states have thriving exchanges, as well.¹

"Community rating means there's no reason for employers with sicker-than-average employees to flock to HealthPass," said Pickering, referring to what is commonly called "adverse selection" in the industry. "Employers can get the same rates and coverage themselves, regardless of the health of their employees. They would just have to do a lot more work to manage those benefits if they did it outside the exchange."

The Plan Perspective
Pickering says that health plans participating in the exchange approached it initially with a mix of interest and caution. They were interested in the exchange as a marketing vehicle to get new members, but cautious about what the claims experience might be. Since then, caution has given way to interest. The initial slate of 20 coverage options has grown to 30 and other major carriers have shown interest in participating. Pickering hasn't seen claims data for the HealthPass membership, but she notes that not a single plan has dropped out of its own accord.

"We're very pleased with our experience working with HealthPass," said Ilene Margolin, senior vice president for public affairs and communications at Emblem Health, one of the participating plans in the exchange. "The nice thing about enrollees that come to us through HealthPass is we know they had options but chose us. We look forward to being a partner with HealthPass in the years ahead."

While exchanges are still rare, HealthPass is not alone. Exchanges in Massachusetts and Connecticut are healthy and growing.

Connecticut Business and Industry Association's Health Connections
One of the nation's oldest exchanges is in Connecticut. Since 1995, the Connecticut Business and Industry Association (CBIA), a nonprofit 501(c)(6), has run its own exchange, CBIA Health Connections. In many ways, the CBIA exchange is similar to New York's HealthPass. Like HealthPass, Health Connections helps organize the market and provides employers with a central source of information about health benefits. The exchange also selects among participating plans and plays an active role in structuring benefits options.

The CBIA exchange enrolls roughly one-fifth of the small-employer market in Connecticut, about 75,000 people. It is operated as a for-profit subsidiary of its nonprofit parent, but like the New York exchange, its goal is not to maximize revenue.

"We established Health Connections to help bring some order to the market for health coverage in Connecticut and as a service to our members," said Phil Vogel, CBIA senior vice president and manager of the exchange. The recipe for success, according to Vogel, is choice without hassle—the same formula that works in New York. "We offer participants a choice of plans and a choice of budgets and we handle all the administrative functions for them. They basically are in charge of writing premium checks and telling us who is eligible. We do everything else."

The Connecticut exchange is roughly double the size of its New York counterpart. Size is important—a large and constantly growing pool of covered individuals is more likely to mirror the claims experience (i.e., the risk) of the population as a whole. That, in turn, makes it an attractive pool for an insurer to cover since it's easier to predict the cost of the pool's medical care in the future. To ensure that Health Connections keeps growing, the exchange works through brokers to recruit new employer groups. Connecticut's exchange is open to employers ranging in size from three to 100 employees.

CBIA Health Connections operates with a staff of around 30 employees, which includes sales, customer service, and information technology staff.

Massachusetts' Health Connector
Massachusetts—the only state in the nation where every resident is required by law to obtain health insurance—is home to an exchange of a very different sort. The Massachusetts Health Connector is an independent public entity that was created in 2006 as part of the legislation that made health insurance mandatory for state residents. The idea was straightforward: extend insurance to everyone in the state by requiring individuals to get coverage and set up an exchange to make it easier and more affordable for them to do so.

"We're essentially an electronic insurance store that makes it easy for people to shop for coverage," said Executive Director Jon Kingsdale. As an independent state agency, the Massachusetts Health Connector Authority is also responsible for a number of related, regulatory functions, such as: establishing minimum required benefits, setting penalties for individuals who fail to obtain coverage, managing an appeals process, processing subsidy payments, selecting participating plans, and negotiating rates.

The Connector offers two types of coverage, subsidized and unsubsidized. Commonwealth Care, the subsidized program, is for low-income residents. About 175,000 individuals are enrolled in this program, 70 percent of whom pay no premiums. The other 30 percent pay on a sliding scale. The exchange negotiates with participating plans to buy coverage for these individuals in roughly the same fashion in which a large employer might buy coverage for its employees.

The Connector's unsubsidized program, Commonwealth Choice, is the electronic insurance store Kingsdale referenced earlier. It is open to any state resident and covers about 25,000 people, almost all of whom are individual purchasers rather than employer groups. The Connector selects plans and determines benefits, but each plan sets its own rates, which must be the same whether an individual enrolls through the Connector or on their own through a broker.

The exchange is also taking some initial steps to promote quality. It required a plan new to the program to earn accreditation from an independent group before allowing it to participate in the exchange. It also highlights plans believed to be of high quality, based on performance scores in areas like immunizing children, care for people with diabetes and asthma, and self-management of blood pressure and cholesterol.

Support for the initiative is high and growing. Nearly 97 percent of state residents now have insurance. About three-quarters say they view the exchange positively; the same percentage of employers back the effort. One reason for the broad support is the exchange has held premium increases to about 5 percent annually.

Health Exchanges, Looking Forward
Though health exchanges feature prominently in the reform legislation, there is still no precise definition of exactly what an exchange is or should be. What is certain is that every state will be required to establish an exchange by 2014. Will Massachusetts' state-sponsored Health Connector be the model? Or should exchanges be separate from any regulatory authority? Other topics that require examination include changes needed to accommodate the individual market, the powers exchanges should have to control premium costs, determining which insurers would be allowed to participate, whether exchanges would supersede state law on issues such as required minimum benefits, and the inclusion of brokers' fees.

Look for state legislatures to debate these and other exchange-related issues over the next year or two. Regardless of how those debates play out, it's clear that the process of buying health coverage for small employers and individuals will change.

^{1 http://www.statehealthfacts.org/comparetable.jsp?cat=7&ind=351}

By Brian Schilling

Observing that the health care system is fragmented is a little like observing that it's too expensive: everybody already knows. But a fragmented system doesn't have to mean fragmented care. According to two experts interviewed by PHP, there are five key things employers can do to make sure employees get top-quality care, regardless of what the patchwork of health care vendors might look like. PHP talked to Jerry Burgess, CEO of Healthcare 21 (an employer-based nonprofit coalition and member of NBCH that works with various stakeholders to improve health care and health care purchasing), and Chris McSwain, director of Global Benefits at Whirlpool Corporation, to get their perspective on the challenge of integrating care from diverse teams of vendors. They offered these five key pieces of advice:

Get Everyone Together in One Room
At least once a year, both McSwain and Burgess recommend bringing hospitals, health plans, disease management firms, behavioral health suppliers, pharmacy managers, and other vendors together for a full day to make introductions, identify and discuss issues, set goals, and resolve problems. For a company like Whirlpool, which contracts with somewhere between 15 and 25 vendors to provide benefits, just making introductions can be valuable.

"It's a mistake to assume that your vendors are talking to each other or are even aware of how they're each serving the same population," said McSwain. "Bringing people together helps establish channels of communication that are essential when issues come up and for driving integration across vendors."

Those issues can range from relatively simple data transfer or referral questions to more thorny matters related to coordinating different treatment approaches or even ironing out revenue-sharing agreements.

"There's no shortage of things for people to talk about," says Burgess. "The point is not to solve every problem, but to get everyone together to start these conversations."

McSwain holds a health care summit for all Whirlpool health vendors once a year where—among other things—they talk about how to optimize the handling of mock patients. Burgess holds a similar annual event, but invites employers, physician representatives, and others to participate as well. For more about structuring such an event, read McSwain's paper on the subject (written while at a previous company) here.

Think of Your Vendors as a Supply Chain
Burgess cautions benefits managers against the dangers of getting overly comfortable with either vendors or brokers. And with more than 30 years of experience on both ends of the vendor/purchaser relationship, he's seen enough to know that getting too comfortable with the status quo is problematic.

"You need to think of your vendors as being part of a supply chain that ultimately delivers a service: health care," said Burgess. "Your job is to make that supply chain as strong and as efficient as possible. If you're contracting with an organization because their rep is fun to golf with, then you're doing something very wrong."

McSwain thinks in supply chain terms as well, but also cuts a distinction between what he refers to as vendors, suppliers, and partners. "Of course, we prefer to work with organizations that will help own problems when they arise. And even better—we like to see organizations working proactively to avoid problems and find new efficiencies. You can't get that with silo'ed vendors that don't talk to each other."

According to both McSwain and Burgess, the industry standard leaves a lot to be desired. "Most HR shops do not have supply chain management as a core competency and that's a miss—you need to be able to think about health care delivery as a process from beginning to end and look at all the steps in between to make sure the chain is being well managed, with special focus on all the points where employees actually receive care," said McSwain. "It's not just checking a box, yes, my employees have access to mental health care. It's, 'How does that care fit in with the rest of the chain to improve the health and productivity of our employees?'"

Measure, Measure, Measure
McSwain started last year's summit by saying, "Congratulations—how your organization performed last year got you into the room. What you do together will keep you in the room year after year." The clear message: Whirlpool will be measuring performance and integration between vendors. Those that don't measure up may not be asked back.

For some vendors—hospitals and health plans in particular—widely accepted processes already exist for measuring and comparing performance. Burgess recommends making sure any hospitals serving your employees participate in the Leapfrog Hospital Survey initiative, a measurement effort created by and for employers. For health plans, NBCH's eValue8 tool acts as a sort of clearinghouse for data from more than a dozen different sources, including accreditation information, performance data, satisfaction survey results, and more. These and other such tools allow employers to see not just how vendors are performing now, but to track progress over time.

"You want to see forward progress for all your suppliers every year," says Burgess. "And you want to be able to hold them accountable for what they're selling you."

Pay for Results
Both McSwain and Burgess are believers in the get more/pay more approach to compensating suppliers. Burgess advocates building performance bonuses into contracts up front so there's no ambiguity about what's expected and what the potential payoff might be for strong performance.

"We know that we're asking a lot of our vendors," said Burgess. "Quality improvement is a complicated process that costs money, so by setting up an meaningful incentive you're saying to the vendor that their investment in QI is worth it and it's worth something to you. That's the right message."

Whirlpool takes a similar approach, building operational and clinical performance targets and related bonuses into every contract. Going forward, the company plans to emphasize outcomes-based contracting whenever appropriate.

Think Long Term
Finally, both Burgess and McSwain emphasize the need to think long term with respect to managing vendors along the length of the health care supply chain.

"The notion of a benefits manager as someone who hands out candy is long gone," said Burgess. "You don't want a benefits manager to be warm and fuzzy, you want him or her to think like a business person whose job it is to manage the cost of the health benefit and to manage the risk of the covered population. You can't do that if your suppliers change every year."

Burgess is a believer in applying standard quality improvement processes (removing defects, reducing variability) over a long period to realize dramatically improved results. But the process takes time.

No process is too big or too small to warrant attention. "Every time something goes wrong, it's an opportunity to learn and do better next time," he says.

"At Whirlpool, we know successful relationships require hard work from all sides," says McSwain. "We challenge ourselves to help our partners find win-win outcomes. When this happens the biggest winners are our people, whom we consider our greatest asset."

While neither advocates for contracts with terms beyond a few years (three or less is a good guideline), both believe that stability among suppliers is crucial to getting good care and good value for the investment in health care.

Note: Jerry Burgess regularly leads seminars at the NBCH-supported College for Value Based Purchasing. Chris McSwain will be a featured speaker at NBCH's 2010 annual meeting in November. To view a calendar of upcoming NBCH meetings, visit our Web site .

By Brian Schilling

The next time an employee of Glatfelter paper company in Chillicothe, Ohio, needs to go to the doctor for a 30-minute visit to make sure she's responding well to a new medication, she can expect to be away from the office for about 38 minutes, including travel time. Glatfelter employees are among the 10 percent or so of American workers with access to an on-site health center. The full-service primary care health center is across the street from Glatfelter's production operations and its 1,400 employees. Convenience, however, is only one of several compelling reasons employees have to use it.

"I believe our employees get better care at the center than they can get out in the community," says Gregory Paradiso, Glatfelter's director of compensation, benefits, and health. Paradiso's confidence in the center is based on several factors. "First and most important," he says, "our doctors are salaried, so there's no incentive to overtreat patients or order tests that aren't necessary."

The clinic is managed independently by a vendor, Take Care Health, but Paradiso stays involved in setting priorities. The clinic gets a clear directive from Paradiso: provide high-quality care. To that end, the clinic makes sure that care isn't rushed. Physicians at the center are never scheduled to see more than three patients per hour. Even so, same-day appointments are always available.

Another key advantage of the center, according to Paradiso, is that because there are only two doctors on staff, employees will see a physician who knows them and can help them use available company resources. Those resources include two wellness coaches who also operate out of the center and the Glatfelter pharmacy, located next door.

Not every firm or every facility can support an on-site clinic. Expense and space are just two of the factors making on-site clinics a relatively rare perk in most U.S. workplaces. But, according to Paradiso and other experts, the barriers aren't as high as most people think and the return on investment can be substantial.

Size Matters
There are no widely accepted guidelines about what size facility can support an on-site clinic. Some vendors suggest that firms with as few as 300 employees at a single location may generate the patient volume necessary to make a center practical, but Paradiso suggests that 700 to 1,000 is a more realistic number and, even then, only if spouses and dependents are also eligible to use the facility.

The appropriate critical mass, though, depends on the type of clinic envisioned. The Glatfelter Family Medical Center is a full-service primary care facility offering everything from check-ups to radiology, lab work, mammograms, and a suite of wellness programs. It is staffed by two doctors, two pharmacists, one nurse practitioner, and 11 other full- or part-time staff and has an operating budget of about $5 million, which includes the cost of care and prescription drugs provided there.

Paradiso notes several ways to reduce start-up costs. "If you can't justify the cost of 'bricks and mortar,' leasing a custom-designed, pre-fab modular building is one way to significantly cut your necessary capital investment," he said. Another approach worth exploring, according to Paradiso, is collaborating with other area employers on a shared clinic. "If you're in a market where you're not getting real value for your health care dollars, you're probably not the only one."

Getting People to Use the Clinic
On-site health clinics are not a "build it and they will come" proposition, according to Paradiso. Significant marketing is needed to encourage employees to use the facility; building a successful clinic won't happen overnight.

To encourage Glatfelter employees to use the company facility, copays cost half as much in the clinic as they do in the broader community for the same services. In addition, employees that opt to select one of the staff doctors as their primary care physician (PCP) get an average $100 per-month discount on premiums. As a result, about 90 percent of employees at the Ohio location use the center and the majority have selected one of the center's two doctors as their PCP.

It took time and effort, however, to establish. "Giving employees financial incentives to use the facility is one thing, but building trust over time among our workers was equally, if not more, important," said Paradiso. "We took great pains to make sure there was an arm's length relationship between Glatfelter and the medical center. They don't report to us and we don't actively manage them. It's not the company doctor over there, it's just a good doctor that company employees and their families have access to." Little things matter, too. To help protect workers' privacy, the company designed the clinic so the entrance was not facing company buildings.

Spouses and dependents use the clinic, as well. "The more people that use it, the more effective it is and the more we save," said Paradiso, referring to an internal analysis showing that care delivered at the clinic is more effective and provided at a lower cost than the same care delivered in the community. "Every unit of care that takes place at the center is a win for the employer and a win for the employee. In fact, it's a win-win-win because it's a win for the doctor too. They get to practice medicine the way they were taught and don't have to worry about anything else."

How Much Does a Clinic Cost?
Start-up costs for a clinic range widely. For a lightly staffed in-house facility with limited hours, $30,000 or so might suffice, while a stand-alone facility with extended hours, such as Glatfelter's, might cost $1 million or more for the building, medical equipment, information technology, and other expenses. Annual operating costs are significant as well. The Glatfelter facility, which is larger than many, has an operating budget upwards of $5 million per year, which breaks down to $3.5 million for pharmacy costs, $1.5 million for medical costs, and an undisclosed amount for overhead and management fees. More typical operating costs might be in the range of $100,000 to $700,000.¹

Measuring Return on Investment
Though peer-reviewed studies on the subject are sparse, various in-house analyses show that on-site medical clinics are a good investment. A Pitney Bowes analysis from 2006 found that the cost per episode of care was $276 at an in-house clinic, compared with $645 for treating a similar patient in the community.² Paradiso explained that the savings result from replacing less effective, more expensive services in the community with in-house equivalents. "When the external market becomes inefficient, you ask, 'Can we in-source this better?' It's the classic 'build-or-buy' question that supply-chain and engineering professionals ask all the time. In my view, there can be a huge potential savings to in-sourcing some services, especially primary care."

Paradiso is not alone in thinking so. Another analysis of 15 employers' in-house clinics found an average return of $2.55 for every dollar spent to support an in-house clinic. Savings estimates do vary widely, depending on how they're calculated. When increased productivity and other factors are included, several employers found returns in excess of three-to-one. One even approached five-to-one. Only one employer could not substantiate a net savings and positive return on investment.³

An analysis of the Glatfelter Family Medical Center last year found a roughly two-to-one savings. "To purchase the equivalent medical services that the clinic provides for $2 million would cost us $4 million if purchased from doctors in the community," said Paradiso. "But that's just the hard (i.e., quantifiable) savings." Paradiso goes on to note that there are also significant savings in terms of increased productivity, better health, and greater employee retention—"soft" savings that are harder to quantify. But none of those soft savings need be relied upon to justify the investment in a clinic.

In discussions with other employers, Paradiso says that he often refers to establishing an in-house medical center as a "silver bullet" for dealing with rising health care costs, albeit one that might not be plausible for every employer. He attended the first national conference dedicated to in-house clinics in 2008 and recalled being optimistic that more and more employers would establish clinics. "Then the recession hit and capital expenditures of any kind were off the table," he said. "We're coming out of that now and I expect we'll see the trend revive because the cost of health care has not and will not be going down."

Managing Dow Chemical's corporate wellness and productivity management programs means coordinating activities for 40,000 employees across dozens of countries. But Dow is pushing ahead nonetheless with an aggressive effort to improve employee health, curb unhealthy behaviors, and increase productivity. And it's working. Here, Dow's Global Health Promotion Leader Dena Pflieger talks about the company's efforts.

PHP: Draw a distinction between corporate wellness and productivity management.

DP: I think both terms are a little limited because they're both workforce oriented. We like to think in terms of a broad health strategy rather than whatever term is in vogue. If you're trying to influence your workforce, you need to remember that they've got a lot of influences off the job that are equal to and perhaps more powerful than anything that we can do at the workplace. It's critical to look to the community to see what sort of change or impact you might have there as well. And don't forget about families, either. In many cases, certainly here in the U.S., family members, not employees, represent the larger share of health care costs.

PHP: What are the major elements of Dow's health care strategy?

DP: We focus on four key areas where we think we can make a difference:

• Preventive health. This encompasses things like weight management programs, health screenings, and tobacco cessation. These are the "no-brainer" programs. The payback is so obvious and substantial, which is why lots of companies do them. Think about it: if you've got an employee who uses tobacco and you're not helping him quit, you're passing up an opportunity to enable him to lead a healthier lifestyle, as well as improve the company's overall medical spend. It's important not to wait until someone presents with a health claim or condition before providing him or her support.
• Quality and effectiveness. We don't like to think of Dow as being just a payer, but an active partner in the health care system. Dow won't ever get sick and need surgery, but if one of our employees does, we want to do more than just pay for it. We want to help him get the most appropriate, effective care available. So we take on responsibility to help the system get better. To make sure it does, we share quality data with our employees to help steer them and their families to the best care. It also gives providers an incentive to improve and may help them rationalize related investments.
• Health care system management. Dow wants to support doctors and hospitals in their efforts to adopt more intelligent health information technology (IT) systems. Some of the biggest problems in health care today are what I think of as being very fixable, if we had better management systems in place. We actually build requirements into most of our contracts that health systems and providers move in the right direction in this regard.
• Advocacy. Finally, we're very active in terms of trying to influence public policy and to help improve the health of communities. We work with key health-related organizations at state, national, and global levels to support legislative changes that support prevention by, for example, lowering barriers to care or eliminating copayments. We also support legislation that encourages employers to play a positive role in health promotion and invest in quality initiatives.

PHP: Dow has facilities, large and small, all over the world. At what size facility can you be active in terms of health promotion?

DP: We're active even where we have one employee. It's a company requirement that every employee has access to health promotion services. For instance, we might have a single staffer working from a virtual office in South America or Iowa. Someone on our staff is responsible for making sure that that employee can receive information that's relevant for her and that she has access to services like preventive health programs or screenings. We reach employees where they are.

PHP: Talk to me about something that really works.

DP: Having a comprehensive strategy and a culture of health. The reality is that it's not any single resource, policy, or initiative that works. It's the combination of efforts and a long-term, strategic, and well-integrated program that adds the greatest value. It's making sure that you are addressing individual as well as cultural needs—at the worksite and in the community.

In terms of an activity that works and that can easily be replicated elsewhere, we have a few "Dow Health Days" throughout the year that focus on a specific issue. For instance, Dow No-Tobacco Day, Walk at Dow Day, and Dow Preventive Care Day. The great thing about these one-day observances is that they create a spark globally, are low cost, and can be easily localized. Participation and energy are very high. It's a great way for employees—especially more remote ones—to feel connected back to the bigger corporate family and have some fun and develop camaraderie with their coworkers. Feedback is universally positive.

We also have one 44-day program every year that focuses on either promoting physical activity, weight management, or building resiliency to stressors. It's called "The 12 Percent Solution" because 44 days is 12 percent of one year. The concept is that we do fairly intensive outreach to participating employees during those 44 days to get them to start to adopt healthy behaviors and find success. For our recent weight program, more than 5,000 people registered. While it isn't an end-all, it's a great way to get started.

Both the 12 Percent programs and the Dow Health Days are beneficial because they spark interest and change at both an individual and cultural level. They also feed very well into other resources or benefits and more substantial behavior change services like personal and group counseling and peer-support groups. So, these work in playing a special role in the larger strategy, but they can't succeed as one-off programs. For smaller companies, these types of activities can be a good place to start, as long as they don't stop there.

PHP: Does Dow target employees for help with particular issues?

DP: We have an intranet site for employees and an internet page for their families and retirees to tap into resources on a variety of topics. We also work with our health plan to do targeted outreach. A few examples of this are disease management and case management programs.

Our most valuable opportunity to target the unique needs of employees is through our Health Assessment Program. It starts right from the beginning. New employees do a health risk assessment, followed by counseling and referral as appropriate. We help employees set goals and match them with resources and then follow up. Participation in the Health Assessment Program continues throughout an employee's career at Dow, so we can regularly support their specific needs. As a result, our staff can get to know specific employees and reach out to people to say, "Hey, I know you've been trying to quit smoking. Dow No Tobacco Day is coming up, why don't you use that as a starting point?" It's all about connecting the pieces.

PHP: How do you measure return on investment (ROI)?

DP: We don't do formal ROI. We do track the costs of our program and know that the projected savings exceed the costs, but that's not the point. The big issues for us are improved health, customer satisfaction, and health care costs. We're moving in the right direction on all three fronts, especially in the area of improved health. We have very aggressive targets in areas like glucose control, body mass index, physical activity, tobacco cessation, blood pressure control, and so on. Our 10-year targets are for 10 percentage point improvements in each area for both high and low risk.

PHP: Did I hear that right? 10 percentage points? Not 10 percent?

DP: That's right: 10 percentage points. We believe in audacious goals and ones that will deliver measurable value to the company. For example, about 20 percent of Dow employees smoked in 2004. We're committed to getting that number down to 10 percent by year 10.

PHP: How are you doing so far?

DP: We're getting there. The decline to date has been 23 percent among tobacco users since 2004, which is terrific. For many of the other issues we're on track toward goal. Weight is another tough issue to make progress on, but we're moving the dial there, too. We're making progress and moving in the right direction while the rest of the country is moving in the opposite direction, so it's a little like swimming upstream, but we feel good about our progress to date.

PHP: I understand that a portion of your compensation is tied to those audacious goals you talked about. Do you think that's a good model for others in your field?

DP: Yes, a portion of our Health Services staff's performance award is linked to achieving those health risk reduction targets for the population over which we have responsibility. There are also some specific goals and outcomes that align with that target. The criteria are very specific and they should be.

Aligning the performance award with the population for which you're responsible makes a lot of sense. For our site staff, it's the people they "touch" with their consultations and deliverables so it gives them a chance to connect their day-to-day work more closely with the big-picture goal.

We regularly debate the value, scope, and fairness of the incentive process internally and tweak it as needed, but overall we're very happy with it. I think it's helped us realize some tangible improvements in how we plan and implement and in our ability to make an impact on employee health.

PHP: How does Dow work to advance the health of the communities in which it operates?

DP: There are a lot of different pieces to that puzzle. Sometimes it means working with other employers to coordinate initiatives with health plans or hospitals. It might also mean arranging for a seminar for local physicians about improving medication adherence. Right now, in central Michigan we're working as part of a community health collaborative to encourage media, employers, providers, schools, and community organizations to reach out directly to consumers to encourage them to ask questions when they go to the doctor. It sounds like a small thing, but it's a real issue. People go to the doctor and aren't prepared or confident to ask appropriate questions, even though they ask questions everywhere else. The written materials are available for free from the Agency for Healthcare Research and Quality.

PHP: Dow is a big company. Do you think a small organization can have a robust and effective health promotion strategy?

DP: It actually might be easier. You could probably make things happen faster. I've seen this in our smaller sites. They can have more success creating a culture that emphasizes health because people know each other and create a kind of social pressure that is hard to make happen among a group of 40,000 employees spread over several countries. I'd also recommend to small employers that they check out what's available from many of the national health organizations. For example, the Centers for Disease Control has done a great job of reviewing what works and providing recommendations on where to invest worksite health promotion dollars.

PHP: What's changed since you started 10 years ago?

DP: I think what's changed at Dow—and maybe industry-wide—is that wellness and productivity management are becoming more evidence- and value-based, as opposed to instinct-based. And that's a good thing. Back when we started, we might do things because they sounded fun. Our programs were called "Up with Life!" Now we report to the directors of the board; have a comprehensive, global strategy; and measure outcomes. We're challenged to think strategically and be just as cost-effective as any other division of the company and, as a result, I think we've had more success keeping people healthy.

Notable Numbers

• $2.5 trillion: total amount spent on U.S. health care in 2009. That's $8,047 per person and 17.3 percent of the entire economy.¹
• $1,666: average cost of a single day in the hospital.²
• 17%: percentage of employers that offered health benefits to Medicare-eligible retirees in 2009.³ Percentage that offered such benefits in 1997: 28%. Percentage that offered such benefits in 1993: 40%.⁴
• 66%: percentage of traditional plan participants who were extremely or very satisfied with their plan. Percentage of high-deductible health plan enrollees who were extremely or very satisfied: 40%.⁵ 
• $13,700: average cost of family coverage for a worker in a minimum wage position. That worker's average annual salary: $14,500.⁶
• 50%: percentage of U.S. doctors who say they spend substantial time dealing with restrictions insurance companies place on their patients' care.⁷
• 46%: percentage of U.S. doctors who use electronic medical records. Percentage of doctors in the Netherlands who do: 99%. ⁸
• 1st: rank of Vermont in terms of health care quality among U.S. states. 50th: Oklahoma's rank among the U.S. states.⁹ (To view quality results for your state, use The Commonwealth Fund's interactive State Scorecard).
• 3rd: rank of "preventable medical errors" on the list of leading causes of death in the U.S.¹⁰ Number of deaths annually attributable to medical errors: nearly 200,000.
• 20%: percentage of Americans who smoke.¹¹ Percentage who smoked in 1944: 41%.¹²
• 34%: percentage of obese Americans today.¹³ Percentage who were obese in the 1970s: about 16%.¹⁴