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In Focus: Taking a Fresh Look at Employee Health

Summary: During the current economic recession, employers may be willing to try new techniques to improve the quality and efficiency of care employees receive under their health benefit plans—especially if they have the potential to lower insurance premiums. This article looks at tools such as tiered networks and employee financial incentives that may improve health care quality while lowering costs.

By Sarah Klein

Until recently, the main weapons available to employers who wanted to control rising health care costs have been tools that shift costs to employees and wellness programs that help employees take better care of their health.

The cost-shifting approach, which includes the use of higher copayments and deductibles to encourage employees to consider the cost of prescription drugs and medical services, may encourage employees to spend less—but not necessarily spend more wisely. Unless they have reliable information to distinguish between high- and low-value services, they may be discouraged from spending on needed care as well as unnecessary services. That could lead to higher medical costs in the long run, as their untreated conditions progress into more serious illnesses.

Wellness programs, which typically combine employee health assessments with disease management interventions tailored to identified health risks, signal to employees the importance of prevention and screening. The disease management portion of these programs has proven more useful in increasing the rate at which providers adhere to recommended clinical guidelines (such as screening diabetics for blood glucose control). They also appear to improve measures of disease control, suggesting that employees are receiving more appropriate care for some chronic conditions. [1] But their financial value to employers remains to be seen. One recent study suggested that it would be hard to recoup the cost of such programs with a working-age population in a short time frame, because there would be few opportunities to prevent the high-cost admissions and emergency department visits that drive such savings. [2] Return on investment may take as long as four years, longer than most employers are willing to wait.

"What employers are saying is, 'We want to know we are going to have an impact based upon what we are spending within the next nine months—or we can't do it,'" says Cyndy Nayer, president of the St. Louis, Mo.–based Center for Health Value Innovation, which promotes value-based benefit design programs. She hears that sentiment from executives in all industries, and from businesses both small and large.

Limited Success to Date
Companies that narrowly and aggressively target wellness programs to specific high-risk conditions such as cardiovascular disease and diabetes have achieved modest reductions in health care costs. A program designed for the Minnesota-based employees of BAE Systems Inc., a defense and aerospace firm, combined risk assessments for chronic diseases such as diabetes and heart disease with online and telephonic health coaching. It led to an annual 3.3 percent reduction in medical costs over three years, about half of which was attributable to lower-than-expected hospital admissions. The savings on medical costs represented a 2:1-to-3:1 return on investment. [3]

But finding other tools to improve quality or increase efficiency has been challenging for many employers. "We've had a relatively short list for quite a while," says Helen Darling, president of the Washington, D.C.–based National Business Group on Health, which represents large employers on health policy issues. Among those are benefit designs using high-deductible plans and tiering for drug classes to encourage the use of generics.

"We have already picked the low-hanging fruit, which is diabetes," adds Paul Fronstin, senior research associate for the Washington, D.C.–based Employee Benefit Research Institute.

New Approaches to Benefits
In an effort to identify other options, Quality Matters asked researchers, employer groups, and businesses what employers could do to control costs and improve the value of health benefits. Here are some of their suggestions.

1. Employers can drive health system efficiency by developing and promoting information about the value of services offered by providers and then combining this with financial incentives that encourage employees to use those services that are of higher value. Self-insured employers can do this by using networks of providers, including both physicians and hospitals, which are segmented, or "tiered," according to their performance on quality measures. (This issue's Case Study, on Maine's Employee Health & Benefits program, presents such an example from the public sector.)

The health benefits plans of Gulfstream Aerospace Corp., a Savannah, Ga.–based subsidiary of General Dynamics, presents another example of physician tiering. The company designated local primary care physicians as "distinguished quality physicians" if they met evidence-based care standards for diabetes and women's health. [4] Another criterion to qualify for this designation was to maximize the prescribing of generic drugs, such that generics are prescribed to patients at least 50 percent of the time. Physicians who met these standards and others would receive a bonus equivalent to 20 percent of office visit charges billed that year for Gulfstream employees and their dependents.

In the tiering program's first year, only 10 percent of local primary care physicians qualified for designation, and the company paid a mere $18,000 in bonuses. But by 2007 (three years after the program started), 44 percent of local primary care physicians qualified, and the bonuses reached roughly $250,000. Robert Holben, Gulfstream's director of compensation and benefits, said, as of 2006, the program produced a 21 percent decrease in the average medical costs of diabetic employees covered by the plan.

To encourage employees to seek recommended care and thus help physicians receive the designation, the company promised to lower office visit copayments from $15 to $10 if their providers qualified for the designation. For example, for women over the age of 40, that might mean getting a mammogram once a year. The company's health program also includes features such as smoking cessation and fitness classes. The program has broad support from Gulfstream's management, which made no cuts to the program this year despite a companywide cost-cutting effort.

2. Employers may have a dramatic impact on cost and efficiency by rewarding providers for delivering care that does not include high rates of potentially avoidable complications. Algorithms designed to detect those rates are available free of charge from Washington, D.C.–based Prometheus Payment Inc., a nonprofit devoted to creating new models of payment for health care. They enable employers to determine whether the care provided by a particular provider to treat chronic and acute conditions included potentially avoidable complications. [5] For diabetics, such potentially avoidable complications might include hospitalization or an amputation. The rate of these incidents can be used as a proxy to evaluate the quality of care.

Many employers would be surprised by what such data analysis reveals, says Francois de Brantes, national coordinator for Prometheus Payment. "People are going to the emergency department when they have benign hypertension because their blood pressure isn't monitored consistently. Things like that happen every single day of every single month. Those are avoidable complications," he says. "Until you understand that, and you understand how much money you are sucking out of your coffers and into avoidable costs, you are fiddling at the edges."

de Brantes estimates that 30 percent of fee-for-service payments for acute myocardial infarction and 60 percent of fee-for-service payments for diabetes are for such complications. [6] The Prometheus tool can be used to evaluate providers or how well insurers manage those providers. "Once employers grab on to this they are not going to let it go," he predicts.

3. Several sources also suggested that employers think more broadly about health, to identify the ways in which their companies' products advance—or inhibit—public health. Food processors, in particular, may need to think about the long-term impact their products may have on the public. Corporate leaders must also promote healthy lifestyles, if they want employees to change their eating and exercise habits. "It's cultural. It's not programmatic," says Paul Keckley, executive director of the Deloitte Center for Health Solutions, which has been studying consumer attitudes toward health. "There's an unspoken expectation that people don't smoke, that people are going to walk at noon, or they are going to work out on weekends. They talk about being at the gym and it doesn't reflect some discount someone got for them," he says. "It's part of the culture that says if you pile up a lot of French fries on your plate in the cafeteria, this company is going to look at you cross-eyed."

4. Some employers believe financial incentives to encourage healthy behavior by employees will help, too. Safeway Inc., a nationwide grocery chain based in California, has been offering employees a discount on insurance premiums if they maintain a body mass index of 30 or less, do not smoke, and keep their blood pressure at less than 140 systolic/90 diastolic with or without medication. To qualify for the discount, employees also must keep their cholesterol levels within certain guidelines if they have two or more of the following risk factors: they are a man over the age of 45 or a woman over the age of 55; they smoke; they have hypertension; or they have a family history of premature coronary heart disease, including heart attacks or strokes. [7] The insurance rebate for each of these criteria is calculated separately, but if an employee and his or her spouse both meet all four measures of the voluntary program, they would save $1,560 per year on an annual premium of $4,628.

To encourage healthier behavior, the company allows employees who don't meet some or all of the measures but who demonstrate improvement over the year to recoup the relevant portion of the insurance rebate. The employee's physician can request a waiver or an alternate standard to the program.

Safeway management believes that 70 percent of all health care costs are driven by behavior, and that obesity is a significant driver of these costs. "If we can't get our arms around that, we don't have a chance of reducing health care costs," says Kenneth Shachmut, Safeway's senior vice president of strategic initiatives, health initiatives, and health reengineering.

Incentives to Move Ahead
In addition to saving employers money, insurance benefits that are tied to quality measures may prove to be more popular with employees than past approaches.

Employers can tell employees, "This time around we are going to give you confidence that this isn't a provider network that was just willing to sign because they had cheap rates. No, this is a provider network that has demonstrated that they were providing high-quality, efficient care and can manage chronic disease better," says Andrew Webber, president and CEO of the National Business Coalition on Health, an association of employer-led health coalitions.


[1.] S. Mattke, M. Seid, and S. Ma, Evidence for the Effect of Disease Management: Is $1 Billion a Year a Good Investment? American Journal of Managed Care, 2007, 13(12): 670–676.

[2.] S. Mattke, S. A. Serxner, S. L. Zakowski et al., Impact of 2 Employer-Sponsored Population Health Management Programs on Medical Care Cost and Utilization, American Journal of Managed Care, 2009, 15(2): 113–120.

[3.] D. McCarthy, K. Mueller, and I. Tillmann, HealthPartners: Consumer-Focused Mission and Collaborative Approach Support Ambitious Performance Improvement Agenda, The Commonwealth Fund, forthcoming; N. M. Thygeson, J. Gallagher, K. Cross et al., Employee Health at BAE Systems: An Employer-Health Plan Partnership Approach, ACSM's Worksite Health Handbook, Second Edition. A Guide to Building Healthy and Productive Companies, N. P. Pronk, ed. (Champaign, Ill.: Human Kinetics, 2009; Chapter 36). T. E. Kottke and N. P. Pronk, Taking on the Social Determinants of Health: A Framework for Action, Minnesota Medicine, Feb. 2009.

[4.] To qualify, physicians must demonstrate that they follow best practices for at least 70 percent of the patients for whom such standards would apply. As the program achieved its goals for diabetes and women's health, it dropped some of those items to measure screening for prostrate cancer and use of statins.

[5.] Prometheus Payment has developed payments models for congestive heart failure, diabetes, acute myocardial infarction, as well as knee and hip replacements, among others.

[6.] F. de Brantes and A. Rastogi, Evidence-Informed Case Rates: Paying for Safer, More Reliable Care, The Commonwealth Fund, June 2008.

[7]. Cholesterol levels must be within the following guidelines: high-density lipoprotein (HDL) above 40 mg/dl, low-density lipoprotein (LDL) less than 130 mg/dl, and triglyceride levels less than 200 mg/dl. An employee would be deemed to have a family history of premature coronary heart disease (CHD) if he (or she) has a male relative from his (or her) immediate family who developed CHD before the age of 55, or a female relative from his (or her) immediate family who developed CHD before the age of 65.

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